Given my current line of work, people are oftentimes surprised to learn that I was an economics major in college. I found economics interesting and a great way way to develop keen critical thinking skills. However, there were basic assumptions inherent in economic theory that I found flawed. One major assumption, was that consumers are rational about how they spend their money and buy goods and services. However, I questioned if consumers actually spent in a manner that led to maximum value from their money? It seemed to me that people often spent money on goods and services that they did not even need, and certainly did not make them happier. C’mon, is buying an $80,000 Hummer or a $100 pair of jeans really going to make a person’s life that much better?
After a bit of investigation, I was pleased to see that empirical research has been done on the very subject that I had privately wondered about; money, happiness, and if a correlation (and of course causation) exists between the two. With unemployment comes greater scarcity of funds, and therefore during tough economic times it is all the more important to use our money in the best way possible. I hope this article helps provide the impetus to do so.
So, what does the research say regarding money and happiness? An August 23rd Boston Globe article by Blake Bennett, Sonya Lyubomirky, a psychology professor and leading happiness researcher says, “It’s not a zero correlation, even at higher income levels, but it’s not a very big correlation.” Essentially, Lyubomirsky is saying that money does not significantly effect our happiness. However, is that the whole story? I believe that money has increased my happiness, when I have spent it in a certain manner. For example, money made it possible for me to go backpacking throughout Japan and China with three close friends. My Asian adventure certainly made me happy at the time, and continues to provide happiness through memories.
Research has been done to explore whether or not a significant difference exists on the effect of money spent on experiences (i.e. vacations, going out to eat) as opposed to money spent on material goods (i.e. a large HD TV). According to Thomas Gilovich, chair of the psychology department at Cornell University and Leaf Van Bowen, an associate professor of psychology at the University of Colorado, they have consistently found evidence that experiences make people happier than material purchases (Bennett, 2009). The pertinent question then becomes why do experiences make people happier than material purchases?
First, experiences tend to be social (Bennett, 2009). We go to dinner and a movie, we get a chance to catch up with friends and family. We go on vacation, we often go with friends and family, and share experiences that can be relived for years to come. I can’t count the number of times my Asia exploration friends and I have have said “Remember that time in Asia when….” Each time a memory from the Japan and China trip comes up, a new wave of happiness emanates throughout my mind and body. Additionally, experiences can enhance socialization even when not around the people the experience was shared with. Think back to a conversation with someone discussing the merits of a local restaurant, of a new action movie or of seeing a local musician play, and you will know exactly what I mean.
We now know a bit more about why experiences typically make us happier than material goods. But, alas answering one pertinent question now leads to another pertinent question. If experiences make us happier than material goods, then why do we spend so much of our discretionary money on material goods?
In short, happiness is not always the driving force in how we spend our money, sometimes the desire to keep up with the Jones’ is the primary motivator (Bennett, 2009). A neighbor got a brand new BMW, a desire may exist to compete and also purchase an expensive new car. Such a purchase is partially based on the desire to compete and partially based on the desire to fit in and do what other people are doing. I recall the phenomenon taking shape in my hometown during the 1990’s, when everybody and their mother was buying a Chevy Suburban (including people with 2 kids or less) , all the while living in an area where off roading is unheard of.
However, the one benefit of this recession is that frugal spending now seems to be in vogue. Getting a great deal on a new car or computer is the new cool, as opposed to getting the fanciest new car or computer. The fanciest new car or biggest HD TV are now seen by many as extravagant spending. So, rise up my fellow frugal spenders, as formerly uncool spending habits have become the new cool way to spend, helping those unemployed and employed alike.
Despite the recent coolness of frugality, the economy will eventually get better (thank goodness for that!) and the desire to purchase expensive material goods will likely return in full force. What can be done to resist the desire to purchase the unnecessary material goods in lieu of experiences, which in the long run will likely provide you with more happiness. Well my friends, knowledge is power. When you are tempted to purchase a new expensive watch, remind yourselves of all the experiences that could be had instead of the watch. Think of vacations with the family, concerts with friends and then think of the watch simply sitting on your wrist. Unemployed and employed alike, little money or lots of money, we can all get more bang for our buck, and in turn increase our happiness even during unemployment.
