Why Do We Spend Money On Things That Don’t Make Us Happy?

by Stephanie Stern

My friend Kate used to annoy me in a very specific way. I’d invite her to do something fun — like a nice meal or a performance — and she’d say that she couldn’t afford it, and then spend money on something else equally expensive and unnecessary. It took me a while to understand that it wasn’t personal to me — Kate and I just had different ideas of how we wanted to spend our money. If how we spend our money is such a clear reflection of our priorities, shouldn’t we try to spend it in ways that make us truly happy?

Researchers Daniel Kahneman and Angus Deaton studied the relationship between income and happiness and concluded that life satisfaction (how we evaluate our life when we reflect on it) has a pretty direct relationship with income, whereas emotional well-being (our day-to-day happiness) only correlates with income until about $75,000. They found other correlations as well: income and education are related to life evaluation, while health, caregiving, loneliness and smoking are predictors of daily emotions.

Following their work, as well as other research, the answer to the question “how should we spend our money?” seems deceptively simple.

Spend on Connection
One of my favorite ways to spend money is to buy a cup of chai at a tea shop near my office. The chai is delicious (and often a much needed afternoon caffeine boost) and I bring my own mug (no environmental guilt), but it’s the interaction with the proprietor that keeps me coming back. She’s extremely warm and remembers me, and our interactions feel personal even though they are only a few minutes long. I always leave her store with the happiness of having faith in humanity.

As a native New Yorker, I’m usually wary of people who want to talk to me in public, so I was surprised at myself that this relatively meaningless interaction was so enjoyable, but it actually confirms research on “prosocial” spending. “The combination of using time and money to engage with somebody else is the magic formula for happiness,” say Elizabeth Dunn and Michael Norton, authors of Happy Money: The Science of Smarter Spending,” in this interview with Forbes.

Spending money on connecting to other people can mean spending money on them (I love to treat friends to coffee or meals every so often), spending on shared activities, or even spending to free up your time. This is not unique to one culture either: a study of 136 countries showed that “prosocial spending is consistently associated with greater happiness.”

For me this means that I’ll keep spending money on chai, on my household cleaners (to free up my own time), visiting friends and family, and trying to treat my friends to occasional meals.

Spend on your Health
I spent a lot of money on a mattress that is supposed to be good for my back and it was $2,000(!) well spent. I think it actually is good for my back (I have chronic lumbar issues), but it’s also just so comfortable and gives me pleasure to slide into bed at the end of the day. Not to mention that getting enough sleep is important for our overall and long-term health.

Health is particularly related to happiness if there is a condition that interferes with our daily life. As someone with chronic back issues that impact my life, I understand this well. Physical pain makes me grumpy more than anything else. In addition, spending money on exercise boosts our endorphins, and it turns out that happiness is also good for your health: happy people are less likely to get sick and less likely to have heart attacks.

An essential part of happiness is about being the person we want to be. I want to be someone who takes care of myself and my body. As a bonus, feeling good about myself and my body also helps me spend less money on other things (for example, cookies).

Spend Less
As they say: The best things in life are free. In Dunn and Norton’s book, they describe several principles on spend for happiness (WBUR has a great summary), including making things a treat, buying things less so that we appreciate them more. Indeed, lists of things to make yourself happier, like this one from Belle Beth Cooper, are full of free activities, like exercising, sleeping, spending time with friends, meditating, being grateful, and even just smiling.

Part of spending less is being more aware of why we are really spending money. Too often, we buy things because we’re feeling down — we know this intuitively, but research by Derek D. Rucker and Adam D. Galinsky at the Kellogg School of Management shows an “…increased willingness to pay for status-related products stems from the belief that obtaining such objects will restore a lost sense of power.” They found that when people feel that they lack power (such as from losing a job or income), their desire to purchase high status products increased, as did their willingness to pay for them. Essentially, people buy expensive things to compensate for feeling powerless.

I am certainly guilty of this — buying a treat (usually involving chocolate) when I feel down, shopping for clothes because I want something new and exciting in my life, or bribing myself with a cappuccino when I don’t want to go to work. In most of these cases, I would be better served by calling a friend — someone close and supportive when I’m down and someone I don’t normally see if I’m seeking excitement.

Author David Foster Wallace gave the following advice in a commencement address to Kenyon College: “The whole trick is keeping the truth up front in daily consciousness. Worship power, you will end up feeling weak and afraid… Worship your intellect, being seen as smart, you will end up feeling stupid, a fraud, always on the verge of being found out.” He doesn’t need to spell it out: worship money and you will always feel poor. I take this to say: be careful to center your life around something that can love you back. Pick something that grows with the energy you put into it. Connection with people and community, and the health to enjoy it, seem like good places to focus.

Wallace goes on to say, “The really important kind of freedom involves attention and awareness and discipline, and being able truly to care about other people and to sacrifice for them over and over in myriad petty, unsexy ways every day.” This is true connection, and it doesn’t cost a thing.

Steph Stern works in energy and environmental policy in the San Francisco Bay Area. She writes about careers and life choices at Small Answers (or follow on Twitter: @smallanswers). Photo: Praveen

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