What should you spend on to maximize your happiness?

When it comes to spending our money, we instinctively think that we will derive the most happiness by spending it on ourselves, regardless of whether it is to pay that pesky bill, or buy ourselves a nifty new gadget or that gorgeous handbag that we have been eyeing for ages. But is spending money on ourselves really the best way to boost our happiness, or is there something more to it? Dunn, Aknin & Norton (2008) provide some unexpected insights.

The researchers hypothesized that, compared to spending money on ourselves, spending money on others will actually make us happier. 632 Americans were asked to rate their happiness, indicate their annual income and also estimate how they spend their money in a month, which was subsequently categorized into Personal Spending & Prosocial Spending.

Results:

• Personal Spending (Bills & expenses, Gifts for themselves) was not a significant predictor of happiness.
• Prosocial Spending (Gifts for others, Donations to charity) was a significant predictor of happiness.

The authors proceeded to extend their study to investigate whether people who received a windfall would be happier if they had spent it on themselves or on others. The windfall here refers to a profit-sharing bonus for 16 employees in a company. They were asked to rate their happiness 1 month before (Time 1) getting the bonus and after 6-8 weeks (Time 2). Participants were then asked to estimate how they spent the bonus, which was also subsequently categorized into Personal Spending & Prosocial Spending.

Results:

• Personal Spending (Bills & expenses, Rent or mortgage, Buying something for themselves) was not a significant predictor of happiness at Time 2.
• Prosocial Spending (Buying something for someone else, Donating to charity, Other) was a significant predictor of happiness at Time 2.
• They also found that how the participants spend the bonus was more important than the size of the bonus.

In order to establish a causal relation using an experimental methodology, the researchers gave participants either $5 or $20 and were instructed to either spend it on themselves (Personal Spending) or to spend it on others (Prosocial Spending).

Results:

• Participants who were in the Prosocial Spending condition reported greater happiness than participants who were in the Personal Spending condition.
• The size of the money ($5 or $20) did not have a significant effect on happiness.

So how can we make use of these findings to maximize our happiness by deciding on what we should spend on?

In sum:

• Allocate some of our spending on others (Gifts, donations etc.).
• The sum does not have to be big, even an amount of $5 when spent in a prosocial manner can result in significantly higher happiness levels.
• We can make ourselves happier than a person with a bigger bonus by simply tweaking how we spend our cash.

Dunn, E., Aknin, L., & Norton, M. (2008). Spending Money on Others Promotes Happiness Science, 319 (5870), 1687-1688 DOI: 10.1126/science.115095