Does money buy happiness? I say yes and so does the data.

The top article on the Wall Street Journal at the moment is about whether money can buy happiness.

The conclusion is it can, but only if you use it right.

Money makes you happier so long as you resist the urge to buy things with it. The article quotes Psychology professor Ryan Howell:

“”What we find is that there’s this huge misforecast,” he says. “People think that experiences are only going to provide temporary happiness, but they actually provide both more happiness and more lasting value.” And yet we still keep on buying material things, he says, because they’re tangible and we think we can keep on using them.”

Experiences are also more fun to anticipate, according to research, which might explain why my facebook feed is full of people counting down the days to their holiday, not counting down the days until they buy a new TV.

“[W]e also get more pleasure out of anticipating experiences than anticipating the acquisition of material things. People waiting for an event were generally excited, whereas waiting for material things “seemed to have an impatient quality.””

The research also suggests happiness comes from having more time to spare. The article cites work by Associate Professor of psychology Elizabeth Dunn.

She’s currently doing research on how people actually spend the time they save by outsourcing tasks and whether it makes them happier. The preliminary findings, she says, are that most people do become happier by buying time for themselves, but only if they use the time in the right way.

“Our hypothesis is that people will be much more likely to derive an emotional benefit if they think of it as ‘windfall time’ and use it to do something good, rather than just taking it for granted,” she says.

But while buying time is a good idea, putting a dollar value on your time may not be. In another piece of research in progress, Prof. Dunn is finding that when people think of their time as money, it makes them less likely to spend even small amounts of time on things that are not financially compensated. “Seeing time as money may have a number of destructive consequences,” she says.

I find these findings really resonate, because I think I have used the small amount of money I have to maximise my happiness.

I don’t have many material possessions to speak of. I share a 20 year old car with my partner and I have two second-hand bikes. My most valuable possession is probably the laptop I type this blog on.

The point about time is crucial.

People who know me know I work full time only part of the time. Twice I’ve quit very nice jobs and invested my time into this blog instead. Probably, some people wonder how I do that, so I’m going to explain. It’s somewhat gauche to talk about money, I guess, but here goes.

Mostly its good luck (of many different kinds), but partly, it’s because I’m a good saver. I keep an eye on recurrent expenses. For example, between 2005 and 2011, the highest weekly rent I paid was $120. I avoid gym memberships and insurance. I don’t drink much. That means when I have a paycheque, I save a lot of it.

For example, I saved about $15,000 a year while working at Treasury from 2005 to 2008. I started on day one with a $6000 debt on my credit card and finished on the last day with $40,000 in savings. (During that time, I also worked a second job as a ski instructor which mainly prevented me from spending money, rather than actually making me much.)

I don’t take credit for most of my good fortune. My run of luck goes a long way back, to being born in the right country and having the right parents, getting sent to a good school and stumbling into a good university. But also getting the in-kind support that comes with being middle-class (such as living at home during university and for a couple of patches during my 20s; or my sister giving me her car to borrow for a number of years.) I also made a lucky series of investments in the midst of the GFC, blithely following the motto of being greedy when others are fearful. The fact that turned out well was dumb luck, really.

That has meant I have a small buffer that means I can choose to spend my time on things other than full time work (for a little while at least). I really enjoy being the master of my own time.

I do, however, spend money on experiences. I travel overseas a lot. I go to see live music. I eat at restaurants most weeks. These things are amazing and they definitely make me happy. But they sure aren’t free.

There is a trade-off between being master of your time and a big consumer of experiences. This fact will inevitably send me back into the full time workforce at some stage!

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thomasthethinkengine

Thomas the Think Engine is the blog of a trained economist. It comes to you from Melbourne Australia.

7 thoughts on “Does money buy happiness? I say yes and so does the data.”

  1. Interesting article but after dipping my toes into the fascinating world of behavioural economics I have come to the conclusion that the question is misleading and oversimplified. I don’t think happiness is the main goal or even the motivation for a lot of behaviour. Human emotions are incredibly complex. The obsession with acquisition of goods, services and experiences has been carefully cultivated by marketing through the media to habituate people into spending to craft themselves a purpose and identity. The saddest incarnation of this is the “bucket lists” people are drawing up as if indulging in self-centred fun without thought to it’s impacts on the future is going to make the inevitable death easier or more meaningful.

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  2. There is some great psychological research that demonstrates having more money directly relates to increments of happiness but they start of cheap and get more expensive the more money you gave. The average low income person could go up a happiness percentage with $10k but a wealthy person would require $347k. However if it comes as a windfall this may not apply as interestingly a year down the track you may be less happy than you were after winning tattslotto but more happy than you were after recovering from a crippling accident. I can’t cite sources because it gives me more happiness to reel out these factoids than look them up.

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  3. Having money does help with my overall state of happiness. It helps me do things I enjoy greatly (like travel) and avoid things I dislike (like being cold…and cleaning). It increases the ratio of time you have to spend doing the things you want. That’s it for me though. While material possessions appear desirable (and I admit I am guilty of this), I don’t think they’ve ever made me more happy per set. It’s odd – I know this to be true from experience, yet next year I’ll probably convince myself I should upgrade the computer.

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    1. Only because I think they have good cheap substitutes – you can exercise without belonging to a gym; and self insuring is cheaper than real insurance.

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      1. Couldn’t you make the same argument about dining out? Sure, your home-made duck confit may not stack up to one made by a professional chef, but one could also argue that the equipment in a professional gym is going to be superior to something you might have at home.

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  4. Being the master of time: that’s the motto of all heroes and vilains. Countless attemps to rule it: Back to the future, Dr Who, Groundhog day, Terminator, Rocky ah! not Rocky is just getting older every time. And now TTTE.

    Time is the last mystery. Saint Augustin discribes three times:
    – the present of the past: memory and imagination (Once upon a time)
    – the present of the present: consciousness
    -the present of the future: expectation, project, hope and fear

    That can explain why people count down days to upcoming experiences.
    I must confess I am counting days to my next replacement fridge.

    Boredoom slows down time, fast-paced events hasten time.
    Maybe that’s why experiences bring happiness, less conscious time.

    Time doesn’t spare.

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