Understanding the Complex Relationship Between Money and Happiness
Do you really need a lot of stuff to be happy? Science says that the opposite is true.
Michael I. Norton is the Harold M. Brierley Professor of Business Administration at the Harvard Business School, and a member of Harvard’s Behavioral Insights Group. He holds a B.A. in Psychology and English from Williams College and a Ph.D. in Psychology from Princeton University. Prior to joining HBS, Professor Norton was a Fellow at the MIT Media Lab and MIT’s Sloan School of Management.
He is the co-author - with Elizabeth Dunn - of the book Happy Money: The Science of Smarter Spending.
Michael Norton: My colleague Liz Dunn at University of British Columbia and I have been studying the relationship with between money and happiness. And it seems like a simple relationship, which is: we want more money and we want more happiness, so maybe if we get more money we’ll get more happiness.
And it turns out that the relationship is really a lot more complicated than that.
It’s not too surprising to say that money can’t buy you happiness, we’ve heard that phrase a lot. But that doesn’t help us understand then what kind of spending will actually make us happy and what kind won’t. What we tend to find when we look at the data is that the biggest category of things that people spend on is stuff for themselves.
Of course we need to pay rent or our mortgage, we need to have a car, we need to have food and clothes, but it seems as though people are spending an inordinate amount of their money on stuff for themselves, and the biggest problem from our standpoint as psychologists is the percent of money that you spend on stuff for yourself is completely uncorrelated with how happy you are with your life.
It doesn’t make you unhappy, it’s not like if you buy a lot of stuff you’re miserable, which sometimes we think is the case—it’s just the case that it’s flat. No matter how much it seems you buy for yourself, nothing really seems to happen.
And so in our research, and other researchers as well, we’ve tried to look at, well, if stuff for yourself doesn’t pay off are there other things that you can spend your money on that actually do pay off in more happiness?
And what Liz and I have focused on the most is this idea that instead of focusing on yourself all the time, which doesn’t seem to pay off in happiness, when you focus on other people you sort of reverse the arrow from me to you, it seems that on average when people give to others—which can be giving to charity, it can be treating a friend to lunch, it can be buying people gifts—that those actions of giving rather than keeping seem to be associated with more happiness.
And when we send people out and give them money and tell them to spend it on themselves or spend it on somebody else, people who spend it on themselves kind of have the same day they would’ve had anyway, but people who spend on other people actually have a happier day.
So, if you think about the idea that stuff for yourself doesn’t make you happy you can think of two opposites of that. One is stuff for other people, so that’s kind of giving makes you happier than keeping, but another opposite of stuff for yourself is to think about: you can still spend on yourself but change from stuff to something else.
And lots of research over the last decade has shown that on average when people buy experiences it tends to pay off in more happiness than buying stuff for themselves. And if you think about it there’s a lot of reasons for that.
One of them, which is really critical, is often when we buy stuff for ourselves we end up by ourselves with our stuff. Think of yourself on your phone playing a video game or whatever else it might be, you’re often alone with your stuff.
Whereas experiences, yes we do some experiences solo, but many, many experiences have built into them that they’re social.
If we go out to dinner or go see a movie or go on a hike or whatever else it might be, now we’re with other people and even though people sometimes annoy us a lot it turns out that talking to other people makes us happy, even casual interactions with other people make us happier than sitting by ourselves in a room.
So experiences are more interesting and all those things, but they also actually kind of serve to commit us to spending time with other people, and that’s partly why experiences pay off in so much more happiness.
Rapper Notorious B.I.G. perhaps put it best... "the mo' money you make, the mo' problems you get." While most of us aren't hip-hop demigods, we all have experience spending money on things that we think in the moment will make us happy but end up being... just stuff. Because when people accumulate wealth, they tend to spend it on themselves. This might make you temporarily happy but it largely means that you spend more time alone with the things that you've bought. But Harvard Professor (and Harvard’s Behavioral Insights Group member) Michael Norton has found that the more people spend on other people or in an experiential way—be it a concert ticket or simply taking a friend out for lunch—the happier they are overall. Michael's has co-written a book that covers this and other subjects called Happy Money: The Science of Happier Spending. Professor Norton’s studies are cited in The Influential Mind: What the Brain Reveals About Our Power to Change Others by Tali Sharot.
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