Happy new year to all of you! I hope you had a good time last night.
As we are approaching the time where people have made new years’ resolutions, I thought it might be nice to summarize a review by Dunn, Gilbert and Wilson (2011) about how to spend your money in order to be happy. So, while you are nursing your hangover, you can read how to have a very happy new year indeed according to social psychology research.
We all know the saying ‘money can’t buy happiness’, but this isn’t actually true. Money can make you happy; that is, if you know how to spend it. Unfortunately, most people don’t. But after reading the 8 principles from the article, you will.
- Buy experiences instead of things. What kind of experience this is, doesn’t seem to matter much, as long as you are engaged in it. The reason why experiences are better than things is because we adapt to things very quickly. Also, we anticipate and remember experiences more often than things. We do this because experiences are more centrally connected to our identities. Lastly, experiences are more likely to be shared with other people, which is our greatest source of happiness. Which brings me to principle 2.
- Help others instead of yourself. Humans are in their essence profoundly social creatures, so it isn’t any wonder that the quality of our social relationships is a strong determinant of our happiness. Spending money on others means that it will improve our connections with others, which makes us feel happier ourselves. Unfortunately, even though these benefits of prosocial spending are robust across cultures and methods used, they are invisible to many people. So, next time you buy something, buy something nice for a friend or partner too. Speaking of buying things;
- Buy many small pleasures instead of few big ones. Since we adapt so fast to the things we buy, it appears better to buy more frequent, small gifts (good cup of coffee, super fuzzy socks, or a pedicure) rather than spending all of it on a large purchase. We are far less likely to adapt to these little gifts because they are more novel, surprising, uncertain and variable. Another reason is that the gifts are more segregated, which introduces a temporal discontinuity between the experiences or things which also diminishes adaptation. As a bonus, you also get to savour the small pleasure. Ironically, this capacity to savour seems more reduced among wealthy individuals. It is possible that this is because they have more access to peak experiences, which undermine the ability to savour these small pleasures. So my advice is; try and live more in the moment and try to savour the small pleasurable things in life.
- Buy less insurance. While this may seem like an odd principle, this doesn’t mean the insurance on your life or health. It’s the insurance on things. People often don’t realize that our psychological immune system for bad things is really quite good. We expect to be way more affected by things like a new TV breaking than we actually are. While we think we might blame ourselves for our miss-fortune, we are in fact excellent in blaming anyone and anything but ourselves, diminishing the regret that we feel. However, since most people are unaware of this, businesses often take advantage of this unawareness by offering high priced insurances on the things you buy. These often cost you a lot more money than is actually worth it. Also, when you don’t have the insurance, you will come to appreciate the thing you buy a lot more than when you know you can return it and change your mind. That is because our mind automatically makes it more positive, even if we didn’t like the thing as much at first.
- Pay now and consume later. We are living in a world where it has become quite common to consume now and pay later. However, there is happiness in the anticipation of the experience of thing you will buy. For instance, planning your vacation and anticipating it can give you a lot more joy than the actual vacation itself. You may think, if anticipation makes happy than remembering should also give the same amount of happiness. However, thinking about future events triggers stronger emotions than thinking about these events in the past. Delaying consumption promotes happiness in two other ways. First, it may alter what consumers choose (choosing fruit for future consumption versus choosing chocolate for immediate consumption). Second, it creates uncertainty, which again helps counteract the adaptation.
- Think about what you’re not thinking about. When we think about the things that would make us happy, we may say something like a vacation house by the lake, for some nice peace and quiet. What we often don’t take into account are the details that come with this change in our lives. We don’t think about the tedious drive to the house with two bored children in the backseat, or the many mosquitos that live by the lake giving you a lot of itchy bumps. In the case of happiness, these details matter. It is worth to think about how a purchase will affect the ways in which you spend your time and the many aspects of your daily life. You make more accurate predictions when you simply think about a typical day in your life when expecting a single purchase.
- Beware of comparison shopping. While comparing products might be useful and does have its benefits, but it may distract you from attributes of the product that actually is important for your happiness and focus your attention on attributes that distinguish the available options. For instance, when buying a house, you compare a lot of things. And while you think a big, beautiful house in a great location will give you more happiness than a modest home, this might not actually be the case, because these things don’t matter to your feelings of happiness. A reason for this is that the options we don’t choose recede into the past and are no longer used as standards for comparison, so we probably would have felt equally happy with a big versus a modest house. However, the big house has a bigger loan than you can afford, which gives more stress, which reduces your happiness.
- Follow the herd instead of your head. The best way to predict how much we will enjoy an experience is to see how much someone else enjoyed it. It’s that simple.
Well, those are the 8 principles! I hope they will help you to spend your money wisely so you can be happy throughout 2018 and beyond.