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Oversaving Does Not Lead to Happiness Print
Tuesday, 24th March 2009 (by J.D.)This article is about Choices, Frugality, News, Psychology
I love frugality. Frugality helped me to dig out of debt, begin to build wealth, and find more meaning in the things I already own. But at some point I crossed the line from frugal to cheap. I’ve spent the past few months seeking balance: allowing myself permission to spend on a few indulgences while choosing to cut back in other areas.
There’s new research that indicates this sort of conscious spending really does make us happier. This morning, Jeff V. pointed me to a New York Times article from John Tierney that explores this research. Tierney says that oversaving is a burden for our times.
Unlike some others who have complained about savers recently, Tierney does not argue that we should all rush out to spend in order to support the economy. He merely warns that oversaving does not lead to happiness:
“People feel guilty about hedonism right afterwards, but as time passes the guilt dissipates,” said Dr. Kivetz, a professor of marketing at the Columbia Business School. “At some point there’s a reversal, and what builds up is this wistful feeling of missing out on life’s pleasures.”
[...]
During the current recession, hyperopic Ants are presumably having a harder time than ever parting with their own cash, no matter how often President Obama and his economists urge them to do some stimulative shopping. But would these Ants — and the economy — be better off if they relaxed a little? I asked Dr. Kivetz for his advice to shoppers.
“Don’t be too hard on yourself,” he said. “Obviously you need to be responsible and conserve your savings. But it’s been a depressing winter, and there’s nothing wrong with indulging yourself a little. This is a chance to reassess the quality and the balance of your life and to think how you’ll feel in the future. As long as you can afford it, it’s not a bad thing to be enjoying yourself.”
Now obviously nobody is encouraging you to live beyond your means. Frugality is an important part of personal finance, and we all should certainly do what we can to curb costs. Instead, this is a reminder that money is a tool. If you’re meeting your goals for saving, it’s okay to spend some on the things that make you happy.
[The New York Times: Oversaving, a burdern for our times, via Jeff V.]
March 24th, 2009 at 1:15 pm
Give to charity!
Nothing wrong with a little indulgence, but frugality frees up money you can use to make a difference in other people’s lives. Why spend on your own diminishing marginal returns when spending on someone else could really use a sandwich?
Added bonus - it can make you feel happier way more effectively than a new kitchen.
March 24th, 2009 at 1:16 pm
I have to add that this rule doesn’t apply to everyone. If you have a really bad financial situation then you might not be able to spend anything on yourself until you get control of your finances.
That said, I need to loosen up the purse strings a bit.
March 24th, 2009 at 1:21 pm
I just got myself to a point where I’ve eliminated all of my consumer debt entirely, and I’m now preparing to begin building my savings.
But before I get too far down that, I’ve decided that it’s okay for me to “practice” spending money on fun things without blowing my budget. So far, this has included buying a couple of “toys” (Kindle 2, Roku Box) at full price, but mostly, my post-debt-elimination purchases have only been things that I’ve found for super duper cheap prices (either on dealnews.com, woot, etc.). And I’m really forcing myself to think about my impulse purchases. Part of me thinks of it as a reward for getting rid of credit card debt, but better than that, I think it’s good practice for finding cheap ways to indulge myself, sometimes while saving money in other areas. My Roku Box, for example, winds up giving me the maximum use out of my Netflix Subscription, which keeps me home watching movies, rather than going out to dinner. Whether or not these things pay for themselves, it feels good just to get into the habit of thinking about things, and best of all–I don’t feel deprived at all.
March 24th, 2009 at 1:24 pm
March 24th, 2009 at 1:28 pm
@Albert (#4)
Great comment. I think you’re absolutely correct. But I also think it’s interesting that the research reveals what I have been learning experientially (and that others have been telling me). The relationship between money and happiness constantly fascinates me.
March 24th, 2009 at 1:29 pm
DH and I are considering this spring a tremendous buying opportunity. We are evaluating our savings and our plans to buy things and moving up the schedule. Work on our house, a new PC, clothes, we have the money sitting there and if we act soon we can get some really great deals.
Once your savings cover your “sleep at night factor” and you are meeting your ongoing saving goals, the rest is for living your life.
March 24th, 2009 at 1:31 pm
Actually, money has little to do with happiness unless you spend your extra money to help others or you’re really poor. I recently wrote a post called “Can More Money Make You Happier?” that goes into more detail.
March 24th, 2009 at 1:42 pm
I agree with this post. If you adhere to a budget, a certain amount (25% for me) should go toward “guilt-free spending”. Do just that. Spend it on things that make you happy.
March 24th, 2009 at 1:47 pm
Here’s to hedonism!
March 24th, 2009 at 1:51 pm
I have recently been practicing this. I just moved into a new place and find enjoyment in “sprucing” the place up. This past weekend I spent a little money on some bulbs, dirt and mulch for the flower bed out front (not a need, but great satisfaction after the fact) and am planning on buying new curtains for the dining room soon.
I don’t need any of this stuff, but it gives me satisfaction spending the money I have on things that enhance my life personally.
As long as I’m still meeting my savings goals and stay out of debt, I am comfortable and happier spending money on the little things that make my life better.
March 24th, 2009 at 1:53 pm
At work we were told last October that a “restructuring” would occur in Q1. Since then I have been spending considerably less and focused on saving. Well today was the day, I was “restructured”. My emergency fund is ready and I must admit, I’m not as stressed as I would have been if I didn’t save beforehand.
I didn’t want people to say “Nice kitchen” but not be able to eat.
March 24th, 2009 at 2:01 pm
is this a sign telling me i should get my HDTV now? =D
March 24th, 2009 at 2:08 pm
I come from very frugal people and I had to learn that not only is it ok to occasionally spend on something frivolous, sometimes it makes sense. I get stressed a little easier than most and allowing myself an occasional treat that relieves the stress - a dinner out rather than cooking, even a housekeeping service for awhile - meant that I could focus better on my job and earn more in the long run. which means more money in retirement savings, higher social security, no expensive counseling costs…
I’ve never suffered from the debt problems that many of you report. Though I’ve had many times when I didn’t save much, I rarely borrowed - a couple of times for cars (though I put way more down than most people), a couple of times that I took a month or two to pay off a big purchase on a credit card (out of 40 years of earning salaries), a few thousand dollars in college loans, and a modest home.
You need to remember that you can take the frugality thing too far. We all know people that denied themselves any small pleasure and then died with a ton of money.
On the other hand it is nice to know that you have the frugality skills to fall back on when needed. If you have only reasonable debts and some savings you can go into super-frugality mode when you have a financial setback or you want to save for some major goal.
March 24th, 2009 at 2:11 pm
As I said to you on your earlier posts, I’m glad you’ve added joy back into your budgeting system. I truly believe that one can be fiscally responsible and still occasionally blow money on frivolous things. The trick is in scaling the frivolousness to what your budget can safely withstand.
March 24th, 2009 at 2:27 pm
I really think that frugality is both a lifelong practice, and a cycle throughout life. There will be cycles when people are more spendy and less frugal, and others when they’ll tuck money away like squirrels preparing for winter. Right now, my husband and I are penny-pinching because we’re getting ready to buy a house and trying to bulk up for the associated expenses. Then there will be a bit of a buying spree for things like appliances, a few pieces of furniture, then we’ll start saving again.
I think as long as people practice good financial balance and let common-sense be their guide, then they can comfortably deal with the typical cycles of life.
March 24th, 2009 at 2:37 pm
Oversaving may not lead to happiness, but overspending will lead to unhappiness sooner or later. Regarding the former, the article and the studies it quotes do not do a very good job of proving the point. Who commissioned the study, the consumer marketing industry? Sheesh!
March 24th, 2009 at 3:20 pm
I agree with the first comment here, and I would add that our spending affects many more people than ourselves. Every dollar we spend is a vote for the kind of world we want–what kind of environment, what kind of labor practices, etc. There’s more to personal finance than save vs. indulge, and that’s the area of ethical spending.
March 24th, 2009 at 3:38 pm
Balance is absolutely key! You will just be miserable is you obsess over every penny and don’t allow yourself the occasional (and I stress occasional) indulgence.
March 24th, 2009 at 3:39 pm
It’s interesting that they pull the regret over guilt idea over spending. Obviously, this can be conjured as another tactic for people to open up their purse strings and “stimulate” the economy. But the point is worth thinking over nevertheless. Life is unpredictable, so frugality should be practiced with some room for indulgences if finances allow.
March 24th, 2009 at 3:46 pm
I think when we become reponsible with our finances, for example, like Nancy L. and Aryn - couldn’t have said it better myself — then money ceases to be an issue. When we get out of debt and learn how to live below our means, then we get off of a financial roller coaster and stay on level ground. I know that splurges from time to time, so long as they are within my budget, do make me happy, which include things I buy for myself as well as for others.
The key though is “within my budget.” I don’t feel entitled to material things I can’t afford because I know that life is not fair and accept it. (I wouldn’t buy anything that would throw my budget out of whack). I think people will continue to have money problems when they feel a sense of entitlement, and refuse to accept that life isn’t fair. They think: I deserve it. It doesn’t matter if I can’t afford it, so they charge it or take out a loan for it. And so they’ll just keep themselves on that financial roller coaster. Money problems will never go away as long as unsecured debt is carried from month to month. And so being financially comfortable has nothing to do with being rich, but comes as the result of following sound financial principles and taking responsibility. Then you can be on level ground and feel relaxed, rather than on that roller coastal and feeling stressed out all of the time.
March 24th, 2009 at 3:48 pm
Albert said it.
When DH and I had our first episode of austerity (DH went back to college FT, and I went back PT/worked PT), we learned a lot about what is important to our quality of life.
Certain expenditures are non-negotiable, and others will be cut only when we’re in really bad shape, financially.
When you’re deciding where to draw the frugal/cheap line, you have to stick with your values. But first, you need to know what they are.
March 24th, 2009 at 3:57 pm
>But would these Ants — and the >economy — be better off if they >relaxed a little?
As long as you save in a bank rather than putting cash in your mattress that cash is available to lend to another person or company that will spend it. So individuals saving in the banking system should NOT pose a problem for the economy!
If you have a reasonable amount saved for emergencies, have tamed your debt, and have invested sufficiently for the future then spending a reasonable amount on something you value really should make you happier.
If responsible spending doesn’t make you happier that is NOT a healthy reaction! Being too afraid to spend or too greedy to spend doesn’t strike me as a path to happiness!
-Rick Francis
March 24th, 2009 at 4:14 pm
Hey JD,
My wife and I have “play” money. This is money that we both receive at the beginning of the month to “play with”
I’ve spent the money on hockey gear, a couple of beers now and again or just a weekend with friends at the cottage.
The best part is that my wife and I have an agreement; we don’t ask each other what we spend our play money on; and since we receive a fixed amount of “play” every month we don’t overspend either….
I love my play money
March 24th, 2009 at 4:18 pm
I have a rule that I’ve been using for a year and trying to get my DH to accept … I don’t really buy anything that isn’t a necessity unless a) it will definitely improve our quality of life in the here and now (e.g., upgrading items in daily use) OR b) it will definitely improve our relationship in the here and now (e.g., tickets to an event, or an overnight trip out of town), AND c) we can pay cash.
March 24th, 2009 at 4:39 pm
I couldn’t agree more with keeping the balance in your life. But I regret making unnecessary purchases way more often than I feel deprived because of the ongoing savings effort…
March 24th, 2009 at 4:43 pm
What’s interesting about this article is that it is all about perception. For some folks, going out to dinner once a week is an extravagence, but to someone else, it is cutting way back.
If someone feels like they are cutting back for too long, they start to get whistful about what they are missing, but if they don’t feel like they are missing anything, they won’t!
So the trick is to spend well below your means but to feel like you are living large! Good luck.
March 24th, 2009 at 4:50 pm
I kinda of touch this in my blog, everthing must have a balance, always have a percentage going to fun.
If not, you will go crazy
March 24th, 2009 at 4:52 pm
As usual, the right answer is: It Depends.
If you have a job and income, then ok do something nice for yourself periodically.
If you are being foreclosed next week with no prospects and no income and no place to go, I doubt that buying an IPod is appropriate at this point.
March 24th, 2009 at 5:04 pm
This is what works for us:
We set aside a fixed amount for entertainment even though very small, it keeps us from feeling too deprived. This in turn makes us more successful in paying off debt.
On another note, it is a good time to spend (as long as you are responsibly doing it). I took a trip recently and my airfare only cost me $215, instead of $400. I was able to shop during that vacation and eat out a few times. Total cost of the 5-day vacation: $350. I stayed with family and did not rent a car. All I am saying is, the deals are out there as long as you spend it on things that matter to you and use your money wisely.
So, we always set money aside for entertainment no matter what our financial situation. The amount would just be different. It could be $10/month now, $100/month later, or something like that. This also keeps us away from impulse spending because it is sort of “planned”. I highly recommend this but do what works for you.
March 24th, 2009 at 5:15 pm
There are plenty of people on the blogs who give frugality a bad name, and think you’re wasting your money if you ever step foot outside the housing development you live in, our throw out a pair of socks unless they have at least five holes. I’m as guilty of this as anybody else. But I’ve learned my lesson and now my new mission is to prove you can live a good life on just a little bit of money.
My indulgence is going to Mexico. For years, I went every weekend; this was unsustainable. Then I stopped going completely. Spent three years holed up inside my apartment. Saved tons of money, but never did anything and was unhappy and miserable. Now, I paid off all my debts, max out 401(k) every year, have a couple of years of living expenses saved up. I go to Mexico every 6-8 weeks. That makes it affordable, sustainable, and also a special enough treat. Balance, harmony, zen, and happiness.
March 24th, 2009 at 5:55 pm
Interesting that this was even a news event… but I say that a lot.
This guys simply has a new spin on an old saw and he’s the new story de jour.
Spending money and material things don’t bring happiness. If that is true then the converse has to be true too - over saving doesn’t drive happiness either.
Happiness is largely independent of money on both sides of the equation.
… but I doubt this even just a little, I’d err on the side more money in savings because the security it affords… besides while you CAN over spend means, you can’t really over save… save over what?
I conclude the guy is a hack but I should seek out the article to be sure!
Thanks for sharing!
Dave
March 24th, 2009 at 6:30 pm
J.D.
Here is an excerpt from the ebook I’ve been working on that cites another study on the very same topic. Please excuse any editing issues, this is a work in progress.
“In many situations we initiate our own poor spending by allowing emotions to control our wallets. A study conducted by Carnegie Mellon University in Pittsburgh explored the issue of psychology and emotion in spending with a simple experiment. Participants were asked to participate in a study in which they would be divided into two separate groups and shown film clips. This first group was shown a scene from the video The Champ, a 1979 film in which the segment shown displays a boy weeping uncontrollably over his dead father’s body. After the film the participants were asked to write a reflection paper about what it would be like if they had lost a mentor in a similar way. The second group viewed a National Geographic film about the Great Barrier Reef. It was a documentary about different species of fish, its’ beach, the reef, and various underwater scenes. The movie was “emotionally neutral.” After the second group watched the Barrier Reef video they were asked to write about their daily routine. The researchers paid each of the participants $10 for their time and told them they could use some of that money to purchase a nice water bottle. (Note: The suggestion to purchase the bottle was optional and not required of any of the participants.) The study found the people in group one (the sad group) were more likely to purchase the bottle and were willing to pay more for the same item than the people who felt neutral. It wasn’t just a little more either. On average the neutral group was only willing to give $0.56, while the “sad” group was willing to give an average of $2.11. That’s a difference of over 250%!”
I agree that spending does help sooth the nerves, it’s only when we don’t have the money to spend that it causes a problem. At least that’s what I found in my own debt experience.
March 24th, 2009 at 7:17 pm
Excellent points #4 and #16.
The commercial media loves to point out the disadvantages of saving and/or living a frugal life. They always seem to be producing articles that leave the reader feeling as if they are doing a disservice to themselves by choosing to live below their means.
Invariably, I always feel to need to spend more and “indulge a little” (which is a relative concept) after reading those articles. Similar to the way I always feel a need to lose weight after browsing fashion magazines despite being tall and slim.
Suffice to say, those articles are in the advertisers’ interests, not the readers.
March 24th, 2009 at 7:28 pm
Note that Dr. Kivetz is a professor of MARKETING. What the heck does he know?
March 24th, 2009 at 8:15 pm
Really? Then why do I get a little thrill when I see my retirement accounts increase or my mortgage principle decrease?
March 24th, 2009 at 8:57 pm
@Ann (#35)
I get the same thrill. No question. But I think the point of the article isn’t “saving does not lead to happiness” but that over-saving does not lead to happiness. The argument being made (and it matches up with my own life) is that when we save too much we risk losing our financial balance.
March 24th, 2009 at 9:44 pm
@JD (#36) - I understand the point of the article, but, for me, there is no such thing as over-saving. I’m one of those weirdos who is addicted to saving.
March 24th, 2009 at 10:38 pm
Money may not buy happiness… but poverty sure buys a LOAD of misery.
March 24th, 2009 at 10:44 pm
J.D. -
Another great post, as usual.
Getting out of debt can be a such a long, frustrating process that I’d suggest that people should build this idea into their debt-elimination strategy. Set small, easily-attainable goals that you can reach within at least a few months and that are steps towards your long-term goals. When you achieve a small goal, reward yourself with a fixed amount of extra “play” money to spend on whatever makes you happy.
This will do a few things for you, psychologically: First, it will keep you from over-indulging yourself by spending too much or too often. Then, it will ensure you don’t feel guilty about indulging yourself, because it actually means you are moving in the right direction. And finally, it will help keep you motivated to continue setting and achieving your short-term goals, which will in turn help you reach your long-term goals.
‘Course, this is coming from someone who’s spent the last six years or so trying to get out of debt in all the wrong ways. Personally, I just hope to someday get to the point where I actually have enough leftover money after my bills are paid that I can decide whether I should save it or spend it!
I’m learning from (and blogging about) my past mistakes, so hopefully I can turn things around for myself and my family in the next six years. Your blog promises to be a great help in this process!
P.S. I think Jorge (#26) summed it up best: “spend well below your means but…feel like you are living large!”
March 24th, 2009 at 11:23 pm
Ken(#38) sums it up quite well, and having money saved brings a great sense of security.
I will say that if you are inclined to not just frugality but being cheap and miserly, try giving to charity. I think that is a great way to help keep you cognizant of what you have been blessed with and should be thankful for, while helping others. I think it can help you avoid the feeling that you are missing out on something, because you recognize how much you have. It also feels makes you feel good, because that’s what happens when you give and help others.
March 24th, 2009 at 11:43 pm
J.D.
I can’t wait for you to tell us all how you feel when you buy that Mini Cooper. I’ve been feeling a bit deprived lately because I’m locked into the saving mode even though my wife and I doing fairly well with our finances. I need to vicariously share your joy when you buy your new Mini Cooper
March 25th, 2009 at 4:44 am
Simply put, it’s about balance and moderation . . .
March 25th, 2009 at 6:16 am
I give money to charity, but I’m always suspicious of what they do with it. Go a step further and give time. One of the greatest feelings is teaching school kids about finance and having them “get it.”
March 25th, 2009 at 7:15 am
This is where budgeting is so important.
If you have savings goals, and you are keeping track, then you know how much you can spend on frivolous things. For me, I get much more joy saving my fun money for a few months and buying something I’ve been researching for a while.
Just keep in mind, just because the gas is cheap, global warming has not gone away. Buy responsibly, which includes buying something which you actually want and will use. And buy the most robust, something that will last a while.
March 25th, 2009 at 8:15 am
I agree that it’s important to spend *some* money on things you really enjoy. It’s really striking a balance between doing the right thing for yourself in the long run vs. being content in the present, and both are important. Because I’m in the paying off debt and saving an emergency fund stage, I am learning how to be frugal, and actually enjoying it. I do feel guilty when I spend on pretty much anything. I know that the not too distant future is looking pretty bright for me, and I’m able to delay gratification, but I also sometimes get down and wonder what it’s all for, what if I get hit by a bus tomorrow, etc.
I’m taking more pleasure in the simple things (popcorn at home with a movie and my boyfriend, etc.), which is keeping me a lot happier than I ever was when I’d whip out the plastic at the mall, but I also find I get restless if I don’t do *some* things that cost money. I’m not much of a partier, but I really enjoy going out to dinner 1-3x a month.
Unnecessary? Depends on how you look at it. I don’t smoke, drink at home often, have a mortgage, have a gym membership, have hobbies that cost money, and so on, so I allow myself that indulgence. It gives me something to look forward to, and I usually go with my boyfriend, so spending that time together, away from the apartment, is important to me.
I also am starting to save for things I want… a new concept for me. I know I’ll eventually get the things I desire, and it’s fun looking forward to something I would have put on the Visa 6 months ago.
March 25th, 2009 at 8:51 am
Wasn’t it an excess of “grasshopper” behaviour that caused the problem in the first place? The last thing we need is to turn the “ants” into “grasshoppers.” There will be a painful adjustment period (there always is after a bubble), and it may last longer than normal, but economic equilibrium will be restored without urging “ants” to abandon their sensible ways and “shop ‘til they drop.” However, if an “ant” has been planning a significant purchase and has saved for it, now may be a great time to proceed, as prices are falling and there are deals to be had.
As for the possible regret of not buying something, call me crazy, but I can live with this kind of regret knowing that I am blessed with a wonderful wife, terrific family and friends, a good job and a well-funded retirement plan.
March 25th, 2009 at 9:22 am
The only money that should be saved, is the money you save for a purpose. There’s no point to saving up money for no reason. Money is a means, not an end. Saving money for no reason is very similar to buying things you never use, in my opinion.
March 26th, 2009 at 10:26 am
This is the problem with budgeting. Budgeting is a tool. It is not reality. $20 earmarked for movies does not make that $20 any less valuable, so you should NOT be making any purchasing behavior changes.
This is the problem. Budgeting has become a way of life and it has changed the discourse. Should you buy that item? Well, is the item more valuable than the money you’re paying for it?
That’s the real question. There is not a need for a “balance”. That word only has meaning in budgeting.
March 27th, 2009 at 10:57 am
This was true for me - over saving didn’t make me happy. I put away over 10K to spend while I was on maternity leave last year. But I was so frugal with my spending that when I came back to work, I still had 6K left over. Starting back at work made me realize that I should have loosened the purse strings a little and enjoyed my time away from work instead of huddling in the house afraid of outside expenditures.
April 10th, 2009 at 5:20 am
I noticed that people who save on virtually -anything- often are nasty and judgemental toward people who occasionally spend money on fun activities, dvds, a good purse… you name it.
I found examples of that in a certain big frugal community on-line…