They say that money can’t buy happiness. Harvard Business School professor Michael Norton says it can—if you spend it right.
1. Is there any evidence that shows money does not make us happy?
Overall, people with more money are generally happier than people with less money. But our research has shown that this relationship is weaker than many people assume – they seem to think that twice as much money will make them twice as happy, and this just isn’t the case.
Not only that, but research by professor and author Kathleen Vohs and her colleagues reveals that merely thinking about money can make people more focused on their own needs and less interested in helping others—which ultimately is a bad recipe for happiness.
2. Can we teach ourselves to spend differently?
I see changing our spending habits as similar to trying to eat healthy and exercise more: we know that we shouldn’t eat pizza and we should go for a run, but most days we end up on the couch with a few pieces of pizza. It’s hard to change our spending habits, too.
Even when we know that we shouldn’t buy material goods and we should buy experiences or invest in others, we still yield to the temptation to splurge on stuff for ourselves. But it can be done. Start small. Think of one thing you spend money on that used to be a treat, which you now take for granted. Try giving it up for few days, a few weeks, or even a few months. When you have it again, your capacity to enjoy it is likely to be renewed—and you’ll save money in the process.
Harvard Business School professor Michael Norton’s TEDx talk has been viewed more than three million times.
3. How should we balance between saving and spending to maximise happiness?
There is no doubt that saving money is very good for happiness, both now and later. Now, having money in the bank makes people less vulnerable to the slings and arrows of daily life that can pull down our happiness.
Later, of course, saving means that we will have money to use for happy pursuits during retirement. Whenever people are spending money on something that doesn’t meet at least one of our five principles [see box-out], we suggest that they save that money instead.
4. Have you put any of your spending principles into practice?
While writing the book, I realised that while I tried to invest in others by giving money to charity, my giving was often sporadic and often driven by a random friend or co-worker asking for money for a pet cause.
In order to reap consistent happiness benefits from giving to others, I signed up for automatic donations to one of my favourite charities, DonorsChoose.org. Each month, I now receive a reminder of the positive impact my donations are having on schoolchildren from low-income communities.
Michael Norton is a keynote speaker at this week’s Think Forward Summit in Munich. The summit brings together experts from governments, academics, consumers, and the financial and technology sectors with the goal of helping people make better financial decisions. See more at www.thinkforwardinitiative.com.
Five principles for buying happiness, from the book “Happy Money: the Science of Smarter Spending” by Elizabeth Dunn and Michael Norton:
- Buy experiences
- Make it a special treat
- Buy time
- Pay now, consume later
- Invest in others