Money can’t buy happiness. Or can it? The idea that money can’t buy happiness is a popular societal belief. Those who firmly believe in the adage argue that happiness stems from intangible things like friendship, a sense of fulfillment, a flourishing social life, etc. They’re not wrong — those things do contribute to happiness — but they’re also not entirely right.
Science has proven that the relationship between money and happiness is clear: there’s a modestly positive correlation between happiness levels and income. That makes sense — after all, with a stable income, you can do what you want, pay bills on time, care for yourself and your loved ones, and have enough left over to occasionally (or frequently) treat yourself to something nice. People with more money are able to stay healthier by having reliable access to adequate medical care and investing in their health and nutrition. Having money tends to ease many of the stressors brought on by financial instability, which frees us up to find more enjoyment in life.
So yes, money can (and does) buy happiness. But it might not buy as much as you think. Studies show that the positive relationship between money and income eventually plateaus once you hit an annual income of around $75,000 (give or take, not considering our recent inflation spikes!). A better way to look at the relationship between money and happiness is that money is an opportunity for happiness. If you spend it the right way, you can profoundly impact your happiness. But if you squander it, as many people do, then you’ll likely find yourself experiencing lower levels of happiness no matter how much money is in your bank account.
Spend Your Way to Satisfaction
According to research published by the Society for Consumer Psychology, there are eight key principles that explain how money can buy happiness. These principles offer practical guidelines for spending your hard-earned dollars in a way that offers more satisfaction. We’re covering the first four principles below — keep an eye out for Part Two to read the rest.
Introducing The Eight Principles of Happiness
Today we’ll cover the first four principles introduced by researchers in the Journal of Consumer Psychology. They were created to help consumers get more happiness for their money once they realized that most people were spending money in ways that failed to maximize their happiness. They came up with the following principles using research drawn from several studies.
1. Buy experiences, not things
Similar to a previous blog on Consumption, I’m sure you’ve heard of “retail therapy” — you have a bad day, or a great day, or an average day, and you go out and buy yourself something nice to commiserate (or celebrate, depending on how your day went). Most of the time, you’re probably treating yourself to a physical item. But studies show that spending money on material goods may not make you as happy as you think. Sure, it’s a short-term burst of serotonin, but that feeling quickly fades away, and you’ll be left wanting another quick fix of happiness. Research suggests that spending your money on experiences, not things, can make you happier. Investing in experiences helps keep you focused on the present moment, and living in the here and now can keep you grounded, present, and engaged. These are all states of being that make us happier.
Why do humans feel happier with experiences? There are a few reasons, but it mainly comes down to the fact that experiences are more memorable than material purchases. If you buy yourself a nice watch and wear it every day, eventually, it’ll probably start fading into the background of your thoughts, and the novelty of it will wear off. But if you once went on an amazing weekend getaway to a brand new city, the happy memories of that trip are more likely to stay imprinted in your mind for much longer. Also, experiences are frequently shared with other people, and being around others makes us happier.
Some purchases might land you somewhere in the middle; for example, spending money on a nice meal gets you a material item (food) in addition to an experience (a shared meal with friends or a luxury dining experience). So instead of treating yourself to a shiny new toy next time you’re itching for some retail therapy, try planning a trip or a nice meal with friends instead.
2. Use your money to help others
Almost anything we do in service to others can make us happier — so if you can spend money in a way that helps others, you can add more joy to your own life. A 2008 study supports this, too: a group of researchers approached individuals on a university campus, handed them either $5 or $20, and then randomly assigned them to spend the money on themselves or others by the end of the day. When the researchers contacted the participants, they found that the people who spent their money on others were happier than those that spent it on themselves. I’m sure we’ve all had experiences of joy when we gift someone unexpectedly. Perhaps consider making it a habit — set aside a portion of your income each month to contribute to a cause you care about or use it to donate physical goods to a local non-profit. You’ll likely end up happier than if you’d spent it on yourself — and may even look forward to deciding where to share it.
3. Buy more small things instead of a few big ones
If you had the option to choose between five small gifts worth a combined $100 or one big $100 gift, which would you choose? You may be leaning towards the latter option, but consider this: what if you regularly got $100+ gifts all the time? Eventually, you’d start to adapt to them, and they wouldn’t be as exciting. Frequent, small pleasures can be novel and exciting every time — you could, for instance, try out a new coffee shop once a week and treat yourself to a nice latte. The gift itself might be similar, but your experience will be unique each time. I love this one. For years I’ve felt guilty whenever I’d read a ‘ways to save money’ blog where they always seemed to include a suggestion to give up the daily run to Starbucks. I’ve always felt my regular small indulgence for my morning coffee was one of life’s great pleasures — now I have evidence of it! (For clarity, I’m actually a Dunkin’ fan: medium, original blend, two creams, no sugar. Feel free to buy me a coffee if you’re so inclined.)
By the way, this isn’t to say you can’t enjoy infrequent grand gifts. But studies show that these should stay just that: infrequent. So, if you’re going to spend money, try spreading it out across a few purchases instead of one larger spending spree.
4. Say no to extended warranties
You may have done a double-take at that headline. How would an extended warranty have any impact on your happiness? But extended warranties, return policies, and other forms of insurance offer us one specific form of comfort: a backup plan. You buy something, bring it home, decide you don’t like it, bring it back, and get your money refunded. It’s a simple, common process that you probably do quite frequently. But what about those things you bought on final sale that you couldn’t return? Do you find yourself reaching for them more often to justify your purchase, even if you didn’t initially love it? If so, you’ll see this principle in action. Studies show that people have more appreciation for an item if they can’t return it and are happier with it in the long term than people who purchased (or were given) the same item with a return policy. Though they can certainly seem useful, adding an expensive warranty to your purchase can be unnecessary and even lower your appreciation for your purchase.
On this point, I recommend watching the TedX talk from Dr. Dan Gilbert on the Science of Happiness. Starting at the 15:00 minute mark, he describes a study where one’s perceived happiness is expected to increase when we have choices, but the results show the opposite: we are actually happier when we are stuck with what we got!
So there you have the first four principles of money and happiness. Stay tuned for Part Two to learn the remaining ones for you can spend your money more intentionally in a way that brings joy to your life (and those around you too).