by Maja Majewski

Can Money Buy You Happiness?

It’s a question as old as time itself: Can money buy you happiness? It depends on how you spend it. Here’s what we know for sure.
Can Money Buy Happiness

We live in a largely materialistic, consumption-driven world—to the extent that many of us struggle to separate our money from our sense of self-worth. We live to work, to earn more money, to buy more things…but is all of that buying actually making us happier or more fulfilled?

Unsurprisingly, research has shown that there is certainly some correlation between income and life satisfaction. Struggling to earn a living wage and pay bills each month can make it difficult to stop and smell the roses.

Psychologists from Purdue University and the University of Virginia found that although the cost and standard of living varies depending on where you live, the ideal income for individuals is $95,000 a year for life satisfaction and $60,000 to $75,000 a year for emotional well-being. Families with children, of course, will need more.

But beyond that? The study found that once that threshold was reached, further increases in income were actually associated with reduced happiness. More money doesn’t necessarily equal more happiness—but it doesn’t have to mean more problems either. Past a certain level, it seems that how you spend money matters far more than how much money you have.

Yes, if… Your purchases align with your personality.

In a study from Yale University and the University of Cambridge, researchers analyzed 76,000 bank transaction records, examining what people spent their money on — either material objects or experiences. Then the study rated the participants’ satisfaction with their purchases in relation to their personalities.

The researchers then analyzed if participants’ spending habits matched up with their personalities, using the “Big Five” theory (which categorizes people based on their openness to experience, conscientiousness, extraversion, agreeableness and neuroticism).

So… can money buy happiness? The study found that spending money can, in fact, increase your happiness — if it’s spent in a way that works with your personality. In other words, if you make purchases that reinforce your idea of who you are and want to be, you might get a boost of happiness.

Yes, if… You spend it on memorable experiences.

You’ve probably heard about the research that says you’re better off spending your money on experiences than material possessions.

Why is that? Mainly because of what economists like to call, “hedonic adaptation,” which is a fancy way of saying that the effects of change (in this case, buying something new) wear off quickly as we get used to them.

For example, think about the last time you bought new clothes or got a new phone. It probably didn’t take very long for your exciting new item to become a part of your everyday life. So, while buying a long-lasting material item might be a good idea, don’t expect it to contribute to your long-term happiness.

Experiences, unlike material possessions, are more open to what’s known as positive reinterpretation: Remembering the good stuff, and forgetting the bad stuff. In other words, if you went on a grueling hiking trip or less-than-perfect vacation, you might forget the not-so-fun parts as time goes by, and develop a rosier memory of the event.

Physical items, however, are ever-present, and can fade into the background of your life. They can lose perceived value with wear and tear. They can go out of style, or get irreparably damaged. They can contribute to clutter and take up space. Experiences, on the other end, only get better with age.

Yes, if… You can share your joy.

Experiences also contribute to happiness because of the social value they can provide. If you share the initial experience, then you create a memory together, which can help build relatability between you and your friend.

Even if you don’t, you can share the joy of your experience in conversation. People who regularly speak about their material possessions tend to be stigmatized in ways that people who talk about experiences are not. Think about it this way: Sharing about taking your dad on a hot air balloon ride for his 75th birthday on your Instagram is likely going to get you a lot of likes. Talking about the expensive new computer you just bought yourself? That’ll probably just come across as bragging or flaunting your wealth. Unfollow.

The social value that comes with reliving experiences with friends can have a huge impact on the growth and deepening of social ties—especially if you share those experiences.

Yes, if… Anticipating the purchase is just as exciting as the purchase itself.

Another reason why your money is better spent on experiences than on material goods is because of how people feel beforehand: anticipating an experience is more exciting and pleasant than anticipating a material good. If you compare a line of people waiting to get into a theme park to a line of people waiting to get to the checkout of a department store, you’ll see a stark difference. While thinking about a future trip is exciting and fun, thinking about getting a material good—even a gratifying one—mostly makes people feel anxious and impatient in comparison.

Perhaps the most important reason that experiences contribute to happiness much more than physical things do is because experiences are more central to one’s identity than possessions are. Since a person’s life is made of a series of experiences, acquiring rich experiences will naturally create a richer life. While material possessions are more often used as status symbols when affecting one’s personal identity, experiences can lead to personal growth–a much deeper level of being.

Yes, if… You spend it on others.

Another way to increase your happiness with your hard-earned cash is to spend it on someone else. Warren Buffet is gradually donating 99% of his wealth to philanthropy, and could not be happier. He encouraged other rich Americans to do the same, asking them to donate around 50% of their wealth.

While you may not be a ‘rich American,’ there’s evidence that even spending just $5 on another person can bring you more happiness than if you spent that $5 on yourself. Greater happiness has been seen from giving in poor and rich countries alike, and even in toddlers, suggesting that we are hardwired to give material items and receive happiness in return.

The happiness challenge

In the spirit of Warren Buffet’s Giving Pledge challenging wealthy Americans to give, challenge yourself to spend your next nonessential dollar on a rewarding experience or on a friend. If you’re feeling creative, think of how to combine the two into one for the ultimate happiness boost.

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