Money spent on others can buy happiness

As anyone who has read the Declaration of Independence knows, the right to the pursuit of happiness is part of the nation’s founding creed. But when it comes to where to look for it, the instructions are less than clear.

Many think money holds the key.

For years researchers, from psychologists to economists, have examined whether there is a direct connection between one’s financial and emotional wealth.

Studies suggest that more money can lead to a significant bump in positive outlook when it brings people out of poverty, but when simply taking a person up a pay grade, there’s often only a minor change in attitude. And while the purchase of material possessions can offer a temporary lift, the effects of a new watch, car, or dress, studies show, are almost always short-lived.

But new research by one Harvard scholar implies that happiness can be found by spending money on others.

Michael Norton, assistant professor of business administration in the marketing unit at the Harvard Business School (HBS), conducted a series of studies with his colleagues Elizabeth Dunn and Lara Aknin at the University of British Columbia (UBC). Together they showed that people are happier when they spend money on others versus on themselves. The results were published last month in the journal Science.

“This study addressed a paradox that economists have talked about for a long time — that increases in income don’t tend to lead to big increases in happiness,” said Norton. “People buy bigger and bigger houses, but they don’t seem to get much happier as a result.”

The work included a national survey in which the group asked 632 American men and women how much they made annually; how much they spent each month on bills, expenses, and gifts for themselves; and what they spent monthly on gifts for other people and donations to charities. They also asked them to rate their level of happiness.

The findings showed that those who reported spending more on others, what the team called “prosocial” spending, also reported a greater level of happiness, while how much they spent on themselves had no impact on happiness.

Another test tracked how 16 employees spent a profit-sharing bonus at a Boston-based company. A month before receiving the bonus, which averaged about $5,000, the employees were asked to rate their level of happiness. After they received the bonus, they were again asked what their happiness level was, along with a series of questions about how they spent the money. Those who spent more of their bonus on others registered a higher level of happiness than those who spent it on themselves. In addition, the actual size of the bonus appeared to have no influence on a person’s happiness.

“The dollar amount of the bonus had no impact on happiness over time,” said Norton. “People were just as happy whether they received $3,000 or $8,000. All that mattered was the percent spent on other people.”

In a third experiment, researchers at UBC handed envelopes of money to students on campus. The recipients were told they should spend the money (either $5 or $20) by the end of that day either on themselves — to cover a bill or expense or get themselves a gift — or on others, a gift for someone or a donation to charity.

The results mirrored those from their other studies. “We found that people who spent the money on themselves that day weren’t happier that evening,” said Norton, “but people who spent it on others were. The amount of money, $5 or $20, didn’t matter at all. It was only how people spent it that made them happier.”

The research has far-reaching implications said the Business School scholar, who holds a Ph.D. in psychology from Princeton University. He hopes to expand the work to include cross-cultural studies, comparing and contrasting the values and norms around such spending in other countries, as well as the exploration of how children understand the concept of giving.

Norton has also co-authored a study with his colleagues Daniel Mochon at the Massachusetts Institute of Technology and Dan Ariely at Duke University that shows certain repeated behaviors — like regular religious practice and exercise — lead to lasting improvements in people’s overall happiness, in much the way that small changes in spending money on others seems to.

“Instead of thinking about [winning] the lottery and making other large life changes, our research suggests that encouraging people to do small things on a frequent basis might get them to be happier over time.”

Norton said he hopes in the future to work with companies that give large donations to one particular foundation or charity, and instead encourage them to divide such gifts among their employees and allow the employees to choose a recipient. The result, he said, would give everyone in the company the opportunity to donate to a worthy cause, making them happier, while encouraging charitable giving.