Money & happiness: It’s complicated

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Does more wealth lead to more happiness? Researchers have tackled this question for decades, and although the results have differed, one fact is certain: The relationship between money and happiness is complicated.

Think before you spend
In their book, Happy Money: The Science of Smarter Spending, professors Elizabeth Dunn and Michael Norton summarize their own and others’ research. They discovered it’s not necessarily how much you make that matters to overall happiness (although it certainly contributes), but what you do with your money. They boiled down the findings to five “key principles of happy money.” 

  1. Buy experiences
    Investing in memories can result in a more sustained level of happiness than buying a bigger house, a more luxurious car, or other material goods. Buying the latest technological gadget might elicit the kind of joy a child experiences opening a new toy, but the gadget loses its novelty with time. On the other hand, experiences create memories that help foster prolonged contentment.
  1. Make it a treat
    While you’re investing in those experiences, be sure to spread them out so they don’t become expectations or habits. In this way, the novelty of each new experience will be fully realized. As the book says, “Abundance is the enemy of appreciation.”
  1. Buy time
    Investing in products or services that allow you to spend more time on the things, and with the people you love, will lead to greater overall wellbeing. Avoid putting a dollar value on your time, as this can increase stress. “Simply feeling like your time is valuable can make it seem scarce,” say Dunn and Norton.
  1. Pay now, consume later
    Paying for a treat or experience up front, such as event tickets you buy months in advance, allows you to benefit from the extended pleasure of eager anticipation. Conversely, credit cards can be a dangerous habit, facilitating a “consumer now, pay later” attitude. One study cited in Happy Money found 100% of those surveyed underestimated their monthly credit card bills by nearly 30%.
  1. Invest in others
    Regardless of your circumstances — research finds spending money on others leads to greater happiness than spending on oneself.

The danger zones
While some experts differ on whether higher incomes result in greater levels of happiness, they tend to agree on the following: Increasing debt levels is detrimental to happiness, and keeping up with the Joneses can lead to a general sense of dissatisfaction. Instead, actively managing debt while finding ways to appreciate what you already have, may help you make well-thought-out saving and spending choices that support your overall level of wellbeing.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2016.

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