Money Buys Happiness - When You Spend It On Others

Money buys happiness - if you spend it on someone else, Reuters, March 20, 2008:

WASHINGTON (Reuters) - Money can buy happiness, but only if you spend it on someone else, researchers reported on Thursday.

Spending as little as $5 a day on someone else could significantly boost happiness, the team at the University of British Columbia and Harvard Business School found.

Their experiments on more than 630 Americans showed they were measurably happier when they spent money on others -- even if they thought spending the money on themselves would make them happier.

"We wanted to test our theory that how people spend their money is at least as important as how much money they earn," said Elizabeth Dunn, a psychologist at the University of British Columbia.

They asked their 600 volunteers first to rate their general happiness, report their annual income and detail their monthly spending including bills, gifts for themselves, gifts for others and donations to charity.

"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," Dunn said in a statement.

Dunn's team also surveyed 16 employees at a company in Boston before and after they received an annual profit-sharing bonus of between $3,000 and $8,000.

"Employees who devoted more of their bonus to pro-social spending experienced greater happiness after receiving the bonus, and the manner in which they spent that bonus was a more important predictor of their happiness than the size of the bonus itself," they wrote in their report, published in the journal Science.

"Finally, participants who were randomly assigned to spend money on others experienced greater happiness than those assigned to spend money on themselves," they said.

They gave their volunteers $5 or $20 and half got clear instructions on how to spend it. Those who spent the money on someone or something else reported feeling happier about it.

"These findings suggest that very minor alterations in spending allocations -- as little as $5 -- may be enough to produce real gains in happiness on a given day," Dunn said.

This could also explain why people are no happier even though U.S. society is richer.

"Indeed, although real incomes have surged dramatically in recent decades, happiness levels have remained largely flat within developed countries across time," they wrote.

Money Quotes: Jim Cramer

People always say money can't buy happiness, but I've never found that argument compelling. Money can buy peace of mind; it can take care of you and your loved ones, and to a certain extent money means freedom.

Financial guru Jim Cramer, Stay Mad for Life (2007), p. 17.

Why Money Doesn't Buy Happiness

Why Money Doesn't Buy Happiness, Newsweek Web Exclusive, 10/14/2007, by Sharon Begley:

All in all, it was probably a mistake to look for the answer to the eternal question—"Does money buy happiness?"—from people who practice what's called the dismal science. For when economists tackled the question, they started from the observation that when people put something up for sale they try to get as much for it as they can, and when people buy something they try to pay as little for it as they can. Both sides in the transaction, the economists noticed, are therefore behaving as if they would be more satisfied (happier, dare we say) if they wound up receiving more money (the seller) or holding on to more money (the buyer). Hence, more money must be better than less, and the only way more of something can be better than less of it is if it brings you greater contentment. The economists' conclusion: the more money you have, the happier you must be.

Depressed debutantes, suicidal CEOs, miserable magnates and other unhappy rich folks aren't the only ones giving the lie to this. "Psychologists have spent decades studying the relation between wealth and happiness," writes Harvard University psychologist Daniel Gilbert in his best-selling "Stumbling on Happiness," "and they have generally concluded that wealth increases human happiness when it lifts people out of abject poverty and into the middle class but that it does little to increase happiness thereafter."

That flies in the face of intuition, not to mention economic theory. According to standard economics, the most important commodity you can buy with additional wealth is choice. If you have $20 in your pocket, you can decide between steak and peanut butter for dinner, but if you have only $1 you'd better hope you already have a jar of jelly at home. Additional wealth also lets you satisfy additional needs and wants, and the more of those you satisfy the happier you are supposed to be.

The trouble is, choice is not all it's cracked up to be. Studies show that people like selecting from among maybe half a dozen kinds of pasta at the grocery store but find 27 choices overwhelming, leaving them chronically on edge that they could have chosen a better one than they did. And wants, which are nice to be able to afford, have a bad habit of becoming needs (iPod, anyone?), of which an advertising- and media-saturated culture create endless numbers. Satisfying needs brings less emotional well-being than satisfying wants.

The nonlinear nature of how much happiness money can buy—lots more happiness when it moves you out of penury and into middle-class comfort, hardly any more when it lifts you from millionaire to decamillionaire—comes through clearly in global surveys that ask people how content they feel with their lives. In a typical survey people are asked to rank their sense of well-being or happiness on a scale of 1 to 7, where 1 means "not at all satisfied with my life" and 7 means "completely satisfied." Of the American multimillionaires who responded, the average happiness score was 5.8. Homeless people in Calcutta came in at 2.9. But before you assume that money does buy happiness after all, consider who else rated themselves around 5.8: the Inuit of northern Greenland, who do not exactly lead a life of luxury, and the cattle-herding Masai of Kenya, whose dung huts have no electricity or running water. And proving Gilbert's point about money buying happiness only when it lifts you out of abject poverty, slum dwellers in Calcutta—one economic rung above the homeless—rate themselves at 4.6.

Studies tracking changes in a population's reported level of happiness over time have also dealt a death blow to the money-buys-happiness claim. Since World War II the gross domestic product per capita has tripled in the United States. But people's sense of well-being, as measured by surveys asking some variation of "Overall, how satisfied are you with your life?," has barely budged. Japan has had an even more meteoric rise in GDP per capita since its postwar misery, but measures of national happiness have been flat, as they have also been in Western Europe during its long postwar boom, according to social psychologist Ruut Veenhoven of Erasmus University in Rotterdam. A 2004 analysis of more than 150 studies on wealth and happiness concluded that "economic indicators have glaring shortcomings" as approximations of well-being across nations, wrote Ed Diener of the University of Illinois, Urbana-Champaign, and Martin E. P. Seligman of the University of Pennsylvania. "Although economic output has risen steeply over the past decades, there has been no rise in life satisfaction … and there has been a substantial increase in depression and distrust."

That's partly because in an expanding economy, in which former luxuries such as washing machines become necessities, the newly affluent don't feel the same joy in having a machine do the laundry that their grandparents, suddenly freed from washboards, did. They just take the Maytag for granted. "Americans who earn $50,000 per year are much happier than those who earn $10,000 per year," writes Gilbert, "but Americans who earn $5 million per year are not much happier than those who earn $100,000 per year." Another reason is that an expanding paycheck, especially in an expanding economy, produces expanding aspirations and a sense that there is always one more cool thing out there that you absolutely have to have. "Economic success falls short as a measure of well-being, in part because materialism can negatively influence well-being," Diener and Seligman conclude.

If money doesn't buy happiness, what does? Grandma was right when she told you to value health and friends, not money and stuff. Or as Diener and Seligman put it, once your basic needs are met "differences in well-being are less frequently due to income, and are more frequently due to factors such as social relationships and enjoyment at work." Other researchers add fulfillment, a sense that life has meaning, belonging to civic and other groups, and living in a democracy that respects individual rights and the rule of law. If a nation wants to increase its population's sense of well-being, says Veenhoven, it should make "less investment in economic growth and more in policies that promote good governance, liberties, democracy, trust and public safety."

(Curiously, although money doesn't buy happiness, happiness can buy money. Young people who describe themselves as happy typically earn higher incomes, years later, than those who said they were unhappy. It seems that a sense of well-being can make you more productive and more likely to show initiative and other traits that lead to a higher income. Contented people are also more likely to marry and stay married, as well as to be healthy, both of which increase happiness.)

If more money doesn't buy more happiness, then the behavior of most Americans looks downright insane, as we work harder and longer, decade after decade, to fatten our W-2s. But what is insane for an individual is crucial for a national economy—that is, ever more growth and consumption. Gilbert again: "Economies can blossom and grow only if people are deluded into believing that the production of wealth will make them happy … Economies thrive when individuals strive, but because individuals will strive only for their own happiness, it is essential that they mistakenly believe that producing and consuming are routes to personal well-being." In other words, if you want to do your part for your country's economy, forget all of the above about money not buying happiness.

New York Woman Seeks Rich Husband on Craigslist

An anoymous New York woman, apparently presuming that money will buy her some sort of happiness in Manhattan - she termed $1 million per year as middle class in the Big Apple - posted a personal ad on newyork.craigslist.org seeking a rich husband and managed to stir up some controversy in the process:

NEW YORK (Reuters) - Deal or no deal? An online exchange between a woman looking for a husband who earns more than $500,000 a year and a mystery Wall Street banker, who assessed her potential for romance as a business deal, has cause quite an Internet stir.

The anonymous 25-year-old woman recently posted an ad on the free online New York community Web site Craigslist, http://newyork.craigslist.org/, appealing for advice on how to find a wealthy husband.

"I know how that sounds, but keep in mind that a million a year is middle class in New York City, so I don't think I'm overreaching at all," the woman, who described herself as "spectacularly beautiful" and "superficial," wrote.

"I dated a business man who makes average around 200 - 250. But that's where I seem to hit a roadblock. $250,000 won't get me to Central Park West," she said, asking questions like "where do rich single men hang out?"

The mystery banker, who said he fit the bill, offered the woman an analysis of her predicament, describing it as "plain and simple a crappy business deal."

"Your looks will fade and my money will likely continue into perpetuity ... in fact, it is very likely that my income increases but it is an absolute certainty that you won't be getting any more beautiful!" the banker wrote.

"So, in economic terms you are a depreciating asset and I am an earning asset," he said. "Let me explain, you're 25 now and will likely stay pretty hot for the next 5 years, but less so each year. Then the fade begins in earnest. By 35 stick a fork in you!"

"It doesn't make good business sense to "buy you" (which is what you're asking) so I'd rather lease," he said.

Woman seeks rich husband, banker says "crappy" deal, 10/10/2007

Money Quote: Relative Wealth

"A wealthy man is one who earns $100 a year more than his wife's sister's husband." - H.L. Mencken

Research: Money Makes You Happy When...

While the various studies on money and happiness frequently conclude that the correlation between income, wealth, and happiness is weak or not as strong as 'people' may assume, one study found that "wealth generally allowed 'substantially better well-being, and less sadness and loneliness' [for those with disabilities]".

When Money DOES Buy Happiness, Robert Roi Britt, LiveScience.com, 4/6/2005

PS: When MBH comes across news articles, research, opinion, etc., related to our theme, we will post it - even when, like here - we're a little late to the game! Chances are you missed this story, and if you didn't, here's another chance to reconsider it.

Money & Work in the Virtual World of Second Life

A New York Times article, Even in a Virtual World, 'Stuff' Matters reports on consumerism and materialism in the online fantasy world of Second Life:

When people are given the opportunity to create a fantasy world, they can and do defy the laws of gravity (you can fly in Second Life), but not of economics or human nature. Players in this digital, global game don’t have to work, but many do. They don’t need to change clothes, fix their hair, or buy and furnish a home, but many do. They don’t need to have drinks in their hands at the virtual bar, but they buy cocktails anyway, just to look right, to feel comfortable.

Second Life residents find ways to make money so they can spend it to do things, look impressive, and get more stuff, even if it’s made only of pixels. In a place where people should never have to clean out their closets, some end up devoting hours to organizing their things, purging, even holding yard sales. ....

Second Life exclusives do exist: A magic wand was a hot item at one point, and the sex bed is currently in demand. (“If you lie on it with more than one avatar, it’s like you’re in a porn movie,” Mr. Au explained.)

But the more mundane items are what really drive the economy: clothes, gadgetry, night life, real estate. “People buy these huge McMansions in Second Life that are just as ugly as any McMansions in real life, because to them that is what’s status-y,” Mr. Wallace said. “It’s not as easy as we think to let our imaginations run wild, in Second Life or in real life.” .... “The average person wants a ranch house or a beach house” ....

Second Life players are evidently discovering what inheritors have struggled with for generations: It’s not as much fun to spend money you haven’t earned. Apparently, despite the common lottery-winning fantasies, all play and no work is a dull game, after all.

“People don’t take jobs just for the money,” said Dan Siciliano, who teaches finance at Stanford Law School and has studied the economies of virtual worlds. “They do it to feel important and be rewarded.”

And to buy more things. ...

Robert J. Bloomfield, a behavioral economist at Cornell University, studies investor behavior in the real world and recently became interested in how investors behave similarly in Second Life. “We know the little guy makes lots of dumb mistakes,” Professor Bloomfield said. “They tend to be overly impressed by the trappings of success. We see that magnified in Second Life.” ....

By Shira Boss, 9/9/2007

Charles Dickens Quote on Income & Happiness

Annual income twenty pounds, annual expenditure nineteen six, result happiness.
Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery.

- Charles Dickens, David Copperfield

Can Money Buy Happiness? (Money Magazine)

Can Money Buy Happiness? asks a Money Magazine article reprinted on the Forbes website. Among the obvservations:

The new science of happiness starts with a simple insight: We're never satisfied. "We always think if we just had a little bit more money, we'd be happier," says Catherine Sanderson, a psychology professor at Amherst College, "but when we get there, we're not." Indeed, the more you make, the more you want. The more you have, the less effective it is at bringing you joy, and that seeming paradox has long bedeviled economists. "Once you get basic human needs met, a lot more money doesn't make a lot more happiness," notes Dan Gilbert, a psychology professor at Harvard University and the author of the new book Stumbling on Happiness. As the graphic at left shows, going from earning less than $20,000 a year to making more than $50,000 makes you twice as likely to be happy, yet the payoff for then surpassing $90,000 is slight. And while the rich are happier than the poor, the enormous rise in living standards over the past 50 years hasn't made Americans happier.

(emphasis added)

Interestingly, the recommendations to improve your happiness involve spending money, but with preference to certain expenditures over others:

SMALL PLEASURES

LATTE

Don't discount the satisfaction you can get from something as trivial as a good cup of coffee. Furthermore, casual encounters with familiar people like the barista at your local Starbucks or the guy at the newsstand have a bigger effect on your happiness than you might realize.

UPDATE 8/9/2007: Meanwhile, many financial advisor target this "Starbucks" factor as the first area to cut spending to get one's finances in shape. See, for example:

Every Penny Counts by Christine Haughney, New York Times, 7/29/2007;

Creating an emergency fund by Cheryl Allebrand, Bankrate.com, 7/23/2007:

Q: The solution I've heard most often to cut corners and start saving is giving up coffeehouse coffee. I'm not sure how caffeinated authors think we are, but is that really the solution -- give up the demon drink and you'll be financially secure? Or do you have some advice for tea drinkers?

A: I think one of the keys to financial security is about seeing what money's coming in and going out. That's where the latte factor comes in. Do you have to focus on every latte? No. See what your committed expenses are -- including taxes and the six things you have to pay every month like utilities and car payment -- and try to limit them to 60 percent of your total gross income. Look at savings: Invest 20 percent in long-term savings (education, retirement) and then you have 20 percent left. Ten percent is for your emergency fund. You never know when the boiler's going to break. That's where emergency money comes in. The 10 percent that's left is fun money, this is what partners divvy up -- 5 percent each. If you don't have 5 percent that month, you don't have the fun.

(interview with Sharon Epperson)

Money Buys Lack of Unhappiness?

MBH recently came across this 1999 Slate article citing research that indicates:

While it's true that, overall, these data show that money doesn't dramatically affect the distribution of happiness, let's examine some of the nuances. One is that you're nearly four times as likely to be miserable if you make less than $15,000 than you would be if you made more than $35,000. True, 79 percent of people making less than $15,000 still consider themselves "pretty happy" or "very happy." But what if you don't happen to belong to this naturally buoyant majority? Clearly, for at least 15 or 16 percent (i.e., the proportion of unhappy people exceeding the "naturally unhappy" baseline of 5 or 6 percent), the lack of money buys unhappiness.

Chatterbox is also intrigued by what happens when your income rises above $75,000. If you were unhappy before, apparently you're likely to stay unhappy. But 11 percent of the people who were "pretty happy" will become "very happy." Money may not buy happiness, but if you're already happy there's a decent chance it will make you more happy!

Laura Rowley: Money DOES Buy Happiness, But...

Financial author Laura Rowley was interviewed recently on NPR/Motley Fool radio while promoting her book, Money & Happiness: A Woman's Guide to True Wealth, and asked if money buys happiness.

Her reply - on the air, at least; we haven't read the book - was that "a certain amount of money does buy happiness."  That is, the difference between having no money and having enough money to meet one's basic human needs of food, clothing, shelter, was enormous.  Beyond that, she felt based on the studies she had reviewed, such as those showing enormous increases in wealth in countries like the United States but only marginal increases in the happiness reported over the same time frame, that additional wealth buys little, if any, additional happiness.

Vaguely referencing various studies, some of which are mentioned in other posts and links here (this being radio, there were no "cites"), she adds that lottery winners and even Forbes list-ers are only somewhat happier than the average person.

So how much is enough, according to Rowley?  Depends in part on your expenses, she says.  With the median U.S. income being $43,000 per year, she says, those earning $50,000 and more annually report fewer "blue days", according to another unnamed study.

She says scientists/economists have found the pursuit of money as a primary or number two goal in life has negative consequences such as relationship trouble, depression, and low self-esteem.  And that any increase in standard of living is quickly adjusted to, with only more and bigger looking appealing thereafter (e.g., after moving from an apartment to a house, one then wants a bigger house, one with a pool, in a better neighborhood, etc.).  Thus, more and more money is required, with presumably more work and less job options available to finance this newfound lifestyle.

Money = Happiness? One study says no

I've been rich and I've been poor.  Rich is better. - Sophie Tucker

Does more money buy more personal happiness?

According to surveys conducted by University of Southern California economist Richard A. Easterlin, no.

Instead, his research indicates -- as explained in layman's terms by Fool.com columnist Dayana Yochim -- that being married rather than single or divorced, and having friends and good health are more important to happiness than money (though money does indeed have some effect, both authors acknowledge:  She notes that "[T]he most prosperous among us -- the Forbes' 100 wealthiest Americans surveyed by University of Illinois psychologist Ed Diener -- are ... slightly happier than average.").

Easterlin concludes that

people allocate a disproportionate amount of time to the pursuit of pecuniary rather than nonpecuniary objectives, as well as to "comfort" and positional goods, and shortchange goals that will have a more lasting effect on well-being....

[M]ost individuals spend a disproportionate amount of their lives working to make money, and sacrifice family life and health, domains in which aspirations remain fairly constant as actual circumstances change, and where the attainment of one's goals has a more lasting impact on happiness.  Hence, a reallocation of time in favor of family life and health would, on average, increase individual happiness.

In one of Yochim's other columns, however, she quotes research summarizing what retirees who are looking back on their lives wish they had done more of, were they able to have a "do over" on their retirement planning:

• Nearly 60% said they would start saving earlier.
• One-third would reduce expenses to save more for retirement.
• A third would be more disciplined about retirement income.
• 25% would work longer.

Not exactly compatible with not focusing on earning money during one's lifetime.  And perhaps indicative of the fact that many underestimated the importance of money until retirement (but prior to retirement mau have answered university professors' subjective happiness surveys by indicating that they had enough money and were overall quite happy with their financial situations).

Overall, the conclusion here seems to agree with Sophie Tucker's quote:  Rich is indeed better and does indeed make one somewhat happier, but given limited time to devote to relationships/family/health versus finances, the typical person will experience higher marginal utility in pursuing the former over the latter.

Money Buys Happiness ?

Does money buy happiness?  Come along with us, take a look at the evidence, and decide for yourself.  We'll be reviewing and summarizing past studies and stories, in addition to whatever new information comes up.

Money Buys Happiness: http://www.moneybuyshappiness.com

At some point MBH may move to a website format, but for now it's a (very small) part of the blogosphere.  If your comments, dear readers, prove useful, who knows, we may stay here...

Money can't buy happiness, but it sure makes misery easier to live with. - Unknown*

* Hat tip:  Main Street Mom's Money Quotes