It turns out money can buy happiness, after all—when consumers create a market for mindful consumption.
A lot has changed for Rachel Aydt in the past two years. Since the magazine she worked for shut down in 2008, she’s been faced with plenty of financial uncertainty. Aydt now blends freelance work with teaching to make ends meet. But she and her family—a husband and son—still have to watch the pennies. Though money is tight, what the New Yorker and her family get in return for their spending has made them richer in unexpected ways.
Joining her young son’s local karate group is a case in point. Aydt, 38, has had to cut back on certain things, but her son’s karate lessons haven’t been one of them. In fact, she’s joined, too, and mother and son do karate twice a week at a local center. Karate has brought with it a sense of “neighborhood community we didn’t have before,” she says. Similarly, picking her food upstate instead of buying it at a grocery store has meant the family gets more satisfaction from their purchases. And being around more means less money spent on child care when her son isn’t at school, leaving more for picnics at the beach. For Aydt, the aim these days is “putting the dollar more toward life-enriching things.”
Given sky-high unemployment, painful personal and national debt levels and the murky economic outlook, consumer behavior was bound to change. In a Gallup poll published in May, close to half of Americans said they were spending less than in previous months; almost a third said they planned to keep it that way. A Boston Consulting Group (BCG) report released in June found that 41 percent of Europeans said they planned to trim their own spending over the coming 12 months. Those numbers were even higher in Germany, the region’s largest economy.
But in some respects, our collective plunge in net worth has led to a rise in a different kind of personal wealth, prompted by a more thoughtful approach to consumption that emphasizes experience over excess and community over commerce. Insights from psychology and behavioral economics suggest that when it comes to happiness, what you spend your money on can matter more than how much of it you have. Studies have shown that putting more cash toward experiences rather than stuff, buying a gift for someone else rather than yourself and even simply anticipating a purchase longer make us happier.
It may have taken a recession to remind us of this, but the lesson seems to be taking hold. “People are shifting from mindless to mindful consumption,” says John Gerzema, chief insights officer at global marketing services firm Young & Rubicam and co-author of Spend Shift: How the Post-Crisis Values Revolution Is Changing The Way We Buy, Sell and Live.
That shift is, of course, not painless and, in many cases, not voluntary, either. For those worst hit, re-allocating spending can mean less a boost to their sense of community and well-being than to their stress and anxiety. Still, a little belt-tightening can lead to a lot more satisfaction. “What we’ve seen the recession do is cause consumers to question their behavior, to ask themselves, ‘Do I really need it?’” says Michael Silverstein, a Chicago-based senior partner and managing director at BCG. Non-essential spending—on eating out, fancy groceries and new clothes—has duly fallen away.
That’s made room for simpler pleasures. In the BCG report published last June, family, home, friends and education figured high on a list of values considered by U.S. and European consumers to be more important than they’d been two years earlier. So, while people are spending less time shopping, they’re spending more time engaged with friends and family or in leisure activities like reading or cooking, according to a New York Times/CBS News poll published earlier this year. While that’s boosted sales of pots, pans, cookbooks and comfy chairs, says Silverstein, “to some degree, it’s a world of simplicity.” And among those Americans recently polled by Young & Rubicam, two-thirds said simpler, post-recession habits make them happier.
A boom in sharing products and services within communities—from city bike rental schemes to car-sharing firms like Zipcar—is also raising consumer satisfaction, reckons Rachel Botsman, author of What’s Mine Is Yours: The Rise of Collaborative Consumption. People are lured by the promise of access to goods and services without the cost of ownership (as Detroit’s carmakers were being bailed out, Botsman likes to say that use of carpooling sites rose), but saving money may not be the biggest return. “Users get an unexpected benefit of feeling that they’re part of a community, a shared experience,” she says. “They talk about feeling like they’re part of something more important.”
How directly these changes in consumer behavior translate into real happiness is ifficult to know. Whether these new habits will persist when good times return is impossible to predict. But understanding why communal, experiential spending enhances well-being is essential to creating the kind of financial system that will make economic implosions less likely.
“Most people don’t know the basic scientific facts about happiness, about what brings it and what sustains it,” wrote researchers from the universities of British Columbia, Harvard and Virginia in a paper published by the Journal of Consumer Psychology. “So they don’t know how to use their money to acquire it.”
Perhaps our biggest misunderstanding is the link between increased wealth and increased well-being. In the past few years, the correlation between these two things has been shown to be modest at best. Just last month, research published in Proceedings of the National Academy of Sciences found that while earning more may lead us to think we have better lives, any income beyond roughly $75,000 does nothing to boost our day-to-day moods. A separate, global study published in July, based on Gallup data collected in some 100 countries, came to a similar conclusion.
That’s partly due to the fact that we quickly get accustomed to things like earning more money quickly. As a result, the extra happiness we get from a pay raise evaporates. With higher pay comes higher aspirations, which, if unfulfilled, leave us frustrated. And often what matters isn’t the absolute amount we earn but the amount we earn relative to others. So earning more than a co-worker or a friend from college will make us happier; while just earning more won’t.
So, if you’re not an experiential spender already, now may be the time to become one. The experience itself—French lessons, say, or rock climbing expeditions—is less important than, to coin a commercial phrase, just doing it.
Evidence for the outsized impact experiences can have on happiness has been around for years. In 1999, B. Joseph Pine II and James H. Gilmore published The Experience Economy, in which they argued that the provision of memorable events is the next step in evolution after the service economy. In 2002, British economists Andrew Oswald and Andrew Clark quantified the happiness inherent in a range of life events, expressing things like marriage in terms of the pay increase needed to bring about an equivalent boost to our well-being. Getting hitched, they calculated, amounted to an average wage hike exceeding $110,000.
Recent work confirmed the value of experience in promoting happiness. In a 2003 study, Leaf Van Boven of the University of Colorado at Boulder and Cornell University’s Thomas Gilovich asked participants to think about experiential and material purchases they’d recently made and indicate how happy the purchases had made them. Experiential purchases were defined as those made with the goal of living through events; material purchases were defined as those made with the goal of acquiring certain physical objects.
More than half of the subjects said experiential purchases made them happier than material ones; only a third felt the opposite. The remainder couldn’t decide. Most agreed, too, that experiences represented better value for their money. And, another survey in the study found that for many, merely thinking about their experiences put participants in a better mood than reminiscing about the purchase of a material item.
A key to valuing French lessons over flat-screen TVs is our swift acclimation to new things. You can spend an age choosing a new cell phone, but it won’t be long before it blends into the background of your life. French lessons, on the other hand, are different every time, just like rock-climbing expeditions. Experiences stay fresher longer, which makes us happier longer.
Experiences are more likely to strengthen social bonds, too, something that boosts our overall happiness. “We can take some delight in [the fact] that our well-being is much more driven by our relationships than by our household income,” says Nic Marks, a fellow at the new economics foundation (nef) in London and founder of its Centre for Well-Being. Which helps explain why Aydt gets a lift from her local karate group, why people spend more time on meals with friends and family and why carpoolers have a sense of being part of something bigger than themselves.
University of Wisconsin-Madison professor Thomas DeLeire and Ariel Kalil of the University of Chicago study the relationship between happiness and different kinds of consumption. Only two kinds of consumption—leisure consumption (money spent on vacations, entertainment and sports equipment) and vehicle consumption—correlated with happiness, not because of the things themselves but because those things promote social connectedness. We get pleasure from the experience of a family vacation, entertainment shared with friends and the comradery of sports; vehicles may be the icons of conspicuous onsumption, but they also connect us with loved ones. The study found that all other kinds of consumption, from food to health care, appeared unrelated to well-being.
Social connectedness seems related to getting more bang for your buck in surprising ways. In separate research by psychologists from the University of British Columbia and Harvard, the happiness of staff members given a profit-sharing bonus was measured before and after they received the windfall. The only significant predictor of the employees’ happiness levels after they spent the cash was the portion of it they gifted to others. Even the size of the bonus itself was less important. “We’ve never made the argument you should blow off rent or mortgage payments and take your friends out to dinner,” stresses Lara Aknin, one of the report’s authors. But “at least in small amounts, the more you give, the happier you are.” The nef’s Marks concurs. “Giving is crucial in this climate,” he says, from volunteering locally to funding microcredit in the developing world. “There are wonderful ways to engage with global poverty in a rewarding way.”
That doesn’t mean we can’t splurge on ourselves, but we may get the most pleasure from our purchases before rather than after the fact. A study by academics at the universities of Rotterdam and Tilburg found vacationers reported a higher degree of happiness in the run-up to a trip compared to non-vacationers, possibly owing to the anticipation of their holidays. In contrast, happiness levels of the two groups were essentially the same after the holidaymakers returned. The reason: Anticipation is fun, in some ways even more fun than our memories of the experiences. “There’s tremendous value in prolonging consumption,” says the University of Colorado at Boulder’s Van Boven. “If you get it two weeks from now, you have two weeks of anticipatory enjoyment. Get it today, and that enjoyment is gone.”
Even in hard times, mindful consumption isn’t always an easy sell. Part of why we spend so much money on status-defining goods in the first place might be because we haven’t figured out other ways to make ourselves happy, suggests Ruut Veenhoven, professor at Erasmus University in Rotterdam and founding editor of the Journal of Happiness Studies. Absent our own vision of the good life, he says, we “may be more apt to orient toward the picture of a good life presented by advertisements.”
In the U.K., Marks and the nef have been spreading the word about experiential wealth through Five Ways to Well-being, a government-backed project aimed at developing a set of evidence-based actions to boost happiness. The tips—which include connecting better with those around us, trying out new interests and giving more of ourselves to others—have been adopted by organizations around the world since they were first published in 2008. “Some people say, ‘It’s obvious,’ but it’s amazing how we forget,” Marks says.
Rachel Aydt isn’t likely to forget anytime soon. She may have to watch what she spends, but she spends more time at home with her son. “Things feel more meaningful,” she says. “I’m so much happier.” You can’t put a price on that.
Adam Smith, a writer based in London, happily accepts gifts if it makes other people happy.