Cash to spare? How you spend it affects your happiness.

So you have some extra cash in your pocket. Do you spend it on the latest gizmo or on going to a restaurant with friends? How does your choice affect your happiness?

Money as an Inexact Surrogate
Given that January is synonymous with high street sales, I want to share some up-to-date research on how spending affects happiness.

Positive psychologists sometimes get hot under the collar when discussing the role that money plays in individual happiness.  The research into wealth and well-being suggests that above a relatively low level of income (which in 2002 was estimated to be about $10,000 per year), your happiness doesn’t increase significantly. At the same time the average reported well-being is higher in wealthy nations than it is in poor ones. Ed Diener and Martin Seligman summed it up nicely when they said,

“Money is an inexact surrogate for well-being, and the more prosperous a society becomes, the more inexact a surrogate income becomes.”

The following table gives you an idea of how much similarity there is in the life satisfaction of different groups of people in the world, where people were asked to rate their agreement with the statement “You are satisfied with your life,” with 1=complete disagreement, 7=complete agreement, and 4 considered neutral.

It might not surprise you to see homeless people  at the bottom of the list, but given how much we value financial wealth, would you expect people from the Maasai tribe in Africa  (a traditional herding people who have no electricity or running water) to be as happy as those on the Forbes Rich List?

How People Behave about Money

Even if money doesn’t appear to buy happiness, we still behave as if it does.  For example,  research into the importance that students give to leading a meaningful life versus earning lots of money suggests that the trend  has reversed in past four decades;  in 2002, far more importance was given to being very well off financially.

Given that in the West at least we seem to be more than ever focused on money, what can science tell us about the relationship between money and happiness that might be useful for our everyday behaviors?

New Research on Spending and Well-Being

Back in 2003, psychologists Leaf  Van Boven  (University of Colorado at Boulder) and Thomas Gilovich (Cornell University) suggested well-being is related to whether you spend your money on material items such as a designer dress or an MP3 player, or on experiences, such as seeing a film at the cinema or a good meal with a group of friends.

 

In new research just out, Travis Carter (also of Cornell University) and  Gilovich  have tried to uncover the reasons for this. They’ve found that it’s linked to Barry Schwartz’s theory of choice, insofar as spending your money on material goods means that you’re far more likely to compare your purchase  to something you didn’t buy and be dissatisfied as a result, whereas this doesn’t hold true when you spend your money on an experience.

 

In a series of linked experiments, Carter and Gilovich found that:

• People thought about experiential purchases less comparatively than they did about material ones (controlling for the cost of the purchase, how important it was and how long ago the purchase was made). When making a material purchase people tended to use what Barry Schwartz calls a maximizing strategy (e.g.  they compared goods and looked for the very best one), whereas they tended not to make comparisons for experiential purchases. I’m sure many of you know what it feels like to buy an electronic gadget, say a new cell phone or a digital camera, and then to discover that a “new improved” and generally cheaper version comes onto the market a few weeks later!

• People reported being more jealous of a rival’s superior material purchase (e.g. they found out that someone else bought same thing at a significantly lower cost) than a rival’s superior experiential purchase.

• Over time, people were more satisfied with experiential purchases than with material ones, even where their initial satisfaction was the same.

• Their satisfaction with experiences tended to increase over time, whereas their satisfaction with material purchases tended to decrease over time.

The Paradox of Happiness

What is particularly exciting about these research findings is that they’re a perfect illustration of the paradox of happiness. In other words, we think that acquiring and accumulating concrete things such as material possessions will lead to greater happiness, when actually it’s the more ephemeral, experiential things  which do (at least, they do over the longer term). So in order to improve our well-being, Carter and Gilovich urge us to ignore the seemingly frivolous or impractical nature of experiences and, if we have cash to spare,  to spend it on them over and above material goods.

 

“From many angles, the pursuit of experiences over possessions seems to be the firmer path to happiness”. Carter and Gilovich

 

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References

Carter, T., & Gilovich, T. (2010). The relative relativity of material and experiential purchases. Journal of Personality and Social Psychology, 98(1), 146-159.

Diener, E., & Seligman, M. (2004). Beyond Money: Toward an Economy of Well-Being. Psychological Science in the Public Interest, 5(1), 1-31.

Gilbert, D. (2007). Stumbling on Happiness. New York: Vintage.

Editor’s note: I added this book because it addresses the fact that humans aren’t very good at predicting what will make them happy. Bridget’s article adds a clue.

Barry Schwartz webpage

Schwartz, B. (2004). The Paradox of Choice: Why More Is Less. New York: Ecco.

Van Boven, L., & Gilovich, T. (2003). To Do or to Have? That Is the Question. Journal of Personality and Social Psychology, 85(6), 1193-1202.

Images

Sale courtesy of Robert Brook
Not Enough Shoes courtesy of Lauren Close:
Gathering outside the restaurant courtesy of Hamed Saber