At first, this statement sounds like another iteration of the popular “money can’t buy happiness” mantra we’ve been hearing a lot lately. (After all, we’ve seen plenty of evidence of just how miserable the subject of money can make us). However, the latest research isn’t telling us to put away our wallets, but instead shows how spending our money in certain ways can contribute to our long-term happiness.
In times of shrinking budgets, here’s how your dollars can have a positive impact on your life:
Invest in experience
You’ve saved up some cash for a splurge. What would you rather spend it on: a week-long trip or a new TV? Conventional wisdom might say the TV is a better investment. After all, that vacation is a one-time experience (and a short one at that), but you’ll enjoy the TV for many years to come.
However, new research out of San Francisco University turns this way of thinking upside down. A study conducted by associate professor Ryan Howell shows that contrary to popular belief it is experiences, not objects, which lead to greater happiness.
The study polled 154 students (with an average age of 25) at SFU and asked them about a recent purchase they made with the goal of making themselves happy — whether it was an object or an experience. While both types of purchases made participants happy, those who made experiential purchases reported higher satisfaction both at the time of purchase and later on.
Why did experiences win out? The study pinpointed a couple of key reasons:
Experiences provide a sense of connection. As Howell notes, most experiences involve other people so they provide some essential bonding time with family and friends. They also make other people around us happier in the process too.
We don’t have the same bonding experience with other when we spend on material objects. This study supports previous research out of Cornell University which showed that people are more likely to be envious of other people’s “stuff” than their experiences. We find it easier — and less threatening — to share our experiences rather than compare our possessions.
Stuff gets boring, but memories don’t . Experts note that we tend adapt to new purchases in as little as six to eight weeks. That’s how long it takes the novelty of the new item and the pleasure of obtaining it to wear off. However, Howell’s study shows that experiences aren’t a fleeting pleasure: the stories and memories make us happy in the long run as well.
“Purchased experiences provide memory capital,” Howell said in a recent press release. “We don’t tend to get bored of happy memories like we do with a material object.”
Experiences make us feel alive. The study’s findings also found that objects don’t provide the same feeling of vitality that experiences do.
Experiences aren’t just an in-the-moment phenomenon either: that feeling of “being alive” stays with us, and we feel it again when we recall the experience.
The bottom line: Experiences can make us happier both in the moment and in the long run because they speak to what psychologists call “higher order needs”. In words, we get benefits like social bonding and vitality that aren’t often met by a material object.
Spend on others
There’s something to be said for a generous spirit: People who spend money on others are generally happier than those who don’t. That’s what researchers at the University of British Columbia and the Harvard Business School discovered when they set out to investigate if how people spend their money is as important as how much they earn.
The study approached the question from a number of angles, including a survey that asked participants to rate their level of happiness and report on their income and spending habits; it also looked at how employees of a large firm spent their bonuses. There was even an experiment where participants were given a five or 20 dollar bill to spend by 5:00 pm that day — one group was asked to spend the cash on themselves, the other group was asked to spend it on others.
The results? Respondents in the first survey who reported they spent part of their income on others — whether through gifts or charitable donations — reported being happier than those who kept their cash to themselves.
“Regardless of how much income each person made, those who spent money on others reported greater happiness, while those who spent more on themselves did not,” reported Elizabeth Dunn, one of the study’s authors, in recent a press release.
And how about those bonuses? Size didn’t play as a big a role as you might expect — where they went was more important. Employees who spent more of the bonus on other people (rather than their own needs) consistently reported being happier.
Furthermore, the results of the spending experiment suggest that it’s not a matter of scale. Participants who spent on others were happier at the end of the day regardless of which dollar amount they had.
The bottom line: Even spending a little money on someone else can improve your happiness.
Put them both together…?
Perhaps you’ve noticed the gaps: Howell’s research focused on buying experiences or objects for yourself (rather than exclusively for someone else), while Dunn’s research looked at spending for other people — but didn’t specify whether the money was spent on objects or experiences.
However, the one thing the studies have in common is this finding: spending a lot of money on “stuff” for yourself isn’t going to make you happier in the long run. It doesn’t matter how much or how little you spend, it’s how you spend that counts.