Jenna’s Story (real story, fake name)
I have a client who is digging out of debt. During one of our sessions she was very excited to tell me she had bought a pair of shoes not in her original budget. And I was excited for her – it was exactly the right thing to do. Here’s what she said.
I’m so excited, I have to tell you about the shoes. Last month I was in DSW and saw this great pair of shoes on sale for $70. But I knew that wasn’t in my budget. I left without buying them and I was so proud of myself. But the next couple of days I kept talking about the shoes to my boyfriend, who finally said, ‘I think you really want them, why don’t you go back and buy them?’ And I did, but I know this just means I have to skip going out the bars with my friends a few nights this month and I’ll stay on track.” -Jenna
In this article we are going to talk about what scientists have figured out regarding the relationship between money and happiness. Keep Jenna’s story in mind as you read through the article below and see if you can figure out why I was excited for her and why this experience brought her enough happiness that she was gushing about it to me a month later. Ok, on to the research…
What science says:
Nobel Prize winning researchers, psychologist Daniel Kahneman and economist Angus Deaton, have found a modest correlation between income levels and happiness that levels off around $75K.* This implies that money doesn’t seem to help raise happiness levels that much. However, researchers think money could raise out happiness level more if we were smarter about how we use it. Turns out human brains aren’t great at predicting what will make them happy and so we make a lot of spending mistakes. However, with a little insight into how the brain works, we can employ smarter spending strategies and seriously up our happiness quotient. Let take a look at those strategies.
Strategy 1: Slow down the hedonic treadmill.
We are more emotionally adaptive than we realize. This means we to get used to both good things and bad things and then return to a baseline level of happiness. We are on the hedonic treadmill when we are spending in ways that give us short term pleasures to which we easily adapt. Have ever felt like this about your phone?
When we buy something we want, such as new shoes, a new car, a cell phone, a new apartment, we then get a jolt of excitement or happiness from the purchase.
But it doesn’t last very long; pretty soon we feel the way we felt before the purchase. To get that next jolt we need to make another purchase, often something bigger and better than the last one. The trick to slowing down the treadmill is to spend less often on things that leave us chasing the next spending opportunity.
Strategy 2: Know what makes your brain happy.
Not all good things suffer from adaptation in equal measures. Now let’s talk about the type of pleasures we can buy that are less susceptible to the hedonic treadmill. When we are looking to up our happiness levels, we want to focus our spending on those types of pleasures. Also we will talk about the flip side – how to use money to avoid pain to which we don’t easily adapt; brains are not happy when they are distressed.
So what pleasures have staying power? The counter-intuitive conclusion by researchers is that “things” that last a long time – say the big screen TV, often give enjoyment for a shorter periods of time than experiences that are more ephemeral. Why is that? To answer that question let’s look at what brain states make us happy. We are happiest when:
- We are focused on what they are doing at the present moment, not when our minds wander. What helps us focus?
- Novelty/new experiences.
- Getting in the state of flow. Flow is when you are immersed in a task you are doing and working on the edge of your capabilities. This gives a in a feeling of energized focus and enjoyment of the activity. Athletes often call it “being in the zone.”
- Spending time in nature is very associated with wellbeing and I think this has to do with being in the moment.
- We feel a sense of control and agency in our lives.
- We sense of progression in our lives. The hedonic treadmill comes into effect when things stay the same. Activities that give a sense of continuous progress are less susceptible to adaptation.
- When we have a sense of strong social connections and relationships.
Strategy 3: Spend money on things that make your brain happy.
Check out the image on the right. If you want to get to the happy brain states on the right column, make sure to spend money on the items on the left column.
As you can see many of the items on the list can do double duty to and are able to create more than one of the desirable brain states depending on the context. Here’s how it works:
- Athletic endeavors or artistic endeavors
These get us into flow, working at the edge of our abilities. But they are also about identity, social connection, sometimes nature and travel. Personally I’m a skier and I travel to beautiful places to ski with friends and family so that can do triple duty for me. These endeavors can also give a sense of progression, mastery, and control.
- Travel
Travel can satisfy several of the brain’s needs for being happy. First there is often novelty or departure from the everyday. This gets you focused on the present moment. Trips are often shared with other people, giving us a greater sense of connection, and they form a bigger part of our sense of identity. If we do something like climbing the Himalayas we remember it. We get pleasure out of both anticipating and remembering these experiences.
- Classes and learning new things/exercise going to the gym
Classes and learning new things creates an upward trajectory and continuous progress is a key to happiness. Exercise can have a similar impact. Also both of these things give you a sense of control. By exercising you are in control of your fitness and health, you are in control of your progress. I’m personally all about buying some new piece of exercise equipment to get me motivated when I’m flagging. - Social outings/visits to friends and family
Having a sense of social connection is very important to our well-being. So spending money to facilitate those connections can be a good plan. Travel to visit faraway friends and family. Go on social outings. Bonus benefits accrue if you combine these outing with being in nature, learning new things, or exercise.
- Spend money on others
This one is important to note because most people do not realize how powerful spending others, rather than themselves, can be for their happiness. In a study done at the University of British Columbia, researchers randomly gave people a $5 or $20 bill and randomly assigned them to spend it on themselves or someone else. Researchers later called them and asked them how happy they were. The subjects who were required to spend the money on other people rated themselves as happier than those who spent on themselves. Apparently giving someone a free coffee is more fun than getting one yourself.
Strategy 4: Keep an emergency fund to solve problems.
I don’t mean to give the impression that the way to maximum happiness is to spend every dime you have. If we assume Pleasure – Pain = Happiness Level other important variable in the equation how much money you have available to solve problems, thereby reducing pain. And certainly you don’t want to cause yourself money problems trying to buy happiness. Then the two variables of the equation will cancel each other out. If you don’t establish a safety net to solve problems when they pop up, or worse you go into debt to buy your pleasures, you will right back where you started happiness-wise or worse. Balance is the key.
Back to Jenna’s story
Did you figure out why buying those shoes made her happy and why I approved? She’s clearly breaking the rule about spending on experiences over tangible objects. Shoes are a hedonic treadmill purchase. Plus she said she was going to avoid going out to cover the costs and I just said how important social connections are. But she wasn’t gushing to me about how awesome the shoes were. I don’t know if they were heel or flats; I don’t know what color they were. She didn’t tell me any of that because that wasn’t the important part of her story.
What she was so excited about was that she now felt in control of her finances. By working with me she had learned how to budget. She had pulled an emergency fund together and she was on track to pay off her loans early. She had options and choices and she exercised them thoughtfully. Brains love to feel that they have options, that they are progressing and that they are in control. She got to that brain state by learning and saving. When you do that sometimes you can have your cake and eat it too.
*As an aside well respected researchers Stevens and Wolfers have found a strong correlation between income and happiness that runs all the way up to an income of $500K. Why? Well it turns out Kahneman asked people how they were feeling in a particular moment. Specifically they asked how happy people had felt the previous day and then correlated that answer to their income. This type data measure what’s sometimes called “affective happiness” Stevenson and Wolfers asked people to reflect back on their lives and rate their overall satisfaction. Researchers call this “evaluative happiness.” This means people really like the idea that they make a lot of money even if that doesn’t make them happy on a daily basis. The good news is that reflecting back on a life filled with family, friends, learning, and adventure is good for your evaluative happiness too.