Money can buy you happiness. You just have to spend it the right way.
So says Elizabeth Dunn, co-author of Happy Money, associate professor of psychology at the University of British Columbia, and developer of Joy, a new app that helps you track your finances and boost your well-being at the same time.
Money, Dunn says, can buy happiness provided you follow five core principles of happier spending. What are those principles?
"The idea here is that people actually get more happiness from buying experiences like trips and special meals than from buying material things like gadgets, clothes, or shoes," Dunn said in an interview. Listen to the podcast here.
Dunn also said buying experiences as gifts for others (tickets to a hockey game or a spa day) versus material things also delivers -- over time -- more happiness for those receiving the gift. And that might be something to consider, she said, when buying gifts for loved ones for birthdays, special occasions, Christmas and Hanukkah, and the like.
Also worth considering is what the person for whom you might be buying a gift really wants. "If somebody has told you like they really want you know a new pair of shoes and you are like, 'No-no, I am going to buy you an experience,'" Dunn said. "That's probably a bad call, because it turns out that like people really like getting the things they have asked for, and in general others aren't necessarily fabulous at selecting gifts. If somebody has told you what they want... for the love of God, just get them that."
Make It a Treat
It seems as if life would be perfect if we could just have all our favorite things all the time, said Dunn. "But the idea here is that having our favorite things a little less often can actually enhance our ability to enjoy them," she said.
According to Dunn one of the most fundamental lessons of happiness research is that the more we have of something the more we tend to get used to it and cease to derive the same sort of intense pleasure that we might have when we first experienced it. "So, when we always have something, when it is very habitual, we just kind of get used to it," she said.
Dunn gave this example: In Vancouver, where she lives, kale is the thing to consume, and she started drinking a $7 kale smoothie from Whole Foods. "And at first it was kind of like a treat -- I really enjoyed it, but pretty soon it just became like the drink that I would suck down on any kind of afternoon," she said. "And while it is perfectly healthy, it is not the cheapest way to consume kale, so my like kale budget was kind of spinning out of control with these smoothies."
So, she decided to take a break from the kale smoothies and just have them once in a while. And by doing that, Dunn said, she "actually renewed my capacity to appreciate them again, and that's what we see in our research lab as well."
Her advice: Taking a break from the things that you enjoy can renew your capacity for pleasure. Plus, she said, you could save some money.
Dunn also noted expensive purchases that we use constantly seem to deliver less pleasure than we might expect. "In particular, purchases such as cars that we drive everyday don't seem to make much of a difference for our happiness as we might assume," she said, noting University of Michigan research that found people actually get no more enjoyment from driving a BMW than from driving an economy car, because it is something they just do so habitually every day. "That the pleasure of the sort of like extra features that a luxury provides seem to just kind of fade into the background and cease to deliver pleasure. So, this again suggests that like investing money in purchases that we'll use constantly may actually be a counter-productive strategy."
To be sure, some people buy things - expensive cars and large homes - to keep up with others. But that's not a productive strategy for happiness. "What the research is helpful in revealing is that you know those kinds of positional purchases where people are just trying to keep up with others don't seem to be terribly effective," she said. "I think the lesson here is try not to place yourself in this like social milieu where you feel driven to make these purchases that don't intrinsically provide happiness, but that you are buying in order to keep up with those around you."
"Before you reach for your wallet, try just stopping and ask yourself, 'How will this purchase affect the way I spend my time?'" said Dunn. "And if the purchase isn't going to have much of an impact on how you spend your time, your money might be better spent somewhere else."
For some, this might mean hiring a crew to clean your home instead of doing it yourself. "This is kind of like buying your way out of sort of the worst minutes of your day," she said.
The 'buy experiences' principle, she said, speaks to the idea of buying really memorable, great life experiences. The 'buy time' principle is more about buying your way out of mowing the lawn or "doing things that just like suck the joy out of life," she said.
Her advice: If there is a task that you really dread doing that not only makes you miserable when you are doing it, but that even makes you cringe when you think about having to do it evaluate whether it's possible for you to afford to buy your way out of it. And, that could be a good strategy for increasing your happiness.
Pay Now, Consume Later
Almost everything about modern society pushes us to consume right away, and often pay for it much later, said Dunn. "People may be recognizing that now after Christmas," she said. "And what we find is that people are better off doing just the opposite. So, you're more likely to get happiness from your spending if you can pay upfront, and actually delay consumption."
So, for example, if you're going on a winter vacation, if you can pay for it a month or two in advance, you get the pain of paying out of the way, and you get to enjoy the pleasure of anticipation.
To be sure, it might not be easy to pay now and consumer later. After all, the credit card companies have made it easy to consume now and pay later. "Credit cards and other new technologies just make it so easy for us to consume right away and often delay payment into the indefinite future," she said.
But social psychology research says we should do the opposite. "We should pay right away with good cold hard cash or at least a debit card, and then, whenever you can, try to delay consumption," she said. "It is good to separate payment from the experience itself."
Invest in Others
This, said Dunn, is perhaps the one principle that's nearest and dearest to her heart. "When people spend money on others, they actually get more happiness than from spending it on themselves," said Dunn. "So, perhaps, at least a little bit of reassurance that if you spend a lot of money on gifts, it may have been money well spent," she said.
Donating to a charity can especially lead to happiness. "People who donate to charity are happier than those who don't even after taking into account things like their level of wealth,' Dunn said.
Dunn also noted that a recent social media trend -- where people are asking someone to donate to a favorite cause on their birthday -- is a good thing. "There is actually research showing, even older research predating social media, that the most common reason people say that they gave to charity is because someone they know asked them to make a donation," she said.
What's more, she noted that her research shows that people get more happiness from giving to a cause when they are asked to give by somebody who genuinely cares about the cause and has a personal connection to it. It suggests, she said, that this kind of approach - a very interpersonal, relationship-based approach to giving - may be good in promoting both the likelihood of giving, and the likelihood that people will get happiness from giving.
In contrast, she said "auto giving," whereby you automatically contribute monthly or yearly from your bank account to a charity, may not lead to increased happiness. "That whole set-it-and-forget-about it sort of thing also means that you are probably not getting like much of a burst of happiness when that $100 a month disappears from your bank account," she said. "You are probably not even remembering it."
And that means charities have an important challenge to think about: How do they make sure that people who are engaging with these monthly donations, how do they make them feel like they are making a difference? "How do you give them a feeling of emotional reward from making these very important regular donations?" she asked. "And I think that is just an important challenge that charities are still figuring out."
Dunn also spoke about her new app, Joy, that helps you track your finances and boost your well-being at the same time. "The idea is that it enables people to reflect on their purchases and decide whether each purchase for them was happy money or sad money," she said. "So, each time people make a purchase they are prompted to... either hit a happy face or a sad face."
And over time, the Joy app accumulates enough data to deliver personalized insight about your spending and happiness. "We can start to go beyond just sort of broad group level recommendations and instead say 'OK, what is good for Bob?'" she said. "Like what makes a difference for you? What patterns do we detect in your spending? When are you happy with your spending? When are you not? And then can we eventually start to guide you."
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Got questions about money, retirement and/or investments? Email Robert.Powell@TheStreet.com