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Innovation/Global Crisis Blog

“If Money Doesn’t Make You Happy, You Aren’t Spending It Right!”

By Shlomo Maital

    What is happiness?  And are there simple things we all can do that would indeed make the coming year happier?  Innovation applies not just to gadgets, but also to the way we live.

     I found some answers in an empirical study, still unpublished,  by three psychologists: Elizabeth W. Dunn (U. of British Columbia), Daniel T. Gilbert (Harvard Univ.) and Timothy D. Wilson (Univ. of Virginia).

      “The relationship between money and happiness is surprisingly weak,” they note.  Their provocative title conveys their main finding: “If money doesn’t make you happy, then you probably aren’t spending it right”.   The authors offer  rules for increased happiness, based on a survey of a large literature on the link between how we spend our money and how happy we are.   Here are a few.  

1.  Help others instead of yourself.  Research shows the quality of our social relationships is a strong determinant of our happiness.  Those who devote more money to ‘prosocial’ spending (for others) were happier, other things equal. 

2. Pay now and consume later.  There has been a huge shift in societies everywhere toward immediate enjoyment and delayed payment.  The result is to rack up debts, while eliminating the pleasure of anticipation – saving up for something while imagining all the while how much we will enjoy it.  Re-learning to defer gratification, as untold generations did before the age of the credit card, can greatly improve happiness.   Living by values rather than by impulse is largely about deferred gratification.  

3. Think about how you want to live, rather than what you want to buy.  The authors note that “consumers who expect a single purchase to have a lasting impact on their happiness might make more realistic predictions if they simply thought about a typical day in their life.”  I often think about people who buy expensive cars.  They lose fortunes as their cars depreciate, but do they really gain vast pleasure in driving it from A to B compared to those who drive a clunker? 

4. Buy experiences instead of  things.  “People are often happier,” note the authors, “when they spend their money on experiences rather than on things.” An experience is an event you live through, while a good is a tangible object you keep. A sample of over a thousand Americans showed that for every three respondents who reported greater happiness from buying things, five said they derived more happiness from buying experiences.  And, of course, some experiences – like a walk on the beach at sunset – are free.  You cannot make a 36-inch LED TV by yourself. But you can create an experience, like visiting a sick or lonely friend, or playing with a grandchild, without putting your hand into your pocket.

5.  Have many small pleasures instead of a few big ones.  “Happiness is more strongly associated with the frequency…of people’s positive affective experiences,” say the authors, “than with the intensity of those experiences”.  Try more double lattés and warm croissants, instead of dream vacations and front-row concert tickets.  A happiness score of ‘7’  six times a day beats a happiness score of ‘10’ once a month.    

    Dickens famously defined happiness as a ratio between what we earn and what we spend.  Happiness is earning more than you spend; misery is the opposite.  It turns out, the Dickensian prescription needs a codicil.  How you spend is equally vital. 


Blog entries written by Prof. Shlomo Maital

Shlomo Maital
September 2011