Can Money Buy Happiness? (22:57)
In our podcast, Can Money Buy Happiness?, host Brian Leitner and guest Dr. Elizabeth Dunn, a professor of psychology at the University of British Columbia, explore the research behind how you spend money and the impact that may have on your happiness. Dr. Dunn will give tips to “happier spending” as well as how to get the biggest happiness bang for each dollar you spend. If you have questions or topics you would like us to cover, please email us.
Brian: Welcome to Your Life, Simplified. My name is Brian Leitner, and I’ll be the host of this podcast, and in today’s show we aren’t necessarily going to answer the question, “Can money buy you happiness?” but what we will explore is the research behind how we spend money and the impact that that might have on our happiness. Our guest today is Dr. Elizabeth Dunn. She’s a professor at the Department of Psychology at the University of British Columbia. Dr. Dunn conducts experimental research examining how time, money and technology shape human happiness. She’s the coauthor of a book, “Happy Money: The Science of Happier Spending,” which she coauthored with Dr. Michael Norton, associate professor at Harvard Business School. Her research has been featured in hundreds of media outlets. Dr. Elizabeth, thank you for joining us on the show today.
Dr. Elizabeth Dunn: My pleasure. Thanks for having me.
Brian: I’ve read several different papers that you have authored on the subject of how the way in which people spend money can coincide with their own level of happiness. I find that really interesting. Before we get into the research itself, would you tell us a little bit about what led you to conduct this research in the first place?
Elizabeth: I first got interested in this topic when I started making money for the first time. I had been a lifelong student going to get my Ph.D., and when I found myself for the first time actually living above the poverty line, I wondered what to do with this actual income that I was making. That’s when I decided to turn to the scientific literature and try to figure out how I could best use my money to buy happiness. And that’s really what launched me on this program of research to try to figure out how to get the biggest happiness bang for every dollar.
Brian: So that’s something I think we would all find really interesting. How do you do that? What’s involved in that process?
Elizabeth: What we do is for the most part we conduct experiments where we assign people to spend money in different ways and then look at what actually makes them the happiest.
Brian: In your book, you document this research and break it down into five topical areas.
Elizabeth: Yes, the goal in our book was to distill about a decade of scientific research into some actionable principles that everybody could use in their everyday lives to get more happiness out of their money.
Brian: And so the book is broken down into about five different areas. I think it makes sense for our listeners if we walked through some of these areas, and we’ll start with the first one, which is your buying experiences. What do you mean by that?
Elizabeth: The idea here is that people actually get more happiness from buying experiences, everything from special meals and concerts to vacations, than they do from buying material things, from couches all the way to houses.
Brian: It’s like what they say about the Millennials. They want to buy experiences as opposed to toys, from the research that’s out there. Right?
Elizabeth: Yes, sometimes I hear a Millennial being mocked for their spending choices, that they’re buying these little experiences rather than saving up to buy a house. Interestingly happiness research is really on their side. So, a great deal of research from the scientific literature actually suggests that buying a house, sort of the ultimate material thing that many of us dream of doing, actually turns out not to be the greatest investment in our happiness. Now, of course, there can be other good financial reasons to invest in a home. But interestingly homeowners aren’t any happier than renters, on average. In contrast, people do seem to get a lot of happiness out of buying experiences. Somebody who lives their life by investing in going to all the places in the world they’ve wanted to see, dining out at restaurants that they’ve dreamed about, going to the concerts by the artists that they most love, may actually end up being happier than somebody who has all of this sort of plastic material trappings of success, like a fancy car and a nice house.
Brian: So Millennials have a leg up on us. They know something that maybe the rest of us don’t.
Elizabeth: Millennials seem to have some pretty good insights into happiness.
Brian: In your book, you also talk about our minds or our memories have a way in which as we reflect on them later on, give us the ability to elaborate on that that feeling of joy and perhaps while you were having that experience, there was one level of joy. But after reflecting on it, maybe a week later, a year later, five years later, our minds have the ability to sort of expand on that experience and joy. Is that accurate?
Elizabeth: What we see is that experiences seem to grow rosier over time. Even vacations that didn’t work out totally perfectly while you were there, maybe had some unpleasantness, perhaps it rained or there were mosquitoes or the house that you rented with your friends didn’t turn out to be as perfect as you imagined. But later, as you’re retelling all of the stories from the trips and so forth, you appreciate the most positive aspects of the trip. And often the things that were unpleasant at the time actually become funny stories. And that really turns out to be one of the big reasons why experiences are superior to material things. Experiences make better stories. It’s more interesting to hear about somebody’s road trip through the Canadian Arctic than about their granite countertops.
Brian: Yes, that’s a great analogy too. It’s a great thought around the reflection. Because I think about going to Disney World. You’re taking your kids, it’s a hot, hot day. They want food. They don’t want to be in line. And you reflect on that. Maybe a year later you think about the amazing time you had at Disney and all the exhibits you saw and all the characters, and you tend to forget about the crying and the whining.
Elizabeth: I have a five-year-old, and we took him to Disneyland for the first time recently. And there were definitely some unpleasant moments while we were there. But it continues to be this incredibly cherished memory for him. The other thing that’s important that Disney really captures is we spent so much time looking forward to the trip. There’s a limited sort of set of conversations you can have with a child, but conversations about what Disneyland is going to be like is a really positive, pleasurable source of conversation. I think the joy of anticipation is something that comes free with purchase with experiences. And that’s something that I think can really enrich our happiness. But we don’t necessarily consider that when we’re thinking about the most sensible ways to allocate our limited financial resources.
Brian: That makes sense. Just a quick note to our listeners, if you have a topic that you want to hear on this podcast, or you have a question about your own personal financial situation, please don’t hesitate. Go ahead and send us an email at [email protected], and we’ll have an advisor reach out to you directly. And now back to the episode.
In your research, have you found that depending upon who you’re sharing that experience with, could that elevate the level of happiness based on again, who you’re with?
Elizabeth: Yes, so experiences seem to provide the most happiness when they really bring us closer to other people. For example, in recent years, I’ve been taking a trip with a big group of friends of ours. My husband and I could just go on vacation alone, of course, with our son. But now as much as possible, partly guided by this research, we really try to go to the extra complexity of planning a trip with our friends because this enables us to really reinforce those friendships and build these strong memories that we all share together.
Brian: In another area of your book, you referred to as making it a treat. Would you unpack that for us?
Elizabeth: The idea here is that whenever we have something we really like all the time, we tend to get used to it. Psychologists use this really fancy term “hedonic adaptation” to refer to this kind of inevitable process that occurs whereby we get used to the things that we like. It kind of seems like life would be perfect if we could just have all our favorite things all the time. But in fact, having our favorite things less often can enhance our ability to enjoy them. So, if there’s something you really like but you’ve just gotten used to it, it has just become a habit, then turning it back into a special treat can actually renew your capacity to derive pleasure from it.
Brian: So perhaps when you spoil yourself too often by definition it becomes less of a special occasion or a treat. Right?
Elizabeth: As a concrete example, one summer I got addicted to these kale and ginger smoothies at Whole Foods and that doesn’t sound like the worst addiction in the world, but they’re pretty expensive. They’re like eight bucks, right? Like you can definitely get kale in a way cheaper form than this smoothie. It used to be kind of a treat for me, something I would get on a sunny summer day and really enjoy, but I just got used to it and I started getting them all the time and sucking them down without even noticing. So, I caught myself spending money on this exorbitantly expensive little thing that used to give me pleasure but just had become part of my daily habits. And so, what I did was actually take a break from it and try to get a little bit less often so that I would appreciate it.
Brian: It almost reminds me of before having kids, my wife and I would go out to dinner three to four days a week where we lived and you didn’t really think much of it and then you have kids and you realize now when you go out for date night how much you actually cherish those nights.
Elizabeth: I completely agree. As a parent of a five-year-old, I feel that having children is a great scarcity intervention where it teaches you to really appreciate things like a simple night out in a way where you wouldn’t have before.
Brian: You had some great examples in your book, really reevaluating the amount of time that you spend commuting and the everyday trade-offs you have to make because of these other time commitments that we put on ourselves or spending hours a week working on the yard or doing our own home improvements. I know I personally don’t spend enough time taking a step back and reevaluating where I’m spending my time and the trade-offs that I’m making either consciously or unconsciously. I’m sure I’m not alone.
Elizabeth: Yes, I think what’s really fascinating is that what we see in our recent research is that even people who could afford to buy their way out of things that they hate doing, like say, spending all Saturday afternoon mowing their lawn, we’ll often continue to do those things, to spend their time doing these dreaded tasks rather than paying a little bit of money to buy their way out of it. And this is something I find really fascinating. In our research, we’ve surveyed over 800 millionaires in Europe, and we find that even millionaires will often report not spending any money in ways that buy themselves out of the things that they hate doing.
Brian: So why do you think that is?
Elizabeth: Well, right now we’re trying to investigate some of the sort of psychological aspects that prevent people from spending money to buy themselves time.
Elizabeth: What we think is that no one’s going feel guilty about paying a dentist for a root canal. You can’t give yourself a root canal. Obviously, you’re not going to try and do it, but everyone’s capable. Most people are capable of mowing the lawn or cleaning their own houses. I think there can often be some guilt associated with paying somebody else to do a task that you are perfectly capable of doing yourself. And so, what we see in our research is that if people would fork over the money to buy their way out of the things they hate doing, they would actually be better off in terms of their happiness. But this feeling of guilt is getting in their way and stopping them from doing it.
Brian: It sounds like the conclusion here is outsource as many things as you possibly can and ultimately you’ll be happier and better off for it. In another area in your book, you refer to this as, consume now and pay later. Now fortunately or unfortunately, I think a lot of us are used to that in today’s world.
Elizabeth: Credit cards and new technology really make it easy to consume right away and pay for it down the road. But happiness research tells us we should do exactly the opposite. Whenever possible you’ll be better off if you pay right away, upfront and actually delay consumption. As a concrete example of this, if you are thinking of going for a vacation around Labor Day, pay for it now and then you’ll get to spend all this time anticipating it. And by the time it actually rolls around, it will feel free. When you’ve paid for something in the distant past, you end up being able to enjoy it as though it were free.
Brian: Reminds me of a Seinfeld episode where they’re at the dinner table, and they’re ordering all this food. Jerry Seinfeld makes a reference to when you go to the restaurant, you order all this food, you look at the menu, everything’s terrific, you’re having a great time. Maybe you have a couple of drinks in you and an hour or two hours later, all of a sudden that waiter or waitress walks by, gives you the bill, you open up the bill and you say, “What is this?”
Elizabeth: Exactly. There’s research on this phenomenon known as the pain of paying. And the idea is that paying a lot of money for something is actually not so different from physical pain. It actually can hurt to part with our hard-earned cash. And so, we’re much better off if we can separate enjoyable consumption from this painful experience of paying. And again, people solve that riddle very frequently in everyday life by simply delaying payment. It turns out that using credit cards effectively acts as a kind of psychological anesthetic that makes payment less painful. And that I think helps to explain why people often rely heavily on credit cards. But in fact, the sort of better approach is if you could pay upfront. For example, if you join some club where you pay upfront for a certain amount of meals, and then every time you go to that place, even though of course you have paid for that food but because you’ve paid upfront for it, it feels like it’s free, and therefore, is likely to be much more enjoyable for them.
Brian: Sure. That makes sense. The final area in your book discusses investing in others. Specifically, what do you mean by that?
Elizabeth: So we propose that instead of spending money on yourself, you might actually be better off if you use it to benefit other people. And this could range from donating money to charity to treating a friend to coffee. In a variety of different ways, spending money on others actually seems, in our research, to leave people feeling happier than spending money on themselves. What we see in our work is that you’re going to be especially likely to experience a happiness benefit from giving your money away. If you can give it to others where you can really see the impact that your donation is making. So just as a personal example, because I live in Canada, were able to support a family of refugees and bring over a family of refugees. Our group of friends basically banded together and raised money to support a family of Syrian refugees who will be moving to Vancouver.
Brian: Yes, that is powerful. That’s pretty incredible. Congratulations on doing such a thing.
Elizabeth: It’s really a team effort. That’s something we see in our research as well, that we’re especially likely to experience joy from giving when we can do so in a way that really fosters our feelings of social connection.
Brian: You bet. Which really ties into I think maybe all five areas of that book and that example. Just sort of reflecting on things, the relationship that we have as individuals with our money is really interesting. It’s really unique. And I think one key takeaway that our listeners can have, and maybe a great exercise that they can do, is to reflect on the way in which they spent money perhaps over the last couple of years. Maybe compare the material items they’ve purchased. Whether that’s a car, whether that’s a toy versus some of their own experiences, reflect on what’s brought them the most happiness.
Elizabeth: I think that’s a terrific exercise and partly because the principles that we’ve offered are true on a broad level. On average, people across a lot of different studies seem to be happier when they buy experiences than when they buy material things. But that doesn’t mean that this principle is true for absolutely everybody. And so it’s a really great exercise to sort of take these principles as a starting point. Think back on your own purchases, maybe even just over the last month or so. The recent path that’s a little easier to remember and think about, are you happier with your experiences than with your material things? And if this is true, then perhaps use that notion to guide your subsequent spending choices going forward for the next month.
Brian: Yes, I think that makes a lot of sense. So, Dr. Elizabeth, congratulations on your book and all of your success. So what’s next for you?
Elizabeth: Well, right now one of the things we’re trying to do is to figure out how to promote giving. Our previous research has shown that giving money to others is good for happiness, but that people don’t seem to do it quite as much as they should. We’re trying to figure out how do you break down some of those barriers. One thing that we’re interested in is whether parents and children alike can benefit from talking together about charitable decisions. I think often the kinds of charitable giving decisions that we are making as adults involve sitting down in front of a computer and clicking around on a screen and making a donation to charity in a way that our children never see. What we’re starting to think about is can we bring some of those decisions away from a computer screen and into the living room with families sitting together and talking about giving to charity, and what we think is that may promote charitable giving for both children and adults in a way that ultimately increases well-being.
Brian: I think that’s a fantastic idea. One of the ways in which we engage families and begin to talk to the children of our clients about money and about being financially responsible and passing down values and so forth, is to get them involved in charity. There are a number of different ways in which we do that, but one way is we’ll sit down with certain clients and we’ll create a board, if you will. And so, mom and dad, maybe they serve as the general directors of that board, and they make the ultimate decision, and the kids will come forward and talk a little bit about the charity that they want to support. Depending on how old they are, it might be some sort of a one-pager or maybe even a book report on the cause. This is what’s important to us and where we want the money to go. And inside of that, these are the charities that we’re deciding. But it really does bring the family together.
Elizabeth: That’s terrific. I think that’s a really neat application in the real world of some of the ideas that we’re currently testing in the lab.
Brian: So before we let you go, we want to ask you the same question that we ask every guest, which is what is the worst financial decision you’ve ever made?
Elizabeth: I would say the worst financial decision I’ve ever made, from an economic perspective, is that I bought a quarter share. So 25%, it’s kind of like a timeshare of a condo in the ski area of Whistler. I paid way too much for it. I was in my 20s. I didn’t know what I was doing. I was just excited about it, and I did it. Basically, it’s has been cut in half. They charge exorbitant monthly fees. But I think it’s an interesting example from a happiness perspective because since we have this, it means that our family goes there about once a month. And so, we’ve ended up spending a lot more time at Whistler than we otherwise would have. So, although, I cannot defend this decision at all from an economic perspective, because it would have been way cheaper to just stay at the Fairmont every time rather than renting this place. It has actually changed the way that we spend our time, and it’s given us some really wonderful experiences.
Brian: I appreciate you sharing that. You’re actually not the first guest we’ve had that has had a timeshare as their worst decision, but it sounds like it still has brought you happiness, and I’m sure we’ll continue to do so.
Elizabeth: I hope so. We’re holding onto it for now.
Brian: Dr. Elizabeth, I want to thank you again for your research and joining us on the show today. For those of you that are interested in learning more about Dr. Elizabeth’s research, feel free to pick up her book or listen to her Ted talk online. Thank you again for joining us today. We greatly appreciate your time and your expertise.
Elizabeth: My pleasure. Thanks for having me.
Brian: So I want to thank all of our listeners for downloading this episode and strongly encourage all of us to reconsider how we’re spending our time and reevaluating what brings us happiness. We know that your time is incredibly valuable and we hope you find this podcast a worthwhile investment of your time. Thank you for listening.
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