Spending for Maximum Happiness

Last week I argued that the cost of happiness is actually significantly less than the commonly-cited $75,000. This, I argued, is because we are bad at knowing which spending will make us happier and which will not.

This may lead you (quite justifiably) to ask me to back this up. If I claim that people should spend their money differently, then how do I think they should spend it? And can I prove that they will be happier?

So today I want to talk about an area of spending that has great return on investment when it comes to happiness: spending on others.

Spending on Others vs. Spending on Ourselves

In 2008, some researchers gave money and instructions to participants in a study. Some participants received $5 and some received $20. Some were instructed to spend the money on themselves and some were told to spend it on someone else.

The researchers later called the participants to find out how they spent the money and to compare their happiness levels before and after. Spending money on oneself was not linked to any increase in happiness. Spending on others definitively did increase happiness, whether $5 or $20.

This link between happiness and spending on others appears to be innate, or at least learned very early. We can see this in a study of 2-year olds.

A group of toddlers were given eight treats each (either Goldfish crackers or Teddy Grahams) and were introduced to a monkey puppet who loved those treats. Next, the kids were given an extra treat specifically to feed to the puppet. They were then encouraged to give the puppet treats from their own stash.

The happiness of the two-year olds was measured based on the reactions on their faces. (This is probably a better method than trying to get babies to respond to questions about Cantril’s Self-Anchoring Ladder.)

The toddlers were happier giving treats to the puppet than receiving them themselves. Even more interesting, they were happier giving up their own treats than the researcher’s treat.

This is not just a first-world phenomenon, either. One study asked participants in Canada and Uganda to think about a time they spent a significant amount of money. Half were asked to think about a time they spent on themselves and half were asked to think about a time they spent on someone else. Those that thought about spending on someone else were happier, regardless of their home country.

Spending for Maximum Happiness

The final research for today involves study participants being given Starbucks gift cards. Some of the participants used the card for themselves, some gave it to a friend, some bought themselves and a friend coffee and drank them together, and some went with a friend but only paid for their own coffee.

The happiest people were the ones that bought the coffee for their friend and then hung out and drank together. The combination of doing something for someone else, getting to see that person’s reaction, and nurturing a relationship is a powerful one.

So if you’re really looking to get the most possible happiness out of your spending, the research says that you should spend your money, and a bit of time, on someone else.

11 thoughts on “Spending for Maximum Happiness”

  1. Very interesting research here Matt. I personally agree with the research as doing good for others always feels better. This is why I am trying to get more involved with community work. On the other hand I wonder what those people who are hardcore savers would think of this idea. For those that are rushing towards FIRE they usually are very selfish with their money so would be an interesting debate.
    Stefan – The Millennial Budget recently posted…How I Became a Millionaire by Age 30My Profile

    1. It would definitely be an interesting debate. Every once in a while a discussion on charitable giving will pop up on the financial independence subreddit and it is fascinating to see the broad range of approached. On one end you have people who donate at least 10% of every paycheck and spend their free time working with charities. At the other end you have people that donate nothing in the hopes of hitting financial independence faster and plan to spend their last dime the day before they die.

      I think the most popular approach over there is to get to FI as quickly as possible and then donate a significant portion of your estate when they pass away. Without getting into any sort of moral judgment, I think the research shows that those people are missing out.

  2. I remember as a kid being so excited when I would receive presents and joy on christmas day. As I got older I started to get more excited about the presents that I gave to friends and family. It’s amazing how we feel better including others in our joy than hoarding it to ourselves.
    Mustard Seed Money recently posted…Donating Money to Your CollegeMy Profile

  3. Interesting. I think I’m on the opposite side because I feel kind of bad when I spend extra for everybody else because I’m working so hard to take care of myself first. I love spending time with people and building relationships but spending money on someone else doesn’t give me that significant amount of happiness. Maybe I should try it more often so that I can compare the two approaches though!
    Finance Solver recently posted…How to Have More Money This MonthMy Profile

    1. I think it is a mindset thing. When you are focused first and foremost on monetary goals (like financial independence or saving up for a house) it feels painful to watch that dollar go out the door because it feels like you are taking a step away from your goals. I’ve definitely been there. It’s a tough mindset to switch off.

      One piece of information that I did not include in this article (I was saving it for a future article more specifically on charity) is that people who donate money to charity report feeling wealthier than people who don’t. Regardless of how much money people actually have, the people that give some of it away have more of a feeling of abundance. I think that feeling of abundance is key.

      Thanks for the comment!

  4. Love this, Matt! Thank you for sharing the research on the topic. Spending your money and your time on someone else is so valuable! Too often, the busyness of our lives interferes with the time we allow ourselves to spend enjoying the company of the important people in our lives. When I walk away from lunch or an evening out with friends and family, I always feel a happy energy (and I would guess that they do too!).
    Amanda @ centsiblyrich recently posted…Do you know what you need to accomplish your dreams? Start with whyMy Profile

  5. Fascinating research — and I completely agree! The times that I feel the most fulfilled and happy are the times that I’m focused on others. Regardless of what my own situation may be in life, when I help others I am far happier. Thanks for the awesome reminder.

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