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How to be happy? Give away your money

Date

Ross Gittins

<i>Illustration: Kerrie Leishman.</i>

Illustration: Kerrie Leishman.

If I wanted to get more happiness into my life, I wouldn’t do it by trying to earn more money. I’d concentrate on spending more time with family and friends and getting more satisfaction from work itself rather than the money it brings in.

That’s because, though money does buy happiness, it buys far less than we expect it to. It suffers from rapidly diminishing "marginal utility" – each extra $1000 you spend brings less satisfaction than the one before.

Since economists are in the money business, it’s surprising how little they know about its ability to make us happy. They don’t study it, they just assume more money equals more "utility" or satisfaction.

The professionals who study the relationship between money and happiness are the psychologists. And three of them, Elizabeth Dunn, Daniel Gilbert and Timothy Wilson, of the universities of British Columbia, Harvard and Virginia respectively, have published, in the Journal of Consumer Psychology, a useful guide to their profession’s finding on how to get more satisfaction from your spending.

"Money is an opportunity for happiness, but it is an opportunity that people routinely squander because the things they think will make them happy often don’t," they say.

Why not? Because humans turn out to be quite bad at "affective forecasting" – predicting how happy or unhappy particular events will make them feel. We tend to overestimate how good we’ll feel about good things and how bad we’ll feel about bad things.

That’s mainly because we underestimate our ability to adapt to positive and negative events. We quickly adapt to some improvement in our circumstances and take it for granted. Fortunately, it also works the other way: we soon come to accept, possibly major, setbacks in our circumstances.

But another reason our forecasting goes astray is that how we’re feeling at the time we make the forecast has too much influence on how we imagine we’ll feel at the time it happens. Haven’t you noticed? If it’s cold when you’re packing for a summer holiday, you tend to take too many warm clothes.

The authors use well-established research findings to offer some tips on how to get more satisfaction from spending. One is to buy experiences instead of things. "Experiential purchases" are those made with the intention of acquiring a life experience; an event, or series of events, we live through.

One reason experiences are better is it takes longer to adapt to them. Objects don’t change after you’ve bought them, but each session of a year-long cooking class is different. Experiences offer more scope for pleasurable anticipation and, particularly, remembering them fondly. It’s easier to tell your friends about a great holiday than to boast about a new car.

Another tip is to help others instead of yourself. Humans are the most social animal on our planet, the authors say. We have highly complex social networks that include people who aren’t related to us. So it’s not surprising the quality of our social relationships is a strong determinant of our happiness.

Almost anything we do to improve our connections with others tends to improve our happiness. And studies show that people who devote more money to "pro-social" spending – gifts to others or to charities – are happier, even after allowing for how high their incomes are.

A third tip is to buy many small pleasures instead of a few big ones. "As long as money is limited by its failure to grow on trees," the authors say, "we may be better off devoting our finite financial resources to purchasing frequent doses of lovely things rather than infrequent doses of lovelier things."

In many areas of life, happiness is more strongly associated with the frequency than the intensity of people’s positive experiences.

Another tip is to be wary of comparison shopping. Economists are great believers in shopping around to find the best deal. Indeed, competition doesn’t work very well unless consumers are willing to shift their business.

But the psychologists have a different take. "By altering the psychological context in which decisions are made, comparison shopping may distract consumers from attributes of a product that will be important for their happiness, focusing their attention instead on attributes that distinguish the available opinions," the authors say.

The comparisons we make when we are shopping are not the same comparisons we will make when we consume what we shopped for.

Their final tip is another odd one: follow the herd instead of your head. Research suggests the best way to predict how much we will enjoy an experience is not to evaluate its characteristics ourselves, but to see how much other people liked it.

We’re usually not so different from them and, in any case, most people like having plenty of company.

Ross Gittins is economics editor.

98 comments

  • Dr Gittins: Or How I Learned To Stop Worrying And Love The Budget

    Commenter
    Spaniel
    Date and time
    June 18, 2014, 2:01AM
    • Thank you Ross.
      Some sound advice; but, it's a complex issue - this happiness thing.
      Of course, our circumstances are important - but, so is our temperamental predisposition (an inherited/biological thing).
      Despite being financially comfortable, having a reasonable job, being in a good relationship and of good health - some people are still not 'happy'.
      Our psychological make-up and attitude (mindset) are important factors in determining if we feel happy - and how we interpret our life and view ourselves.
      We all know people who are 'glass half-full' characters - and some who are definitely 'glass half-empty'.
      We are born with a particular character predisposition - and then the circumstances of our life and these biological characteristics work together to shape the evolution of our personality style.
      It is an ongoing process - but we become more 'set' in our ways as we age.
      For some poor souls, being fairly miserable is their default position - irrespective of their circumstances; for others, we may marvel at their capacity to see the bright side - not matter how difficult it appears to us.

      Commenter
      Howe Synnott
      Location
      Sydney
      Date and time
      June 18, 2014, 7:02AM
    • How many times is Gittins going to write this article, is a more pertinent question.

      Commenter
      SteveH.
      Date and time
      June 18, 2014, 7:24AM
    • @ SteveH - "How many times is Gittins going to write this article, is a more pertinent question."

      hi SteveH - firstly, he is commenting on a recently published study.

      Secondly, I never hear your complaints about the repetitious articles of, for example, Sheehan or Henderson.

      Commenter
      Ross
      Location
      MALLABULA
      Date and time
      June 18, 2014, 8:22AM
    • Happiness is easy to say and hard to do but it goes something like this:
      Do all that is good and none that is evil, purify your mind. Greed, ignorance, anger, hatred, jealousy are the roots of all unhappiness and our worldly sufferings.

      Commenter
      Purity
      Date and time
      June 18, 2014, 9:00AM
    • Written by a man who has obviously never had to worry about how he will pay his next power bill.

      Commenter
      Magstar
      Date and time
      June 18, 2014, 9:10AM
    • Frankly its time Fairfax introduced a new column, where 'feel good about yourself' or 'feel bad about others' moral homilies for 'progressives' could published with suitable warnings for those readers who prefer the modern style of quantifiable analysis.

      Commenter
      SteveH.
      Date and time
      June 18, 2014, 12:42PM
  • Money brings choices, and living in South America I see and meet many people with very limited choices due to lack of money. However this article makes really good points, particularly around giving money and I think time to charities and others. Even the smallest things can positively affect mood - giving change to a busker, buying a raffle ticket or committing regular funds to a charity and then taking an active role in its work. I am not sure about following the herd though. Some of my happiest moment have been when I have gone to a country with few tourists or eaten at untrendy but delicious restaurants.

    Commenter
    Aussie Expat
    Location
    Santiago, Chile
    Date and time
    June 18, 2014, 2:20AM
    • My whole working life I have been a scientist and I have always studied relevant to my job. I was purely motivated by professional interest. We don't live to work, we work to live. Discretionary spending is important when you've had the divorce and retired to live with somebody you love. Go for the money - your professional interest will only be exploited by others probably less competent than yourself. Who owns the intellectual property you generate ?

      Commenter
      adam
      Location
      yarrawonga
      Date and time
      June 18, 2014, 6:44AM
    • +1. I've always believed that the key to happiness is choice. Not simply choice in terms of spending potential but choice in how you live yuor life. Money does contribute to choice as does as good health, living in a free society,etc

      Commenter
      PostGrowthWorld
      Location
      ACT
      Date and time
      June 18, 2014, 9:46AM

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