How do you spend your money?
If money is used as a pro-social tool—rather than just a medium to greater material abundance— it has a positive impact on well-being and fosters social connectedness.
Numerous studies conducted over the past 10 years have shown that life experiences give us more lasting pleasure than material things. Associate professor of psychology at San Francisco State University, Ryan Howell, foundthat people think material purchases offer better value for the money because experiences are fleeting but material goods last longer. In fact, when people looked back at their purchases, they realized that experiences actually provided better value.
Cornell University psychology professor Thomas Gilovich has reached similar conclusions. People often make the logical calculation that, with a limited amount of money, they can either go on a trip or buy an item. The trip, people rationalize, is fleeting while the physical item will remain. While, this is factually true, it is not psychologically true because people experience what is known as “hedonic adaptation”. Hedonic adaptation describes the experience in which a new material purchase brings a brief thrill or novelty that eventually wears off so that we start to take the item for granted. A raise at work gives employees a boost, but then their aspirations rise, too. A new car or smartphone seems exciting at first… until you see the new models, with upgrades and you want more.
Experiences, on the other hand, tend to meet more of our underlying psychological needs, because they are often shared with other people, giving us a greater sense of connection, and they form a bigger part of our sense of identity. If you’ve climbed in the Himalayas, that’s something you’ll always remember and talk about, long after all your favorite gadgets have gone to the landfill.
Beyond ourselves, spending money on others can bring the most amount of happiness. Elizabeth Dunn and her colleagues showed in 2008 that spending money on others (rather than oneself) predicts greater happiness. Dunn handed out cash to students on a university campus, telling some to spend it on themselves and telling some to spend it on others. Those who spent money on other people were happier than those who treated themselves. Since then, she has repeated the experiment in other countries around the world, and has altered the experiment to whether people would still be happy if they gave away their own money rather than free money handed to them by a professor. In countries as diverse as Canada, South Africa, and Uganda, the experiment showed that giving away money consistently made people happier. This even held true when they themselves were relatively poor.
Dunn also worked with economists to analyze survey data from 100 countries in the Gallup World Poll, and found that people who donated money to charity were happier, in poor and rich countries alike.
So what’s the bottom line? When you don’t have much money, a little extra can go a long way, because you have more essential needs to fulfill. As you accumulate more wealth, however, it becomes more difficult to buy more happiness. After that, people begin to realize that life experiences, using their valuable time wisely, and feeling connected to their loved ones are the real ingredients for happiness.
This article was originally published on The World Bank’s People, Spaces, Deliberation Blog.
Author: Roxanne Bauer is a consultant to the World Bank’s External and Corporate Relations, Operational Communications department (ECROC).
