Sunday, August 4, 2013

Are you spending your money in the happiest way?

Visit any Barnes & Noble and the financial shelves will be chock full of books telling us how to make money, or invest it more wisely.  But a new book called “Happy Money: The Science of Smarter Spending,” by Elizabeth Dunn and Michael Norton, presents an entirely new perspective – challenging us to focus instead on how we spend money (one of the book's taglines: "If you don't think money buys happiness, you're just not spending it the right way"). Dunn and Norton’s bottom line: when it comes to swiping your credit card, don’t always trust your instincts – trust the research (which forms the basis for their five principles).

Said one reader, whose book review appeared at goodreads.com:

“Once you get past a certain level of income, where your basic needs are met, having more money doesn’t make you happier. But HOW you spend your money CAN make your happier. Spending your money on experiences, delaying gratification, etc. can make you enjoy what you do spend on.”

Here then are Dunn and Norton’s five principles:

1.       Buy Experiences. The authors maintain that spending your money on experiences will, in the long run, create more happiness than purchasing material objects.  Experiences yield social connection and interaction, and therefore lead to more happiness (and better stories) over time.

2.       Make It A Treat. Author Dunn told RadioBoston: “The fundamental barrier to human happiness is our tendency to get used to what we’ve got.” The point is transparent – the more you are exposed to something, the less impact it has.  In her interview with RadioBoston Dunn said people should “think about what they like best, and save it for special occasions, or take a break between indulgences.” The authors encourage us to “turn our favorite things back into treats.”  Observed Barry Schwartz, in his book review for the LA Times: “There isn’t much point to drinking $50 wine if it starts tasting like $10 wine, so keep that good wine for special occasions, no matter how rich you are.” Added Schwartz: “Adaptation to good things may be the biggest challenge we face when it comes to getting satisfaction out of our lives.”

3.       Buy Time. Dunn and Norton urge us to ask one simple question before buying: “How will this purchase change the way I use my time?” The authors explain: “When people focus on their time rather than their money, they act like scientists of happiness, choosing activities that promote their well-being.” Norton told RadioBoston: “Time is such an amazing and valuable resource that we feel so restrained. It can be more motivating than money.” RadioBoston sums up the authors’ intent: “Purchases that lead to more free time, or time spent more productively or with friends and family, are better than material goods.”

4.       Pay Now, Consume Later. Imagine if you walked into a restaurant and paid for the meal right away.  Then, after your drank the wine, and consumed the delicious appetizers, entrĂ©e and dessert, you just left.  No bill to reconcile at the end.  How would that make you feel? That’s the basic principle underlying principle #4, which, interestingly enough, is the opposite of how we use credit cards (consume now, pay later). Explained Schwartz: “When we separate the moment of purchase from the moment of consumption, we gain in two ways: we separate the costs from the benefits in time. And we get to savor the thing or experience we’ve purchased in the time period between the moment of purchase and its consummation.” So the next time you buy tickets for a concert or a play, focus on the joy of anticipation.

5.       Invest in Others.  It’s a familiar recommendation, and the research in this area is sound: people feel better when they spend on others, rather than themselves. But not if we’re pressured to spend (as in charitable donations) – that often makes us feel worse. And the research says that these principles are true across cultures and are detectable “among children before the age of two,” according to the authors. 


So the next time you spend some money, make sure it’s Happy Money. You’ll be richer for it.