Money Can Buy (Some) Happiness — Especially When You Give It Away

The old saying goes that money can't buy happiness. Maybe not. But in our modern era money is inextricably tied to human happiness. Still, the relationship between money and happiness is somewhat complex.

Few rules of thumb hold true across all demographics when it comes to this enigmatic relationship. But as reported in this Wall Street Journal article, one persistent rule is that giving money away tends to increase happiness almost more than anything else that could be done with it. Especially when compared to lavishing it on oneself. This even holds true for the very poor.

This is one reason that people are drawn to give to panhandlers even when they suspect that the funds might be ill used and even when authorities ask people not to give to panhandlers. Givers feel happier for having given. In a way, panhandlers offer increased happiness to the donors, regardless of whether the recipients use the funds for self destructive purposes or not. This may help explain why family members sometimes continue to give to n'er-do-well relations when rational indications are that it will likely harm the recipient in the long run.

Another general rule is that "debt has a detrimental effect on happiness." While "savings and financial security tend to boost [happiness]," "debt is more potently bad than savings are good." In other words, $100 of debt reduces happiness more than $100 of savings increases it. Says one researcher, "From a happiness perspective, it’s more important to get rid of debt than to build savings."

So, it would seem that getting/staying out of debt and giving money away can increase your happiness regardless of how rich or poor you are. Beyond this the relationship between money and happiness becomes more obscure.

Having more income does tend to increase happiness up to a point. But researchers have found that "happiness did not rise after a household reached an annual income of approximately $75,000."

"The bottom line: When you don’t have much money, a little extra can go a long way, because you have more essential needs to fulfill. As you accumulate more wealth, however, it becomes more difficult to keep “buying” more happiness."

Researchers class life satisfaction separately from happiness. In general, satisfaction increases with income. Feeling satisfied can enhance happiness, but satisfaction is not itself happiness.

Another interesting finding reported in the article is that buying experiences produces greater happiness than does buying material goods. But people tend to think that buying stuff will make them better off than buying experiences.

I understand how this works. The prudent side of me says that an experience like a vacation will quickly be over, while some material good will likely last far longer. This is true, but the article explains that we soon get used to our new stuff and we take it for granted. This is called "hedonic adaptation." Experiences, on the other hand, remain special to us for much longer, often due to sharing experiences with others. Regularly revisiting these memories helps define who we are.

Researchers also have found that how we value and use time plays into our happiness. They say that it is generally bad to always equate time with money. This "makes [people] less likely to spend even small amounts of time on things that are not financially compensated." On the other hand, one team estimated that commuting to work impacts happiness so harshly that it would take a 40% raise just to maintain the same level of happiness as is had with a shorter commute. (I'm sure this differs from person to person.)

To summarize, you can increase happiness by:

• Getting enough money to meet necessities.
• Avoiding debt.
• Saving and working toward financial security.
• Taking care to buy worthwhile experiences (while avoiding debt).
• Being judicious about acquiring stuff.
• Being generous with what you have.