INNOVATION HUB
11:02 am
Fri June 14, 2013

Can Money Buy Happiness?

Can money buy happiness? We ask Michael Norton of Harvard Business School and Elizabeth Dunn of the University of British Columbia, authors of “Happy Money: The Science of Smarter Spending.”

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Can money buy happiness?
Credit epSos.de / Flickr Creative Commons

  

Guests

Most of us have seen a television commercial and thought: “If only I had that iPad, that new television set, or that big Jacuzzi, I’d be so much happier.” But Elizabeth Dunn and Michael Norton, authors of the new book "Happy Money," aren’t so sure. When it comes to money—whether in the form of a bonus, a new car, or the latest gadget--they argue that more is not always better.

Companies like Google have begun experimenting with rewards for employees that don't involve big cash bonuses.
Credit Affiliate/Shawn Collins / Flickr Creative Commons

It’s not always about the raise

Is cash the only way for companies to keep their employees happy? Companies like Google have been experimenting with rewards that don’t involve money. One such reward is to allow employees to give away vacation days as gifts if, say, a friend at the office has a family emergency. “I get one less day in Maine, but it’s worth it for me because I’m helping you,” Norton says.

Google has also rolled out a program in which employees can nominate coworkers to receive a gift of $150 out of a rewards fund. To a giant like Google, $150 is a drop in the bucket. But to an individual, that amount—and, more specifically, the opportunity to feel appreciated by one’s coworkers—makes a big difference.  

Humans are naturally very comparative, and money often serves as a metric because it’s so easily countable. But, as companies like Google have begun to realize, money doesn’t necessarily have to be what we use to make employees happy. “The desire for status and recognition can come from all sorts of sources,” Norton says.

“There are so many other ways we can make people feel that they’re a little bit ahead of the other guy; we don’t need to only use money to do it.”

Experiential money

According to Norton and Dunn, the things that make us happy aren’t actually things. When asked about the influence of past purchases on their happiness, people consistently rank experiential purchases, like trips with friends, over items like iPads, shoes, and televisions.

This may seem counterintuitive, since the shoes will stay in your closet for much longer than a vacation will last. Dunn argues, however, that the human brain has a surprising way of making memories from experiences seem better over time, which makes them less subject to regret than material purchases. “My closet doesn’t make my clothes any nicer over time, but my mind can make those memories better,” she says.

Take cars, for example. The only time that having a nicer car actually seems to improve the quality of your day, Dunn says, is when going out for a joyride—in other words, pretty rarely.  Otherwise, the things you spend time thinking about on your daily commute have nothing to do with the fancy features you admired on the car when it was still in the lot. 

“When you buy a very nice car versus an average car, either way, you have to shovel it out when it snows,” Norton points out. Whether your car is a Honda or a Mercedes, the process of shoveling out will still make you miserable. In the end, he argues, you would be happier spending the extra money you would have blown on a fancier car hiring someone to shovel your Ford Focus out of the snow.

Are billionaires like Bill Gates happier than you? Not necessarily, say Norton and Dunn.
Credit World Economic Forum / Wikimedia Commons

Is Bill Gates happier than me?

Dunn and Norton’s findings suggest that the guy down the street with the nicer car is not, in all likelihood, happier than you. But what about Bill Gates, or Richard Branson, or Thurston Howell III? Are wealthy people, overall, happier?

Dunn points out that there are two kinds of happiness: cognitive, evaluative happiness, which measures how satisfied people are with life in general; and emotional happiness, which can be  measured by how frequently people smile, or how much fun they had that day.

From an evaluative perspective, people generally think they’re more important or satisfied with life if they make more money. But in terms of emotional happiness, money contributes far less—and some studies even suggest that, after a person hits the $75,000 mark, money doesn’t really make much of a contribution to emotional happiness at all.

There are exceptions, of course. A person making $20,000 per year would see a significant change in lifestyle were that number to increase by $10,000. However, that same amount of money would make far less of a difference to a person making $200,000 per year.

“We don’t ever seem to learn that when we’re up at a million, the extra $10,000 doesn’t do much,” Norton says.

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