Books abound on how to make more money and manage it to maximize your return on investment (ROI).
Emerging professors and researchers Elizabeth Dunn and Michael Norton present a new approach to money; focusing on how to increase your happiness from the money you spend. They champion five principles, based on international research, to help you achieve that goal, in their new book, “Happy Money: The Science of Smarter Spending.”
They found that around the world, income has surprisingly little influence on whether people smile, laugh and experience daily enjoyment. Dunn and Norton also describe how companies and organizations that apply the principles can benefit their employees, stakeholders, community; and finally profits.
The following are the principles of Happy Money:
Buy Experiences. Experiences bring people together, fostering social connection; and provide memorable stories you’ll enjoy retelling for years to come. They are also linked to your identity, or who you want to become; and provide unique opportunities, avoiding easy comparison with other available options.
People who prioritize experiential shopping are seen as open-minded, smart, and outgoing. Compare major and mundane purchases and you’ll find that people are more likely to experience buyer’s remorse over material goods. The length of an experience has little impact on the pleasure people remember driving from it.
Make it a pleasure. “Knowing that something won’t last forever can make us appreciate it more,” Dunn and Norton say. “Recognizing that the end is near is the key to happiness, helping us turn readily available comforts into treats.”
London is the most popular international tourist destination, whose attractions include Buckingham Palace and Big Ben. Native Londoners report seeing more landmarks in other cities than in their hometown. When a pleasurable activity is readily available, we may never experience it and thus miss out on a relatively inexpensive source of happiness.
Companies often practice making certain items available for limited periods of time, making them feel like treats. Think of Disney’s limited re-release dates for its classic movies; and the McDonald’s McRib sandwich, added to fall menus to build nostalgia for summer barbecues.
Gain time. “Time and money are frequently interchangeable.” Thinking about time instead of money often inspires people to engage in activities that promote wellness, such as socializing and volunteering. Time and money promote different mindsets. Focusing on time tends to sharpen one’s sense of self. Money thoughts promote a cool and rational manner.
Most people would benefit from time changes in:
- Transposed. The US Census Bureau says that Americans spend more than two weeks a year traveling. Taking a job with an hour’s commute each way is equivalent to the unhappiness of not having a job.
- TV. Americans spend an average of two months a year watching television.
- Socializing. People experience the most positive moods on a daily basis when spending time with friends and family, especially children.
Pay Now, Consume Later. “Because of the power of now, people overvalue the present, making it difficult to appreciate the potential benefits of delay.”
Credit cards numb against the immediate pain of paying and promote a kind of detachment that makes even smart people more likely to part with their money. The researchers asked the subjects to estimate their monthly credit card bill. All underestimated the amount by at least 30 percent.
When consumption is seen in the future, it is easier to see the more abstract advantage of experiences, while focusing on the immediate future promotes viability. The authors describe people who prepay for things, including monthly mail-in cosmetics subscriptions. Experiencing their arrival without paying feels like “Christmas every month.”
Invest in others. “New research shows that spending even small amounts of money on others can make a difference to your own happiness,” Dunn and Norton say.
To maximize your giving experience, practice these three tips:
- make it a choice. Feeling hemmed in by family, friends, and co-workers to give to charity or buy fundraising items can diminish the joy of giving. The best charitable appeals encourage people to give without making them feel like they have to give.
- make a connection. People experience more happiness spending money on strong ties (ie immediate family and close friends) than on weak ties (friend of a friend).
- Make an Impact. People who report donating money to charity feel wealthier than those who don’t. When donors see the impact of their contributions, they are more likely to donate.
Dunn and Norton suggest that you consider the five principles collectively rather than individually; and find ways to apply as many principles as possible in a single purchase.
The authors “zoom out” beyond individual, business, and organizational purchases; and discuss government spending. They cite government trends to measure and promote the well-being of their citizens.
The best way for governments to facilitate the ability of citizens to spend their money happily is to ensure that all citizens have some initially disposable income.
Dunn and Norton underscores the growing divide in the US between the rich and the poor; and they say that countries with large disparities between rich and poor have higher divorce rates, longer commutes and weaker social safety nets.
Read “Happy Money” and develop a kaleidoscopic view of the power of cash beyond numbers and investments.
