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Money CAN Buy You Happiness, if You Know how to Spend It

8 May 2013

The Financial Post just ran a very interesting interview they did with Elizabeth Dunn and Michael Norton, the authors of Happy Money: The Science of Smarter Spending. Within the book they explore how you can use your money to actually buy happiness. But first, you have to know how to spend it.

No, they’re not talking about going out and dropping a thousand bucks on ten different pair of shoes. In fact, that’s exactly what they’re telling you not to do. Instead, says Ms. Dunn, use your money on things that won’t just make you happy, but that will also be fulfilling. So how do you do that?

Well for starters, says Ms. Dunn, consider spending your money so that you can spend time experiencing new things with your friends and family. It might cost the same amount as those shoes, but you’ll be much happier both in the short-term and in the long-term.

“Experiences are more likely to be shared with others,” says Ms. Dunn. “Going for dinner with your spouse or visiting Paris for the first time with your best friend, these tend to make us feel closer to other people. Material things very often are enjoyed alone. Social relationships are the single most critical thing in our lives for happiness. Anything we can do with our money to enhance those relationships is a good thing.”

Mr. Norton also adds to this “spending on experience” theory that it won’t just make you happier while you’re spending the money, but also beforehand and after too. This is because with experiences, you can relish it, look back on it, and build up anticipation and excitement about it.

“With stuff, we do look forward to buying things; but we look forward to experiences more,” he says. “When you have a vacation coming up, it’s enormously exciting and satisfying when you’re stuck at work to daydream about how awesome the vacation will be. It’s not as exciting to daydream about the TV that you’re going to get.”

And, he says, people will get more out of their experiences after they’ve made the purchase, too.

“The after can be better,” he continues. “If you think back to purchases you made, it’s not nearly as evocative as thinking back to trips you’ve taken. If you talk about stuff you buy, you’re a jerk. If you talk about a trip you went on, you’re kind of interesting and people like you.”

Ms. Dunn also talks about another way that spending can enhance our lives and actually buy happiness. That’s when we use it to free up our time, and actually change the way we live our lives.

She talks about things such as hiring a cleaning service to come in weekly or bi-weekly to clean your home, or hiring a night doula to sleep train your baby – something that she did herself, and she says, the few bucks spent greatly enhanced her life and made her very, very happy.

“I find it has freed me to spend money on the thing that I think are really worthwhile and cut out the things that I perhaps don’t need,” she says. “Anything that fundamentally changes the way you spend your time is a good use of money – it’s happy money.”

But why is it, other than the fact that you’re spending time with friends and family, that makes us value material things so little? Or at least, not as much as we think we will? Why wouldn’t spending a day at the mall bring as much pleasure as a family vacation to Disney Land?

Ms. Dunn and Mr. Norton both have their theories on this.

“We often think about buying something as being about the moment we buy it. There are time periods involved. There’s the before we buy it and we’re looking forward to it. There’s the buying it…then there’s the remembering and telling other people about it. With stuff, we do look forward to buying things; but we look forward to experiences more.”

To go along with just not looking forward to them as much, we also seem to become bored with our material possessions a lot faster than we become bored with experiences. That’s the issue that Ms. Dunn points to.

“A fundamental problem with modern society is that we live in a giant candy store. If you are wealthy, it’s like the Willy Wonka Factory. Even if you’re not wealthy, we have access to so much. It’s unbelievable what you can go out and buy. The question is: why aren’t we incredibly happy then? Part of the answer is that we get used to things and stop appreciating them.

“We had people come to the lab and eat some chocolate and they enjoyed it. We sent one group home with a big bag of chocolate and told them to eat as much of it as they possibly could over the course of the week. We told others to give up chocolate for a week. Then we brought everyone back after a week to eat another piece of chocolate again. What we found is that people who had this big bag of chocolate enjoyed it less the second time than they did the first. Our enjoyment for things fade.”

And, Mr. Norton chimes in, that food analogy can be thought of throughout the entire spending process.

“We really have to train ourselves. ‘No, no, think about the future. If I give it up now, it’ll be better then.’ It’s a similar problem weird enough to losing weight. I know I’d be happier if I were skinnier next year, but I really want pizza now.”

What do you think about Mr. Norton’s and Ms. Dunn’s ideas about spending money? Do you think that money can buy happiness? If you spend it on the right things?

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