Although the term was coined in the early 1900s, the societal pressure to “keep up with Joneses” sadly remains alive and well today, much to the detriment of our happiness and overall well-being. This idiom sends people on an endless quest for higher status through the greater accumulation of wealth and material goods, and perfectly captures the misconception that there is a strong relationship between money and happiness.
While the relationship between money and happiness does exist, it’s much weaker than most people assume. Moreover, the key to happiness is not necessarily more money—rather, it’s learning how to spend your money right. This is the premise of Happy Money: The Science of Happier Spending, co-authored by Dr. Elizabeth Dunn and Dr. Michael Norton, associate professors at the University of British Columbia and Harvard Business School, respectively. Dr. Dunn will further explore this notion in her keynote presentation at XYPN LIVE 2018 in St. Louis this fall.
Dr. Dunn—who, at 26, was named one of the “rising stars” in academia by the Chronicle of Higher Education—conducts experimental research on money and happiness; in Happy Money, she and Dr. Norton specifically explore how we can use the former to achieve the latter. They argue that the answer resides with our spending decisions. Simply put: how you choose to spend your money can impact happiness and overall well-being. According to Drs. Dunn and Norton, “If money doesn’t make you happy, then you probably aren’t spending it right.” They comb the research to identify five key ways that money can, in fact, buy happiness:
- Buy experiences (not “stuff”). Material things, like a big house or a fancy car, provide less happiness than experiential purchases, like a trip or a concert. We should try to resist the material and instead insist on the experiential.
“We are happy with things, until we find out there are better things available... Next time you reach for your wallet to buy a metaphorical rubber frog, don’t let the lure of the material induce you to forgo all the happiness benefits of the experiential.”
- Make it a treat. Limiting access to things we really enjoy highlights the value of novelty, helping invigorate our appreciation for and enjoyment from them.
“At the same time that money increases our happiness by giving us access to all kinds of wonderful things, knowing we have access to wonderful things undermines our happiness by reducing our tendency to appreciate life’s small joys... Abundance, it turns out, is the enemy of appreciation.”
- Buy time. Thinking about time (rather than money) encourages people to engage in activities that promote well-being. Just like with money, the same 15 minutes can make us feel either (time-)rich or (time-)poor, depending on how we spend them. Outsourcing dreaded tasks can change how we spend our time, allowing us to pursue more enjoyable things.
“In terms of our happiness, time is really the fundamental currency... By focusing less on money and more on time, it’s easier to use both resources in happier ways.”
- Buy now, enjoy later. Delaying consumption helps us enjoy the anticipation. The pleasure of consumption is purest without the experience of actually paying for it; separating payment from consumption therefore enhances the pleasure of the purchase.
“When it comes time for consumption, having paid long ago brings a final payoff: freedom from the tyranny of sunk costs... Purchases that have been paid for long ago feel free, thereby liberating people to spend their time in happier ways.”
- Spend on others. One of the most effective ways we can use money to increase our happiness is by spending it on others. Research shows that spending money on others produces more happiness (and possibly even better health!) than spending money on yourself.
"Investing in others brings a host of benefits to the giver, affecting not only happiness, but also health and feelings of wealth."
These five principles can help you get more “bang for your buck”—or rather, more happiness for your money, Drs. Dunn and Norton argue.
How Advisors Can Use the Happy Money Principles
There is so much literature on how to increase your income. But that’s not the right question to ask. Money continues to fail us, undermining our capacity to savor life’s little pleasures. Just like the literature, many financial advisors focus on how to increase income—how much we can earn, save, and spend—rather than working with clients on their actual spending decisions and the impact these have on their lives.
Happy Money suggests that spending decisions that maximize happiness won’t necessarily maximize wealth. For example, spending money on an experiential purchase, like a concert ticket, might mean not putting as much money into savings that month. A purchase that buys time, like taking a job that pays less but reduces your commute, decreases income, but according to Drs. Dunn and Norton can increase happiness and well-being.
These are decisions that may go against the instincts of the typical financial advisor (and against our spending intuitions), but are certainly things a modern-day financial advisor focused on providing comprehensive financial advice should consider. Clients often feel so limited by their income when really they have complete control over the choices they make in spending their money. Advisors can help restore that sense of control by highlighting the power of spending decisions and helping clients leverage those decisions to maximize happiness and increase well-being.
In a world that primes us to seek instant gratification, buy now/pay later, and fill our lives with things over experiences—all tendencies that impede our pursuit of happiness—advisors can play a far greater role in coaching clients on how to more effectively spend their money to live more satisfied—not necessarily more wealthy—lives.
As XYPN co-founder Alan Moore reflects, “We have been told time and time again that more money doesn’t equal more happiness, which we have all seen as financial planners but I struggled to accept as reality. Dr. Dunn shed light on this strange reality for me by showing how money can achieve the happiness we aren’t naturally wired to obtain. The ways we can use money as a tool to be happier are obvious and yet so rarely taken advantage of. One of my favorite learnings from this book was the research showing that owning a bigger/nicer home doesn’t make us happier, but it typically means we have to move further from town and therefore increase our commute. Commute times have the highest negative correlation with happiness, so we are basically making ourselves more miserable trying to obtain happiness (because we incorrectly assume a bigger/better house will make us happier!). The research in this book will help you personally, and also help you help your clients live more satisfied lives. We just have to keep in mind what actually makes us happier, and what is simply an illusion.”
To learn more from Dr. Dunn about how you—and your clients—can use money to achieve happiness, get your pass for XYPN LIVE 2018.
About the Author
As XYPN’s Content Manager, Kelly is tasked with communicating the Network's value proposition to the world. For years, Kelly has helped organizations tell their stories in ways that inspire others to listen, and to care. Her penchant for a well-crafted sentence, good grammar, and clever wordplay has earned her the moniker “Word Whiz” around the XYPN office. She’s thrilled to share XYPN’s story with you and the rest of the world.
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