Does How You Spend Money Impact Your Happiness?

Does how you spend your money impact your happiness? That is the question the British Columbia/Harvard team wanted to answer. The team conducted three experiments.

On a Scale of 1 to 5
Interviews were conducted with a sample of 632 Americans, 55 percent of whom were women, to rate their happiness on a scale of one to five with five being the happiest. In addition, data were collected on annual income, as well as estimates of how much was spent paying bills, how much was spent on gifts for themselves, how much was spent on gifts for others and how much was given to charity. The first two were defined as personal spending, while the second two were called "prosocial" spending. The team found that how people spent their money was far more important than how much money they had. Personal spending had no impact on happiness, but prosocial spending was associated with significantly greater happiness.

The Bonus
Sixteen employees of a Boston company were interviewed about their happiness one month prior to and six to eight weeks after they received a profit-sharing bonus from their employer. How they spent the bonus was a more important predictor of happiness than the amount of the bonus.

Spend It Now
Nearly 50 Canadian students were asked to rate their happiness. After they did that, each was randomly given an envelope that contained cash, ranging from $5 to $20. Some were told to spend it on themselves, while others were told to buy a gift for someone else. Hours later, they were called together and asked to rate their happiness. Whether it was $5 or $20 or anything in between didn't matter; those who bought something for someone else were far happier than those who got something for themselves.

And it's not just your treasure that counts toward the happiness quotient. Giving to others can also include donating your time or special skills to a charitable organization or religious group.