If Money Doesn’t Make You Happy, You Don’t Know Where To Shop

From early childhood onwards, most of us are told that money doesn’t make us happy. But research seems to disagree with that folk wisdom. Although not in the way you might expect.


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The relationship between money and happiness has been a topic of discussion for years. The consensus reached by extensive research is that the relationship is weak at best. More money in your pocket makes you only somewhat happier. It surely eases the burden of paying the bills for housing, makes it possible to buy better quality products like healthy food and allows for some leisure time to enjoy hobbies. But the positive effects of more money levels off pretty fast after the necessities and some relaxation have been taken care of. Research in the U.S. showed there is no further progress beyond $75.000 (€65.000) in annual income. Above that threshold, the extra money doesn’t do much to increase happiness. But how is that possible? Why wouldn’t you be happier if you could trade your second hand Volvo for a brand new Porsche? Or upgrade your two bedroom apartment to a luxurious mansion? American novelist Gertrude Stein may have had clear insights when she allegedly said in the early twentieth century that, “Anyone who says that money doesn’t buy happiness, doesn’t know where to shop”.

Recently I had some extra money in my pocket. Business had been good, so I could extend my budget beyond my daily needs. But how should I spend it if I want to maximize my happiness? Psychologists Elizabeth Dunn, Dan Gilbert, and Timothy Wilson offer several strategies in their collaborative research paper to keep in mind when spending money that may help to improve happiness. Here are my three favorites:

1) Shop for experiences

If you trade in your second hand Volvo for that brand new Porsche, you would be thrilled whenever you stepped into your new car. But only for a very limited time. After a short period, the brand new Porsche is just your car. People adapt to things quickly. This adaptation decreases our happiness with new things rapidly. A better way to spend your money seems to shop for experiences instead of things. In one study, respondents were asked to think of a material and an experiential purchase they had made with the intention of increasing their own happiness. When asked which of the two purchases made them happier, 57% choose the experiential purchase. Several reasons may be responsible for this difference. First of all, the experience is more likely to be mentally revisited. Either it be an air balloon ride or a city trip to Barcelona. Secondly, an experience is more unique than a material purchase. Porsches of a certain type are pretty much alike, but no city trip is ever the same. And lastly, experiences are more likely to be shared. And other people continue to be a great source of happiness.

2) Pay now, consume later

Most of us now live in a world of instant gratification. Take music for example. Back in the days, record shops were the place to get new music. Because of school, I would have to wait till Saturday to visit the record shop and buy a new CD. Those days are long gone. Spotify, YouTube and other online sources now provide me with my favorite music at all hours of the day. This instant gratification can be found far beyond music alone. Buy something on Amazon and I can opt for same day delivery. Whenever I forget any groceries, Gorillas can be at my doorstep within ten minutes. Same goes for experiences like meeting new people and watching TV shows. I can meet new people at all hours of the day online. Not just on the weekend when the clubs and bars are open. And remember how you had to wait a whole week for a new episode of your favorite TV show to air? Now you can watch the whole series on Netflix in one sitting. This convenience however comes at a cost. It eliminates the thrill of anticipation. I vividly remember the excitement during the week prior to buying a new CD. Although no money was exchanged before buying the CD on Saturday, consuming later was an important part of my overall happiness. So when spending money, we can incorporate this anticipation by paying now and consuming later to increase happiness.

3) Shop for others

Humans are very social animals compared to most other species. If we want to increase our happiness, that should also include our spending. When researchers approached University students on campus, they were handed a small amount of money ($5 or $20 bill) and randomly assigned to either spend the money on themselves or on others by the end of the day. When contacted later that evening, the students who had spend the money on others reported to be happier than the group who had spend the money on themselves. Spending your money on someone else strengthens the social relationship. It conveys the message that someone is important to you. Important enough to think about them and share your resources with. A positive response to your gesture is rewarding and therefore increases happiness.

Applying these three principles to increase my happiness

So how should I use all this information in deciding how to spend my windfall if I want to maximize my happiness?

Since I don’t like the winter cold, I searched for a nice holiday in the Caribbean. I booked the Marriot Beach Resort in Curacao for my share of sea, sand and sunshine. I obviously shopped for an experience instead of a material purchase as to maximize my happiness. I already paid for the whole trip, but I will not be going to Curacao until a couple of weeks from now. This means I have also used the ‘pay now, consume later’ principle and can enjoy the anticipation. I also decided that I would like to put some money to use for the benefit of others. In 2018 my mother spend her final weeks in a local hospice. The staff of the hospice was beyond fantastic. Consisting of medical professionals and lots of volunteers, the staff did everything to make the residents and their families as comfortable as possible considering the circumstances. I am forever grateful and I wanted to give something back by sharing some of my resources in happier days.

The way you spend your money can increase your happiness if done in the right way. By choosing an experience over a material purchase, by paying now and consuming later, or by spending it on other people. It certainly guides me in how to spend my money and increase my happiness.

By the way: If you want to shop for others, I am fully willing to be of assistance and accept all your gifts. Both experiential and material. All for the genuine purpose of increasing your happiness of course. You can find my email address in the section below. You’re welcome.

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About the author

Sander Palm (1980) is a behavioral economist and fitness enthusiast. He has a Master of Science in Marketing from VU University Amsterdam. He lives and works (out) in The Hague. Want to know how you can get your marketing, communication and sales in better shape? Drop an email at sander@behavioralinsight.nl

Source of top image: successiblelife.com



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