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Happiness: A buyer’s guide

Money can improve your life, but not in the ways you think

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By Drake Bennett
August 23, 2009

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Can money buy happiness? Since the invention of money, or nearly enough, people have been telling one another that it can’t. Philosophers and gurus, holy books and self-help manuals have all warned of the futility of equating material gain with true well-being.

Modern research generally backs them up. Psychologists and economists have found that while money does matter to your sense of happiness, it doesn’t matter that much. Beyond the point at which people have enough to comfortably feed, clothe, and house themselves, having more money - even a lot more money - makes them only a little bit happier. So there’s quantitative proof for the preachings of St. Francis and the wisdom of the Buddha. Bad news for hard-charging bankers; good news for struggling musicians.

But starting to emerge now is a different answer to that age-old question. A few researchers are looking again at whether happiness can be bought, and they are discovering that quite possibly it can - it’s just that some strategies are a lot better than others. Taking a friend to lunch, it turns out, makes us happier than buying a new outfit. Splurging on a vacation makes us happy in a way that splurging on a car may not.

“Just because money doesn’t buy happiness doesn’t mean money cannot buy happiness,” says Elizabeth Dunn, a social psychologist and assistant professor at the University of British Columbia. “People just might be using it wrong.”

Dunn and others are beginning to offer an intriguing explanation for the poor wealth-to-happiness exchange rate: The problem isn’t money, it’s us. For deep-seated psychological reasons, when it comes to spending money, we tend to value goods over experiences, ourselves over others, things over people. When it comes to happiness, none of these decisions are right: The spending that make us happy, it turns out, is often spending where the money vanishes and leaves something ineffable in its place.

Any attempt to put these findings into practice, however, has to contend with the subtle but powerful ways money itself channels our thinking, and the ways it plays on human attitudes about sharing and scarcity. Recent studies have suggested that merely thinking about money makes us more solitary and selfish, and steers us away from the spending that promises to make us happiest.

Figuring out how to clear this hurdle has implications for our daily budget decisions and our investments, and for how organizations from resorts to charities do business. Money is inseparable from our existence in society - we work for money, live on money, and hoard it and spend it for a tangled mix of reasons. As psychologists unpack these insights, their work offers a powerful new way to think about this complex and poorly understood relationship. And it gives us a chance to use our spending money, however much it may be, as a vehicle to a more fulfilling life rather than just a better accessorized one.

Despite millennia of folk wisdom on the topic, it wasn’t until a decade ago that researchers started to take a hard look at whether money really does have anything to do with happiness. In the late 1990s, a psychologist named Martin Seligman founded the field of positive psychology, driven by the idea that psychologists had as much of a duty to figure out what made people happy as to study their problems. At the same time, a few economists were starting to borrow the tools of psychology to challenge some of the assumptions that their field had long held about human behavior - that people were rational calculators of cost and benefit, for example, and that looking at how people spent money could be a reliable indicator of their deeper desires.

Positive psychologists and so-called behavioral economists both turned their attention to the money-happiness nexus. Mapping financial statistics against people’s self-reported happiness, the researchers sifted data from rich nations and poor nations, from people up and down the economic ladder, and from individuals as their economic fortunes improved or deteriorated. The connection between wealth and happiness, they found, was pretty weak.

“It’s not a zero correlation, even at higher income levels, but it’s not a very big correlation,” says Sonja Lyubomirsky, a psychology professor at the University of California at Riverside and a leading happiness researcher. Money, she says, “matters less than we think it would.”

But what if that wasn’t the whole story? Dunn, of the University of British Columbia, remembers wondering a couple years ago whether money and happiness were necessarily so disconnected. Partly, she was inspired by a change in her own circumstances: She had just gotten hired as an assistant professor, her salary suddenly jumping from a post-doctoral researcher’s $20,000 stipend to about four times that much. She found it hard to believe that there was nothing she could do with some of that new money to make herself happier.

What if, for example, she spent it not on a new flat-screen television or sectional sofa, but on other people? One of the most consistent findings of the happiness literature is that having a strong social network is an excellent predictor of happiness, and it seemed plausible that you could use money to buy happiness that way. She teamed up with Michael Norton, a psychologist and assistant professor at Harvard Business School, and the two embarked on a series of experiments to test whether spending money on others actually makes us happier than spending it on ourselves.

First, they surveyed 632 Americans on their general happiness, along with what they spent their money on, and found that higher “prosocial spending” - gifts for others and donations to charity - was indeed correlated with higher self-reported happiness. They followed this up with a more detailed look at 16 workers before and after they received a profit-sharing bonus from their company. They found that the only factor that reliably predicted which workers would be happy six to eight weeks after the bonus was their prosocial spending - the more money people spent on charity and gifts for others, the happier they were.

But was the happiness caused by giving money away, or were charitable people simply happier to start with? To show a causative link, they then performed an experiment in which volunteer test subjects were given a small windfall of $5 to $20. Some of the subjects, chosen at random, were told to spend it on a bill, an expense, or a gift for themselves. The others were told to buy a gift for someone else or make a charitable donation. Afterwards, the second group - the ones who had given the money away - reported being significantly happier than those who had spent the money on their own needs.

Dunn and Norton published their results in the journal Science in March 2008. The lesson of their study, says Dunn, is clear. Money makes you most happy if you don’t spend it on yourself.

“By that I do not mean give all your money away and live in a shack,” she says. “I just mean think about increasing it slightly. Just reallocating as little as $5 on a given day can make a difference in happiness.”

Another theme that has emerged in similar research is that money spent on experiences - vacations or theater tickets or meals out - makes you happier than money spent on material goods. Leaf Van Boven, an associate psychology professor at the University of Colorado, and Thomas Gilovich, chair of the psychology department at Cornell University, have run surveys asking people about past purchases and how happy they made them.

“We generally found very consistent evidence that experiences made people happier than material possessions they had invested in,” says Van Boven.

Why? For one thing, Van Boven and Gilovich argue, experiences are inherently more social - when we vacation or eat out or go to the movies it’s usually with other people, and we’re liable also to relive the experience when we see those people again. And past experiences can work as a sort of social adhesive even with people who didn’t participate with us, providing stories and conversational fodder in a way that a new watch or speedboat rarely can.

In addition, other work by Van Boven suggests that experiences don’t usually trigger the same sort of pernicious comparisons that material possessions do. We like our car less whenever we catch a glimpse of our neighbor’s newer, nicer car, but we don’t like our honeymoon any less because our neighbor went on a fancier one.

And while we quickly grow accustomed to a new suit or a bigger house, no matter how much we originally loved it, experiences instead tend to get burnished in our memory - a year after a vacation, we look back not on the stress of dealing with lost luggage or the fights over which way the hotel was, but the beauty of the scenery or the exotic flavors of the food.

Why, then, don’t we already spend more of our money this way? Of course, people do give to charity and go on vacations and treat their friends to the occasional dinner. But if the goal is to buy happiness, we still spend more on stuff and on ourselves than we should.

Part of the problem is that happiness isn’t necessarily what’s motivating us when we reach for our wallets. Much of the impetus for discretionary spending - even for seeming essentials like cars, houses, and clothes - comes from a desire to send certain signals about our buying power and our tastes. We might mistake that motivation for happiness, or for having a better life, but it’s driven by something else, a human need to compete or to fit in. And $5,000 worth of new stuff, or even $500,000 worth, is unlikely to permanently quell that need.

Even if we learn to recognize that impulse for what it is, however, money has a psychological power of its own. It seems that simply thinking about money makes us less likely to do prosocial things. Kathleen Vohs, a psychologist and associate professor at the University of Minnesota Carlson School of Management, has done studies in which people were primed to think of money - by either reading text that subtly evoked it or by being surreptitiously shown images of dollar bills - while doing various tasks. Having money on one’s mind, Vohs found, made people harder-working, even more resistant to pain, but it also made them more solitary. They were less likely to offer help to others or to donate money. They even chose to put more physical distance between themselves and other people when talking to them.

Paradoxically, then, money itself blinds us to the ways we might spend it to make ourselves happiest.

“People may know that being nice to other people makes them happy, but money, in and of itself, turns us around and makes us think about buying more stuff,” says Norton of Harvard Business School.

The research, however, does suggest a few ways to spring ourselves from this bind. One intriguing possibility is that workplaces could change to encourage more prosocial spending in their workers. Dunn and Norton have argued, for example, that companies can improve their employees’ emotional well-being by shifting some of their budget for charitable giving so that individual employees are given sums to donate, leaving them happier even as the charities of their choice benefit.

And on a more personal, everyday level, when we’re drawn to a new pair of designer sunglasses, we could try to factor in the psychological return that we might get from a similar sum spent on a night out with friends.

Thinkers are trying to figure out how to incorporate these sorts of findings into a new model of consumption. Norton, along with Dan Ariely, a behavioral economist and professor at Duke University’s Fuqua School of Business, has coined the term “conceptual consumption” to describe our willingness to spend real money on abstract goods. Among other things, they argue, it helps explain the sort of long-term payoff we get from a memorable dinner with a loved one. It’s a testament to the power of such conceptual goods, they argue, that in certain settings we privilege the concept over actual physical consumption - such as when we decide not to go back to the restaurant where we had the special dinner because we’re afraid it would dilute the memory. The more we learn about consumer behavior, Ariely and Norton argue, the more we will realize that nearly every decision we make as consumers is primarily conceptual.

Whether or not that turns out to be true, an important change is afoot in work like Dunn and Norton’s and Van Boven and Gilovich’s. Talking about money and happiness in the same breath, it turns out, isn’t necessarily a surrender to crass materialism - it can also be a route to a new and more humane way to think about vitally important things like consumption, satisfaction, investment, and value.

It can also turn the familiar logic of money, prudence, and charity almost on its head. Seen this way, blowing money on a bar crawl with friends isn’t necessarily a waste of your hard-earned paycheck - it’s something of an investment. And a generous philanthropic donation is also an act of hedonism even more gratifying than a new Lexus or a handmade watch. Making money vanish can have a payoff every bit as real, and possibly more beneficial, than putting it somewhere to make it grow. You just have to do it the right way.

“It’s funny, everyone keeps saying money doesn’t make you happy, but money can change the world,” says Lyubomirsky. “It can support political candidates, it can drive change. And it can’t buy me love, but it can certainly get you to meet people and have dates.”

Drake Bennett is the staff writer for Ideas. E-mail drbennett@globe.com.