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Money makes you happy - if you spend it on others

By Carey Goldberg
From The Boston Globe, March 21, 2008

They say money can't buy you happiness, but new research suggests that it can, if you spend it on someone else. "Simply making very small changes in how you spend money can make a difference for happiness," said Elizabeth Dunn, an assistant professor at the University of British Columbia, who led the research along with a professor at Harvard Business School.

Studies of happiness have long found that, unless people are extremely poor, getting more money brings surprisingly slight gains in positive feelings.
The researchers suspected that perhaps the happiness holdback was not inherent in money itself, but rather in what people did with their money, mainly, spending it on possessions for themselves.

They tested their theory at a small Boston-area medical supply company, where employees received fat bonuses averaging about $5,000, measuring levels of happiness before and after. What they found, said Michael I. Norton, assistant professor at Harvard Business School, was that "the size of the bonus you get has no relation to how happy you are, but the amount you spend on other people does predict how happy you are."

The study is published in this week's edition of the journal Science. The researchers used a five-point scale, asking people, "Do you feel happy in general?" There were five answers provided: yes, most of the time, sometimes, rarely, or no.

They found that people could expect to go up a full point on the scale if they spent about a third of the bonus on others, Dunn said, calling it prosocial spending.

"So, if before receiving their bonus, both Tim and Dan said they were happy sometimes, and Dan spent a third of his bonus prosocially, while Tim spent none of it prosocially, then after spending the bonus, we would expect Dan to tell us he was happy 'most of the time,' " Dunn explained.

She could not disclose the name of the company or recipients of the bonuses, she said, because they were promised anonymity when they participated.

The study fits in neatly with a growing body of research that finds that helping others is the best way to help yourself, that people who give more and are more socially connected are happier.

"There's so much benefit to the person who contributes to others that I often think that there is no more selfish act than a generous act," said Tal Ben-Shahar, author of the book "Happier" and teacher of the positive psychology course on happiness that is Harvard's most popular class.

During one week of the course, Ben-Shahar asks students to do five small acts of kindness a day. They range from giving change to homeless people, to being nice to waiters, to calling grandparents. "The effect of it is quite remarkable and lasts for much longer than a day," he said.

Similarly, the Science study found that small expenditures could bring large results. In a separate experiment, the researchers gave college students either $5 or $20 and told them to quickly spend the money. Some were told to spend it on themselves - on a bill, say, or a gift to themselves - and some were told to spend it on others - on a donation to charity, or a gift to someone else. The vast majority of the students predicted that they would be happier with $20 than $5.

That evening, the participants' happiness levels were measured. But again, the amount of money did not matter. Those who spent on others felt happier than those who spent it on themselves.

"We don't want to suggest that more money would never matter," Dunn said. "It's just that in our studies we found that how people spent their money mattered at least as much as how much money they received, and indeed there was no effect at all of the amount of money received in [the two studies]."

Part of the explanation could be that people tend to be made happier by experiences than by possessions, said Sonia Lyubomirsky, a psychology professor at the University of California at Riverside and author of "The How of Happiness."

Americans tend to spend their money on possessions, she said, but research shows that the happiness from a bigger house or television set quickly dwindles as people get used to the benefits and face the responsibility that comes with ownership. Whereas taking a friend out to lunch, say, is more of an experience, and more likely to yield longer-lasting good feelings.

Other mechanisms could be at work, Lyubomirsky said. For example, kind acts lead to the perception that people are grateful, and that is linked with happiness. Also, when a person acts kindly, she said, "there are social consequences: You might enhance your friendship. You might make new friends. People might reciprocate."

The study shows, she said, that what's important with money "is not money per se; it's what you do with it."

So why are people so poor at predicting that spending money on others is a reliable road to happiness?

"Marketers are bombarding us with these ideas that we need a Lexus, so you can't entirely blame people for getting tricked," Dunn said.

It is also much easier to count money than to measure happiness, Norton said. "If you think about getting ahead in life, you can say, 'Last year I made X, and now I'm making X plus 10.' But people don't conceive of their lives as 'I was 71 happy last year, and now I'm 76 happy.' " And even if they do, the reasons for greater happiness may not be obvious to them, he said.

Dunn said that when she wrote up the study, it was close to Christmastime, and she decided that instead of giving her family things, she would get them gift certificates to a website that allows people to choose various philanthropic projects to support.

"I've never gotten more positive responses to any gift I've given my family," she said. "I was giving them the gift of giving."