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Money Can't Buy Happiness? Here's Why That Theory Is Wrong

By Nathalie Spencer 3 min read

Not quite retail therapy, but research actually proves you can spend money to be happy.

Research points to at least a few ways we can use our money to help boost happiness. The key here is that what matters is not how much you spend, but how you spend it.

Spend on others instead of yourself

Find some money on the ground? You may be happier spending it on someone else than on yourself. Elizabeth Dunn, a psychologist at the University of British Columbia, Canada, and her colleagues gave people either $5 or $20 and told half of them to spend it on themselves and the other half to spend it on someone else. When asked about their happiness at the end of the day, what mattered more than the amount of money was whether people had spent on others or themselves, with the former being the happier group.

It seems that who we give to also matters. According to psychologist Lara Aknin and others, spending on our close friends and family brings us more happiness than spending on acquaintances. Knowing the positive impact we’ve had also gives us a wellness boost. So when you receive a gift from someone, let them know the positive impact it has had on you.

Spend on experiences instead of things

Psychologists Leaf Van Boven and Tom Gilovich asked people to recall one material and one experiential purchase, and then asked which one brought more happiness: 57 per cent res-
ponded that the experience made them happier, with only 34 per cent indicating that the material purchase did. The reason may be that we adapt more slowly to experiences than to things, perhaps because we anticipate (look forward to) and mentally revisit (remember) them more. Essentially this means we get a bigger hedonic hit from experiences.

Spend on many small instead of one big

Would you prefer one long massage or two shorter ones? Researchers wanted to test whether breaking up an experience enhanced or diminished its enjoyment, so offered one three-
minute massage to some people and two shorter massages totalling two minutes 40 seconds to the others. By any standard, the first offer should seem objectively superior, and indeed most people believed that one long massage would be better. But when actually experiencing them, people rated the two shorter massages higher than the one long massage, and were willing to pay more for a massage cushion.

The concept of diminishing marginal return is useful here. Essentially, the more of something we have, the smaller the incremental addition to our happiness. An experience that is twice as long doesn’t necessarily bring us twice the pleasure.

Spend to match your personality

A team from the University of Cambridge in the UK recruited participants who self-scored very high or very low on one of the “Big Five” personality traits: extroversion. The researchers offered them a voucher to spend in either a highly extroverted way (at a pub) or in a highly introverted way (buying a book) and had them report back their happiness levels when they received the voucher, when they cashed in their voucher and 30 minutes later. The extroverts were slightly happier in either case. The introverts reported an increase in happiness if using the book voucher, but, importantly, reported a decrease in happiness if using the pub voucher. This shows that when spending is mismatched to these fairly stable personality types, the boost to happiness may not exist, and in some cases mismatched spending may even be detrimental.

Buy yourself time

If you are time-poor, a great use of money is to buy yourself time. This may be by paying someone to help with household chores, cooking, shopping or any other errands that seem to be consuming your time and headspace.

Researchers gave working adults $40 on two consecutive weekends. The study participants were randomly assigned either to spend on something that would save them time, or to spend on something material. Whatever they were assigned the first weekend was switched the next weekend. Each weekend, the person rated their overall happiness levels and their time-stress levels. People reported greater happiness (higher good mood and lower bad mood, and lower time stress) on their time-saving weekend, regardless of whether that came first or second.

Pre-pay: buy now and consume later

This is the opposite mantra to that of credit cards. You have already paid so can enjoy the experience of consumption without any worries about how or when you will be able to purchase the item. Additionally, pre-paying means you can look forward to the event. This anticipation is an added bonus to the actual consumption, and anticipation seems to have a stronger impact than simply reflecting on something, although both can bring joy.


Extract from Good Money (Become+Build) by Nathalie Spencer, designed and illustrated by Stuart Tolley, published by Quarto, RRP $22.99.

Not quite retail therapy, but research actually proves money can buy happiness.


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