This post is from staff writer April Dykman.

You know the old adage “money can’t buy happiness”? Researchers Elizabeth Dunn, Dan Gilbert, and Timothy Wilson say it’s a myth. Drawing on empirical research, they’ve identified key ways that people can get more bliss for their buck.

The link between money and happiness has been studied for decades, and the result is always the same: Money does buy happiness — but less than most of us think. After a certain point — having basic needs met and a little “play money” in your pocket — having more money doesn’t create more happiness. But Dunn, Gilbert, and Wilson wanted to know why.

The fuzzy, feel-good answer is that the things that make us the happiest — love, friendship, and the like — can’t be bought. While the authors admit this is a lovely sentiment, they also found that it’s wrong. Last November, they published the results of their research in a paper aptly titled, “If Money Doesn’t Make You Happy Then You’re Probably Not Spending It Right” [PDF]

The authors point to studies that show how money gives people:

  • more control of their lives
  • more free time to spend with loved ones
  • longer, healthier lives
  • a buffer against stress and harm

These are all elements that have been identified in studies as sources of happiness. So, if rich people are able to afford top medical care, a summer in the south of France with their family, and seeking out a meaningful career — elements of a happy life — why aren’t they proportionately happier than those who have less money?

Humans don’t know what will make them happy
The main reason is that people don’t know how to spend their money to cultivate happiness. “Money is an opportunity for happiness,” Dunn and her colleagues write, “but it is an opportunity that people routinely squander because the things they think will make them happy often don’t.”

Whenever we’re presented with a choice, it’s human nature to try to predict the future outcome of each option. But the researchers found quite a few studies that show that humans are horrible at making accurate predictions.

  • For one thing, we underestimate how easy it is for us to adapt to our circumstances — good or bad — and our predicted scenarios lack important details.
  • Second, the context in which we make our predictions is not the context in which we will have the future experience.

These two factors mean we are awful at predicting what will make us happy, how happy it will make us, and how long it will make us happy.

How to spend your way to happiness
An individual might be unable to forecast what will make her happiest, but luckily empirical data can make up for human error. The researchers found eight key ways that spending can increase happiness. We’ll cover the first three today (and the last five next week).

Tip #1: Buy fewer material goods but more experiences.
Experiences keep us in the here-and-now, and often only get better with age. When you buy a material good, however, you adapt to it more quickly and witness your purchase becoming worn and less “shiny” over time. We anticipate and remember experiences more than things — you probably fondly recall the Thai cooking class you took with your spouse on your second date, but never give much thought to the living room furniture you bought last year.

Also, it’s more difficult to obsess about the option you didn’t take with experiences, and ruminating over roads not traveled is a fast path to unhappiness. For example, you’re deciding between two car models, you make your purchase, and then you see an article in Consumer Reports showing the other model to be far superior. Ouch. Suddenly you’re a lot less happy with your shiny new toy. But if you’re deciding between a wine tasting trip in Tuscany or climbing Machu Picchu in Peru, can you really go wrong? It’s much more difficult to compare two wholly different, but probably equally amazing, experiences. It’s unlikely you’ll regret either option.

I’ve always liked the idea of spending on experiences, but I never thought about how it can curb buyer’s remorse, which can be a huge source of unhappiness for me. I’m a planner and a researcher by nature, which means I am usually trying to buy the best item at the best price. I hate finding out that the Blu-Ray player we finally settled on (after two years of limping our DVD/VHS player along) doesn’t do everything advertised. But with experiences, I’m spared that. My birthday is next week, and I’m deciding between the new farmhouse-inspired, Japanese fusion restaurant and the sophisticated-yet-casual locavore cafe with a European flair. I don’t think I can compare or go wrong — the experiences would just be different.

Finally, the researchers point out that experiences are usually shared with others, and other people are one of our greatest sources of happiness.

Tip #2: Use money to help others.
I loved this tidbit from the paper: Only termites, eusocial insects, and naked mole rats create social networks as complex as the ones humans construct, and we are the only known species to include unrelated individuals in our networks. In other words, even the most introverted among us are still highly social creatures in comparison with every other species on the planet.

One study showed that, even after controlling for income, people who spent more money on prosocial spending (gifts for others and donations to charity) were happier than those who spent less. Personal spending (bills, expenses, and gifts oneself) was shown to be unrelated to happiness. Another study showed how the rewards of prosocial spending are detectable at the neural level — activating brain areas typically associated with receiving rewards.

The authors write:

Although the benefits of prosocial spending are robust across cultures and methodologies, they are invisible to many people. Surveying UBC students…a significant majority made an affective forecasting error: they thought that spending money on themselves would make them happier than spending on others. Indeed, simply thinking about money has been shown to undermine prosocial impulses, making people less likely to donate to charity or help acquaintances. Although money can and should promote happiness, the mere thought of money may undermine its ability to do so.

This is one area where we seem to make inaccurate predictions about spending and happiness.

Tip #3: Buy fewer expensive pleasures and favor of more frequent, less expensive ones.
Because of our ability to adapt so quickly to change and new things, there’s evidence that indulging in more frequent and less expensive pleasures will make us happier than less-frequent, luxury goods.

Small pleasures are usually a different experience every time. Things like a massage, a drink with your friends, or tickets to a local performance are never exactly the same, and therefore it takes more time for us to adapt to them. If you decided to forgo those pleasures to afford a brand-new set of living room furniture, you might find your self adapting to the furniture and the newness and excitement wearing off faster than you thought it would. You sit on it every day, it’s the same experience every time — and is that a juice stain on the cushion?!

Another study showed that “breaking up” a pleasurable experience, rather than receiving it all at once, increases happiness. In one study, one group of participants was given a long, continuous massage, and another group was given two shorter massages with a break in between. Before the massage, the majority of participants predicted that they would rather have one continuous massage (I know I would!). Turns out that those who had the shorter massages with the break found the experience was more pleasurable and they’d be willing to pay more (Oh. I guess I wouldn’t.)

I think this is why telling folks to give up their lattes is great advice on paper, but ineffective in real life. For example, I love coffee. Love. I make it at home now that I work at home, but when I had a 9-to-5 gig, when I had to face days of traffic and meetings and office politics and is-it-Friday-yet, my overpriced latte from the coffee shop was one of the highlights of my day. Really. I was Norm and this was my Cheers — everybody knew my name; everybody knew my drink. Having that warm, frothy beverage in my hand made clocking in at the cube farm a little more bearable.

Why is shorter and more frequent better? The researchers found that these little pleasures, like our morning cup of java, allow us to enjoy more first moments, which are tied to our perceptions of happiness. It’s like having ten first bites of cake, as opposed to eating the entire cake in one sitting.

To be continued…
Next week, I’ll cover five more ways the researchers found that money can indeed buy happiness, including what not to buy and the pitfalls of comparison shopping. In the meantime, have you found these first three tips to be true for you? Share specific examples if you have them!

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