Elizabeth Dunn and Chris Courtney
Dec. 2, 2020
How often have you willingly sacrificed your free time to make more money? You’re not alone. But new research suggests that prioritizing money over time may actually undermine our happiness.
In a recent study, more than 1,000 students graduating from the University of British Columbia completed an assessment measuring whether they tend to value time over money or money over time. The majority of students reported prioritizing time — but not by much. Nearly 40% reported prioritizing money.
To find out how this choice correlated with their cognitive and emotional well-being, the students’ level of happiness was measured both prior to graduation and a year down the line. Among other measures, they were asked to report on their life satisfaction by answering the question, “Taking all things together, how happy would you say you are?” on a scale from 0-10, with 0 = not at all and 10 = extremely.
The researchers found that the students who prioritized money ended up less happy a year after graduation, compared to their classmates who chose to prioritize time. The results remained the same even after controlling for their happiness before graduation and accounting for their various socioeconomic backgrounds.
Of course that doesn’t mean that you should turn down the next raise you’re offered. A mountain of evidence shows that, on average, wealthier people are happier. But making lots of money will not inevitably boost your happiness. How you spend, save, and think about money shapes how much joy you get from it.
To the point, another recent study that surveyed more than 500 people in the U.K. shows that the amount of money we see in our checking and savings accounts impacts our happiness more than our incomes. Those of us who see a depressingly low number every time we go to the bank tend to feel worse than those who don’t, incomes aside.
The good news is that building up just a small reserve of cash can make a difference, and this is true for people who are still trying to escape debt as well. When we surveyed more than 12,000 people who had previously applied for loans to eliminate their credit card debt, we found that those who had at least $500 cash on hand showed 15% higher life satisfaction.
Still, the idea of saving cash, even a small amount, can be intimidating. You may have anxieties about cutting back on expenses, creating a budgeting plan, or making sacrifices. That’s why we propose a different approach. Begin by answering these two questions: What do I buy that isn’t essential for my survival? Is the expense genuinely contributing to my happiness?
If the answer to the second question is no, try taking a break from those expenses, even just for a few weeks. But if the expense does make you happy, go ahead and enjoy it, without beating yourself up. Let’s look at ways you can choose to spend your money right now that are most likely to bring you happiness.
The Right Way to Spend Money (If You Want to Be Happier)
Spend on experiences, not things. In our survey of loan applicants mentioned above, we found that more than 80% of people under 30 reported deriving more happiness from buying experiences — like trips, concerts, or special meals —than from buying material things, such as gadgets or clothes. (Sixty-two percent of respondents were Gen Z or Millennials.)
Nonetheless, it’s easy to get sucked into buying material things, partly because they’re so easy to compare. One of us (Elizabeth) was perfectly content with her iPhone 8, until she received a text message offering her a shiny new iPhone 11. (No money down!) She caught herself increasingly leaving the rapidly aging iPhone 8 on the edge of tables, nightstands, and sinks, unconsciously waiting for its demise. This behavior is not uncommon. Research shows that when a desirable upgrade becomes available, people often become careless with their existing products.
The fact that material things are so easy to compare helps explain why they are often unsatisfying. After all, even the iPhone 11 might not look so great next to the iPhone 11 Max Pro. In contrast, experiences aren’t so easy to compare.
Buy time. It can be hard to find time to enjoy special experiences, especially for those of us juggling lots of responsibilities. But the gig economy has made it easier and more affordable for many of us to buy free time. Beyond well-known time-saving services like DoorDash, Dunzo, and TaskRabbit, consumers are turning to creative companies like Hello Alfred, a kind of modern butler service that claims to have saved its members a combined total of more than 50 years through its array of services.
Spending money on time-saving services might seem indulgent given the current economic climate. But when we surveyed 15,000 Americans in the midst of the Covid-19 pandemic, people who reported buying time (like saving travel time by purchasing more expensive groceries from a closer grocery store), exhibited 10% higher life satisfaction compared to those who didn’t. Remarkably, this relationship held up even for people making under $40,000 per year.
Indeed, buying time appears to cause happiness levels to rise. As part of a study published in 2017, 60 working adults received $40 to spend on a time-saving purchase one weekend. On another weekend, those same individuals got another $40 to spend on a material thing. Compared to buying a material thing, buying time led people to experience more positive moods and reduced their feelings of time pressure. Yet, when other working adults were asked how they would spend a $40 windfall, only 2% planned to make a time-saving purchase.
Invest in others. Try this experiment on yourself: Grab a $10 or a $20 bill and use it to benefit someone else today. You could send a small gift to a friend, help out a stranger who’s short on cash at the grocery store, or make a donation to a charity that’s important to you. Although it might be tempting to spend this money on yourself, a decade of research shows that you’re more likely to derive happiness from spending it on someone else. In fact, even people who are struggling to meet their own basic needs exhibit this “warm glow” from giving to others.
But that doesn’t mean that giving always makes everyone happy. Instead, it matters how and why you give. It’s important that you feel like your decision to give is made freely — that it is something you choose to do, not something you feel forced to do by a pushy co-worker asking for yet another donation to their pet cause. Look for giving opportunities that will enable you to see how your generosity is making a difference for a person or cause you genuinely care about. And you can start small. Research shows that giving even a few dollars can boost your mood.
It’s important to note that some of this research has its limitations, as spending choices that promote happiness can also be dependent on our unique personalities. (For instance, in one experiment, 79 participants received a voucher to make a purchase at either a bar or a bookstore. Although both types of purchases provided extroverts with a small boost in happiness, introverts felt much happier after hitting the bookstore rather than the bar.) But this small study is just the beginning of the next chapter of research on spending and happiness. Utilizing advances in big data and machine learning, we are beginning to move beyond population-level spending recommendations, providing more individualized advice to help people get the most happiness from every precious dollar they spend.
Elizabeth Dunn is a professor of psychology at the University of British Columbia and Chief Science Officer of Happy Money, a financial technology company with a mission to help borrowers become savers. She is also co-author of “Happy Money: The Science of Happier Spending” with Dr. Michael Norton. Her TED2019 talk on money and happiness was selected as one of the top 10 talks of the year by TED.
Chris Courtney is the VP of Science at Happy Money. He utilizes his background in cognitive neuroscience, human-computer interaction, and machine learning to drive personalization and engagement in products designed to empower people to take control of their financial lives. His team is focused on creating innovative ways to provide more inclusionary financial services, while building tools to promote financial and psychological well-being and success.
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