8 Ways That Money Can Buy Happiness

Asked which of the two purchases made them happier, fully 57% of respondents reported that they had derived greater happiness from their experiential purchase, while only 34% reported greater happiness from their material purchase. Source: “If Money Doesn’t Make You Happy Then You Probably Aren’t Spending It Right” from Journal of Consumer Psychology

Dunn, Aknin, and Norton (2008) asked a nationally representative sample of Americans to rate their happiness and to report how much money they spent in a typical month on (1) bills and expenses, (2) gifts for themselves, (3) gifts for others, and (4) donations to charity. The first two categories were summed to create a personal spending composite, and the latter two categories were summed to create a prosocial spending composite. Although personal spending was unrelated to happiness, people who devoted more money to prosocial spending were happier, even after controlling for their income.

Researchers approached individuals on the University of British Columbia (UBC) campus, handed them a $5 or $20 bill, and then randomly assigned them to spend the money on themselves or on others by the end of the day. When participants were contacted that evening, individuals who had been assigned to spend their windfall on others were happier than those who had been assigned to spend the money on themselves.

The benefits of prosocial spending appear to be cross- cultural. Over 600 students attending universities in Canada and in the East African nation of Uganda were randomly assigned to reflect on a time they had spent money on themselves or on others (Aknin et al., 2010). Participants felt significantly happier when they reflected on a time they had spent money on others, and this effect emerged consistently across these vastly different cultural contexts—even though the specific ways in which participants spent their money varied dramatically between cultures.

Indeed, across many different domains, happiness is more strongly associated with the frequency than the intensity of people’s positive affective experiences (Diener, Sandvik, & Pavot, 1991). For example, no one finds it surprising that people who have sex are happier than people who don’t (Blanchflower & Oswald, 2004), but some do find it surprising that the optimal number of sexual partners to have in a twelve-month period is one. Why would people who have one partner be happier than people who have many? One reason is that multiple partners are occasionally thrilling, but regular partners are regularly enjoyable. A bi-weekly ride on a merry-go-round may be better than an annual ride on a roller coaster.

One reason why small frequent pleasures beat infrequent large ones is that we are less likely to adapt to the former. The more easily people can understand and explain an event, the quicker they adapt to it (Wilson & Gilbert, 2008), and thus anything that makes a pleasurable event more difficult to understand and explain will delay adaptation. These variables include novelty (we’ve never experienced the event before), surprise (we didn’t expect it to happen), uncertainty (we’re not entirely sure what the event is), and variability (the event keeps changing). Each of these variables makes an event harder to understand and as a result we pay more attention to it and adapt more slowly.

With price tags reaching as high as 50% of a product’s original cost, extended warranties sold by retailers and manufacturers provide huge benefits to the seller and are widely acknowledged to be bad bets for the buyer (Berner, 2004; Chen, Kalra, & Sun, 2009).

But there is a second reason why consume now, pay later is a bad idea: it eliminates anticipation, and anticipation is a source of free happiness. The person who buys a cookie and eats it right away may get X units of pleasure from it, but the person who saves the cookie until later gets X units of pleasure when it is eventually eaten plus all the additional pleasure of looking forward to the event. Research shows that people can reap substantial enjoyment from anticipating an upcoming event even if the event itself is not entirely enjoyable. Examining three different vacations ranging from a trip to Europe to a bicycle trip through California, Mitchell et al (1997) found that people viewed the vacation in a more positive light before the experience than during the experience, suggesting that anticipation may sometimes provide more pleasure than consumption simply because it is unsullied by reality. Not surprisingly, then, people who devote time to anticipating enjoyable experiences report being happier in general (Bryant, 2003).

Thus, in thinking about how to spend our money, it is worthwhile to consider how purchases will affect the ways in which we spend our time. For example, consider the choice between a small, well-kept cottage and a larger ―fixer upper‖ that have similar prices. The bigger home may seem like a better deal, but if the fixer upper requires trading Saturday afternoons with friends for Saturday afternoons with plumbers, it may not be such a good deal after all.

From this perspective, comparison shopping may focus consumers’ attention on differences between available options, leading them to overestimate the hedonic impact of selecting a more versus less desirable option. To the extent that the process of comparison shopping focuses attention on hedonically irrelevant attributes, comparison shopping may even lead people to choose a less desirable option over a more desirable option.

Research suggests that the best way to predict how much we will enjoy an experience is to see how much someone else enjoyed it. In one study, Gilbert, Killingsworth, Eyre, and Wilson (2009) asked women to predict how much they would enjoy a speed date with a particular man. Some of the women were shown the man’s photograph and autobiography, while others were shown only a rating of how much a previous women had enjoyed a speed date with the same man a few minutes earlier. Although the vast majority of the participants expected that those who were shown the photograph and autobiography would make more accurate predictions than those who were shown the rating, precisely the opposite was the case. Indeed, relative to seeing the photograph and autobiography, seeing the rating reduced inaccuracy by about 50%.