Happy Money – The Science of Smart Spending by Elizabeth Dunn and Michael Norton – Book Review
Books abound on how to make more money and manage it to maximize return on investment (ROI).
Rising Professors and Researchers Elizabeth Dunn and Michael Norton Present a New Approach to Money; focusing on how to increase your happiness with the money you spend. They champion five principles, based on international research, to help you achieve that goal, in their new book, “Happy Money: The Science of Smart Spending.”
They found that, worldwide, surprisingly, income has little influence on whether people smile, laugh, and experience everyday enjoyment. Dunn and Norton also describe how companies and organizations that apply the principles can benefit their employees, stakeholders, community; and, ultimately, benefits.
The following are the principles of Happy Money:
Buy experiences. The experiences bring people together, promoting social connection; and provide memorable stories that you will enjoy retelling for years to come. They are also linked to your identity, or who you want to convert; and provide unique opportunities, avoiding easy comparison with other available options.
People who prioritize experience shopping are seen as open-minded, smart, and outgoing. Compare big purchases with mundane ones and you will find that people are more likely to experience buyer regret for material goods. The length of an experience has little impact on the pleasure people recall getting from it.
Make it a gift. “Knowing that something won’t last forever can make us appreciate it more,” Dunn and Norton say. “Recognizing that the end is near is the key to happiness as it helps us turn readily available comforts into treats.”
London is the most popular international travel destination, whose landmarks include Buckingham Palace and Big Ben. Native Londoners report seeing more landmarks in other cities than they did in their hometown. When a pleasant activity is readily available, we may never experience it, thus losing a relatively cheap source of happiness.
Companies often practice making certain items available for limited periods of time, making them feel like delicacies. Think about Disney’s limited re-release dates for its classic movies; and the McDonald’s McRib sandwich, added to fall menus to create nostalgia for summer barbecues.
Gain time. “Time and money are frequently interchangeable.” Thinking of time instead of money often inspires people to participate in activities that promote wellness, such as socializing and volunteering. Time and money promote different mindsets. Focusing on time tends to focus on your sense of self. Money thoughts promote a cool and rational manner.
Most people would benefit from schedule changes in:
- Displacements. The US Census Bureau says Americans spend more than two weeks a year traveling. Accepting a job with a one-hour commute each way equates to the unhappiness of not having a job.
- TV. Americans spend an average of two months a year watching television.
- Socialize. People experience the most positive moods on a daily basis when they spend time with friends and family, especially children.
Pay now, consume later. “Because of the power of the now, people overvalue the present, making it difficult to appreciate the potential benefits of delay.”
Credit cards anesthetize against the immediate pain of paying and promote a kind of detachment that makes even smart people more likely to part with their money. The researchers asked the subjects to estimate their monthly credit card bill. They all underestimated the amount by at least 30 percent.
When consumption is viewed in the future, it is easier to see the more abstract advantage of experiences, while focusing on the immediate future promotes viability. The authors describe people who pay in advance, including monthly cosmetic subscriptions by mail. Experiencing your arrival without paying feels like “Christmas every month.”
Invest in others. “New research shows that spending even small amounts of money on others can make a difference to your happiness,” say Dunn and Norton.
To maximize your giving experience, practice these three tips:
- Make it a choice. Feeling cornered by family, friends, and coworkers to donate to charities or purchase fundraising items can diminish the joy of giving. The best charitable appeals encourage people to donate without making them feel like they have to comply.
- Make a connection. People experience more happiness spending money on strong ties (that is, close family and close friends) than on weak ties (friend of a friend).
- Make an impact. People who report donating money to charities feel richer than those who don’t. When donors witness the impact of their contributions, they are more likely to give.
Dunn and Norton suggest that you consider the five principles collectively rather than individually; and find ways to apply as many principles as possible in a single purchase.
The authors “drift away” beyond individual, business, and organizational purchases; and discuss government spending. They cite government trends to measure and promote the well-being of their citizens.
The best way that governments can facilitate citizens’ ability to spend their money more happily is to ensure that all citizens have Some initially disposable income.
Dunn and Norton underscore the growing division in the United States regarding the rich and the poor; and they say that countries with large disparities between rich and poor have higher divorce rates, longer trips and weaker social safety nets.
Read “Happy Money” and develop a kaleidoscopic view of the power of cash beyond numbers and investments.