What you’re spending your money on might not be bringing you the long-term happiness you deserve.
Those brief bursts of happy neurotransmitters when purchasing the latest gadget or trends are only temporary.
As you will see, they don’t help the planet, and they won’t serve your long-term life satisfaction.
Science has found that how you spend your money matters. Chris Peterson summed up positive psychology in three, little words, “other people matter.” It rings true with how your money is spent too.
This is not to say that abundance does not raise levels of happiness. There is a cap on the level of happiness raised by money though. Having security allows the wealthy to explore more active ways of experiencing their world. Connective behavior in lower socio-economic classes brings higher levels of daily happiness. Knowing that “others focused” spending promotes happiness may have you thinking twice about that next purchase.
This article contains:
- Does Spending Money on Others Promote Happiness?
- What is Pro-Social Spending?
- A Look at The Psychology
- The Science of Giving
- Interesting Research and Studies
- 10 Facts and Statistics
- 7 Proven Health Benefits
- Giving and its Relationship with Happiness and Well-Being
- Why It Makes Us Feel Good
- The Work of Elizabeth Dunn
- Happy Money (Book)
- 5 Principles of Happy Money
- The Science of Giving (Book)
- A Take-Home Message
Does Spending Money on Others Promote Happiness?
Anyone who has ever bought lunch for a stranger, helped a homeless person on the street, or paid for a friend’s ticket to a concert knows that spending money on others gives you a boost.
This type of spending even overrides the need for reciprocity, which is a biological principle seen across species (Jaeggi, 2013). This type of spending is more of a “pay it forward” type of behavior that creates positive ripples in the world.
This “warm glow” giving was first viewed through the lens of economics (Andreoni, 1990.) Spending money on others to receive prestige or social status as a “giving” philanthropist is labeled as “impure altruism.” The research sheds a light on the motive of charity as a framework for government spending in the public.
Doing good for goodness sake, was called into question in this research to show that motive in spending behavior matters. The research has expanded and our understanding of the motivation for donation behavior is being researched in many different academic areas.
The basic human social need for “status” according to the SCARF model (Rock, 2008) could play a part in the motivation for spending money on others. Unfortunately, this “impure altruism” doesn’t boost the levels of happiness like “pure altruism.”
Pure altruism has the stronger tendency to achieve long-term happiness. For example, giving to a charity you are passionate about has you opening your checkbook faster than for a charity to which someone told you that you “should” donate.
Creating that “warm glow” giving for yourself on a regular basis promotes happiness. It also motivates others to do the same. A person receiving may have a higher tendency to give forward. Connective giving is a powerful way to improve lives. It is not the dollar amount, but rather the desire to help your fellow man that boosts the levels of happiness when spending money on others.
What is Pro-Social Spending?
Using one’s money to benefit others, as opposed to oneself, is the definition of pro-social spending. Paying for a colleague’s coffee, buying the order of the next person in line at the drive-thru, or donating to a charity you feel passionate about are just a few examples of how it is done. The power of money as a connective force is the main benefit.
There are a few studies (Dunn, 2008), (Whillans, 2012), and (Aknin, 2013) that have proven that generosity in spending results in increased reported levels of subjective happiness. This type of spending has been proven beneficial throughout many cultures across the globe. Through human connection, money flows into both giver and receiver in the form of boosted positive well-being.
It may seem obvious, but there are differences in pro-social spending between social classes. People in higher tax brackets tend to have higher levels of self-oriented happiness. They report higher levels of happiness in areas like pride and contentment.
People in lower tax brackets tend to report higher levels of happiness in areas like compassion, awe, and love (Kiff, 2017.) While people in higher income levels can afford better health care and have less risk in their lives due to safer neighborhoods etc., people in lower incomes reportedly have higher levels of community connectedness.
A study (Schimmel, 2007) called into question the understanding of abundance as a means to happiness. The United Nations Development Program found that the perception of poverty was a strong mediating factor in subjective happiness.
Better health care, clean water, and basic housing needs aside; a bigger bank account is not an “end all” for increased happiness across cultural divides. Replacing a cultural ideal with a Western standard is dangerous and unfair to those nations we aim to serve.
There is a great deal of emphasis placed on material wealth in the United States, in particular. America is one of the wealthiest countries in the world. Yet, among the countries of the world, the U.S. ranks 108th out of 160 on the scale of overall happiness.
According to the World Happiness Report, 2019, the low levels of reported happiness in America could be due to the lack of pro-social behavior and spending. Volunteering time and resources in the aid of their fellow man could be a pathway to move more Americans from languishing to flourishing. Although these studies are correlational, rather than causal.
Amassing wealth does not necessarily ensure happiness, spending it wisely just might. We should probably ask Warren Buffet and Bill Gates about their happiness. Bill Gates is reportedly worth 98 billion dollars. While he spends money on a few luxuries, he and his wife Melinda mainly spend their billions on their charity. Warren Buffet pledged to give away 99% of his wealth and said that he couldn’t be happier with his decision.
What fine examples of American financial generosity! In a recent Gallup World Poll of over 130 million people, financial generosity, measured as whether one has donated to charity in the last month, is one of the top six predictors of life satisfaction around the world.
A Look at The Psychology
Research providing support for a psychological universal in pro-social spending was done across cultures (Aknin, 2013). It showed that human beings using resources to help others increased happiness in areas wealthy or poor. We are hard-wired to help one another to thrive.
Cultural and societal cues are important factors in how we care for each other but having a universal desire to come to the aid of others is a very exciting finding.
There are cultural and biological factors that present as obstacles to this very basic human behavior, but overall our brain wants to “do the right thing” in coming to the aid of others.
The orbital prefrontal cortex is an area of the brain responsible for emotional processing. In fact, underuse of this particular area of the brain can result in affective disorders like anxiety and depression. It’s interesting that this particular part of the brain is activated during pro-social spending behavior.
Making “others focused” behavior a priority is the very foundation of positive psychology. Spending time and money on others is good for you. It is good for them. Intentionally spending in an area where you can do the most good is improving our world.
Our actions matter.
The Science of Giving
Our evolutionary need to survive is rewarded in our brain by giving time or money to others. The Altruistic Brain by Donald W Pfaff goes into detail about the neuroscience of altruism. The human brain is wired for collective action and cooperation for human species survival. Giving has a built-in self-reward system in the human brain.
Tendencies toward giving behaviors are evident in children as young as toddlers. The brain gets a boost of oxytocin and dopamine during acts of giving. These connective and happiness “neuroboosters” are self-rewards that any Mom receiving a picked flower from their child can witness.
Flooding the body with oxytocin is one of the benefits of altruistic giving. This increases feelings of empathy and reduces stress. These “feel good” hormonal responses can last up to two hours post altruistic act. Plus, during those two hours, the recipient of the giving is also more likely to pay the act of giving forward. Thus creating a ripple of “warm giving” in the world.
A study by Molly and Grafman in 2006, showed the biological implications of altruistic behavior in brain scans. The anterior prefrontal cortex lit up in scans of brains of the altruistic. This is interesting because this area of the brain is one of the least understood.
Getting a euphoric feeling from the act of giving, or that “helper’s high” is highly motivating for those with or without significant means. Even when the giving is required, altruism is rewarded in the brain with a dose of dopamine.
The levels of brain activity in those who choose altruism are higher than those of which the giving is required. The time spent in coming to the aid of others is a pathway to long-term happiness. Choosing this behavior makes more sense.
Interesting Research and Studies
Research in prosocial spending and altruism is vast. Studies in Economics, Psychology, Neuroscience, Philanthropy, Theology, and Biology have all explored the science behind compassionate and cooperative behaviors. They all are asking a similar question. Why do humans give?
As early as 1984, research was done on altruism and other species (Waxler, 1984). The study showed the tendencies of animals and bees to participate in cooperative prosocial activities. Focusing on the creation of emotions and behaviors out of the concern and welfare of others continued the debate of nature vs nurture.
In 1991 an Economics study coined the phrase “warm-glow giving” that has been used in additional research since that time. The study analyzed the motivation for altruism and mandatory vs pure motivation for donations to public good. It seemed counterintuitive to give to others when it did not follow the rule of human reciprocity. Yet, the study found that voluntary giving elicited an emotional response that was mutually beneficial to both helper and recipient.
A Personality and Social Psychology study (Piff, 2013) hypothesized the increase in narcissism in Western Nations. The interesting part of this study was that lower socio-economic class presented with an increase in “others focused” activities and in turn a higher level of daily self-reported life satisfaction.
With the increase in narcissism in our culture, our understanding that we are smaller parts of a greater whole is being surpassed by the self-promoting and self-serving individualism of today.
A very intriguing study (Schimmel, 2009) of development by the United Nations Development Project, analyzed global reporting of well-being and the subjective perception of happiness. The development of programs in countries that are suffering poverty needed to be reevaluated due to the external perspective of area development and its relatedness to happiness.
The perception of poverty turned out to be a better indicator of subjective well-being, than the lack itself. Since we know from Piff’s study that individuals of a lower socio-economic class are more likely to participate in others-focused behaviors, it is interesting to show that globally this proves to be consistent.
Higher reported levels of well-being occur in areas where people are participating in cooperative and collective environments. In developing impoverished areas, it is deemed vital to first analyze the area’s perception of overall well-being and poverty.
A potential psychological universal was proposed in a recent study (Aknin, 2013.) This massive study found that around the world, human beings could derive positive emotional benefits by utilizing financial wealth to benefit others. Finding a possible psychological universal is profound and promoting well-being through a universal across cultures is where a great deal of exploration can be spent. This research could counter the rise in narcissism.
Elizabeth W Dunn has done a depth of research in prosocial spending and happiness. Her work is outlined in detail in a following section. Her work does need to be noted here though due to its value in other work as well. The World Happiness Report includes a chapter on prosocial spending and well-being that includes some of her research.
Anticipation in spending reveals greater pleasure in experiential than material purchases (Kumar, 2014.) Humans yield more pleasure in anticipation of an event or experience than waiting in line to purchase material goods.
This study proved that consumers derived pleasure from savoring the anticipation. Interesting to know that looking forward to an experience is just as pleasurable as the experience itself. Countering the hedonic treadmill with anticipation would seem a smarter way of spending.
The PLOS One journal published an article (Patras, 2019) outlining the interaction between autonomy and prosocial spending. It showed that a pre-exposure to donation created an increase in initial and future prosocial spending. The study of 200 participants found an interactive link between autonomy and the self-development of prosocial spending behaviors.
10 Facts and Statistics
- Prosocial behavior boosts transmission of oxytocin and dopamine in the brain creating a “high” as a self-reward for helping behaviors.
- Millionaires have greater life satisfaction by control over how they spend their time. Millionaires participate in active leisure time and autonomous work.
- At around $75,000 per year in income, the level of happiness that a person experiences levels off. Once you start earning more than $75,000 per year, there is no significant increase in a person’s daily happiness.
- In 2015, the average American donated $5,491.
- 11% of total US giving comes from millennials.
- 72% of baby boomers give to charity.
- Approximately 63 million Americans – 25% of the adult population – donate their time, talents, and energy to making a difference.
- America places 108th out of 160 countries on surveys of overall life satisfaction.
- 88% of Millennials find their job more fulfilling when they have opportunities to make a positive impact on society and the environment.
- Christians are giving at 2.5% of income; during the Great Depression, it was at 3.3%.
7 Proven Health Benefits
- Lowers blood pressure. Several studies have proven that over time, prosocial spending can lower blood pressure.
- Reduces stress. Producing oxytocin reduces stress. Giving behaviors boost oxytocin release, in turn reducing stress.
- Increases release of oxytocin. The benefits of oxytocin are reducing stress and increasing empathy.
- Increases self-esteem. Knowing that one is making a difference increases self-esteem and overall self-efficacy.
- Increased life expectancy. With the other health benefits combined, a longer life can be an additional benefit from prosocial behavior.
- May help lower chronic pain. The connective action of prosocial spending can result in lower reported levels of pain in people suffering from chronic pain.
- Promotes connectedness and social contagion. The more people give by example, the more people want to give by example. Setting an example with how our behavior allows empathic and meaningful connection is contagious. The more people give, the more people want to give. Just take a look at the Ice Bucket Challenge.
Giving and its Relationship with Happiness and Well-Being
Human beings are hard-wired to connect and work in a cooperative environment. Giving to others promotes this connection and cooperation. Human happiness and well-being are improved by giving behavior. In a society that is obsessed with self-serving behaviors, altruism could be the pathway to individual and cultural improvement.
Happiness is a subjectively reported experience. Yet, universally higher participation in acts of pure altruism creates higher reported levels of well-being. It isn’t the amount of money spent, but rather how the money and time are spent in coming to the aid of other human beings that boosts our happiness. The feeling of “making a difference” is important to all generations, to all cultures, and to all socio-economic classes.
In fact, millionaires report higher levels of happiness when concentrating their time and money on philanthropy versus material goods. A Bentley will bring you no more joy than a Honda.
Time is the commodity and where you spend that time is where the dividends are revealed. So many people assume that millionaires reach a certain level and proceed by eating bonbons all day when in reality many millionaires are the hardest workers focused on improving society.
Lower socio-economic classes do however report high life satisfaction and activities that are others focused. The environment requires community care for other humans to override the threats to physical well-being, like crime and extreme poverty. More compassionate acts are committed in areas where the environment requires them.
Humans protect and care for each other when needed and these acts boost levels of life satisfaction.
Spending money on experience rather than material goods is an indicator in higher reported levels of happiness. The anticipation of the experiential purchases are savored and creating memories with experiential purchases can be “re-savored” creating a longer-term promotion of happiness. Money can buy happiness, but the caveats are how and where that money is spent.
There are a few factors that influence one’s willingness to behave in a financially altruistic way. The following areas are listed to give a better understanding of the “how” people are motivated to give. Knowing these factors may increase the behavior, resulting in happier well-being.
Environment is a factor that influences altruistic spending. When primed to receive emotional benefit from prosocial spending, a person is more likely to continue that behavior. People, in general, want to make a difference, but what holds them back could be the environment that they are in.
Socio-economic class is a factor that influences one’s willingness to pro-socially spend. Though volunteering time and engaging in compassionate behavior is reportedly higher in lower socio-economic areas, people with less financial means keep their money for personal survival. Community activities are well established and supported in areas of lower socio-economic class, which aids in higher life satisfaction overall.
An interesting factor that influences financial altruism is employment. A company that is committed to making a difference in the world will yield more employee involvement in financial giving than companies that have no such goal.
Statistics show that job satisfaction among Millennials is higher when their job has an impact on the world around them. More volunteerism and financial altruism occur when a higher purpose is present.
Why It Makes Us Feel Good
Positive emotions are created by neurotransmitters in our brains. The “feel good” hormones and other neuro-chemicals sparked by giving behavior creates that feeling of “warm-glow” giving. Oxytocin, serotonin, and dopamine are all produced during acts of giving.
Winston Churchill said:
We make a living by what we get. We make a life by what we give.
Making connective acts of giving enriches lives, and creates foundations for lives of legacy. When looking back on lives well lived, philanthropy and making a difference in the lives of others are better predictors of happier lives. People are remembered more for who they’ve helped than for their earthly possessions.
Giving behavior creates the same feelings of getting a hug when oxytocin is released. Producing more serotonin by “others focused” behavior not only boosts the “happy” feelings but also aids in the production of melatonin, which creates better experiences of sleep.
Dopamine plays a major role in reward-motivated behavior. Increased dopamine increases more motivation to participate in giving behavior and it can lower blood pressure too.
The Work of Elizabeth Dunn
Elizabeth W Dunn, Ph.D. has done extensive research in the field of psychology at the University of British Columbia. Her expertise has been built in the area of time, money, and technology and their effect on human happiness. The World Happiness Report has utilized much of her research in understanding the pathways to human happiness. She is one of the pioneers in positive psychology and has won prizes for her work.
She co-authored, with Michael Norton, the book Happy Money. This was based on her research in the area of prosocial spending and its effects on happiness. The 5 Principles of Happy Money included in this great read, outline the importance of how people spend their money and its impact on their overall well-being.
Professor Dunn has participated in many research endeavors revealing important information in the area of wealth and people’s self-concepts of that wealth. The impact of her work in positive psychology is profound in that prosocial behavior and spending has been proven to affect long-term happiness. This work has countered society’s creation of money and abundance as the definition of a successful life.
Her discoveries have made an impact on the understanding of development in areas of poverty and wealth on self-reported life satisfaction. Wealth as a means to happiness has been transformed due to her research. Her discovery of the money happiness cap has turned the heads of economists. She appeared with her co-author on MSNBC explaining the principles of Happy Money.
Her current endeavors are in the area of use of current technology and well-being. She is researching the effects of technology on overall human happiness. It’s a large study that is very exciting, as it affects every person with a smartphone. While technology creates ease, the questions of the detriments to our health will be of interest to every parent whose child owns a tablet.
Happy Money (Book)
Happy Money: The Science of Happier Spending is a book written by Elizabeth Dunn, Ph.D. of the University of British Columbia and Michael Norton, Ph.D. of Harvard University.
Each professor has done extensive research in behavioral science. The five principles that they laid out for happier spending are applicable for individual spending, in addition to companies and product creation.
Available from Amazon.
5 Principles of Happy Money
1. Buy Experiences
The research shows that when buying material goods, our brains get a temporary boost in serotonin. The goods then erode over time, getting worse and worse and eventually having to be replaced. The hedonic treadmill comes into play and the material goods lead to more material goods to attempt to re-boost that serotonin.
When buying an experience, the memory of that experience causes our memory to improve it over time. In other words, these experiences get better and better over time producing longer-term happiness.
Think back to a treasured memory of a family vacation. That memory was an investment in happiness by using the principles of Happy Money. Investing in an experience is investing in long term happiness so that those memories can be savored in the long run.
2. Make it a treat
When there is an item that you enjoy (for instance coffee), make that a treat. As you anticipate it as something special, it adds value to the item. A person is more likely to savor the treat, than to quickly consume and toss it away.
3. Buy Time
When considering a material purchase, take also into consideration how that item would alter how you spend your time on a daily basis.
For instance, purchasing a new television might seem fun, but having an item that takes time away from other pursuits don’t utilize your time well. Buying your child an iPhone might seem great, but their time in front of it will make you cringe.
4. Pay Now, Consume Later
Creating anticipation in material purchases allows room for the consumer to savor the consumption separate from the experience of paying for it.
Experiments in neuroscience have shown that the experience of paying for things lights up the pain centers of the brain. Consuming the purchase later gives the opportunity for pleasure without the pain.
5. Invest In Others
Experiments have shown that prosocial spending creates more happiness than self-focused spending. This connectivity in investment boost levels of happiness in all socio-economic classes as well. Even small amounts spent in helping others has long term benefits in life satisfaction.
The Science of Giving (Book)
The book entitled The Science of Giving: Experimental Approaches To The Study Of Charity by Daniel Oppenheimer and Christopher Olivola is a collection of experimental studies on donation behavior.
The methods in this book discover the causal reasons why people choose to give to charity. There are emotional, cognitive, and social elements that explore the reason behind the act of giving to a cause. Psychology and Behavioral Economics have both benefitted from the approach of this interesting collection of understanding in the area of charitable giving.
This work is beneficial for organizations seeking to increase donations. Experimental studies in the fields of economics, business, psychology, neuroscience, finance, philanthropy, management, and social and decision science were used in compiling a deeper understanding of what motivates people to give to charitable institutions and causes.
High ranking colleges participated in these experimental studies and compiling them brings the topic into acute focus and will aid organizations in forming better plans when attempting a campaign to help raise funds for their cause.
The book is divided into 4 distinct sections that show the reader, through experimental methodology, a better understanding of donation behavior. The evidence-based information helps the reader to create and better refine their plans for future donation collection endeavors.
With a broad collection of scientific information, charitable giving has entered the broader range of research and is an exciting area of study.
These are the four sections of organization for this book.
- The Value Of Giving
- The Impact Of Social Factors
- The Role of Emotions
- Other Important Influences on Charitable Giving
Available from Amazon.
A Take-Home Message
This piece covered the topic of how spending money on others promotes happiness.
Money as a connective force is a different concept for many. Utilizing money to purchase big-ticket items has historically been what people viewed as the route to happiness.
Research has found that spending money by using positive psychology is a more efficient route to long term life satisfaction. Knowing that how you spend your money matters in your own happiness will hopefully have you stalling before the next time you pull out your credit card.
- Aknin, 2013, Pro-Social Spending and Well-Being, Hanniball
- Andreoni, 1990 Impure Altruism and Donations to Public Goods: A Theory of Warm Glow Giving, The Economic Journal Vol 100, The Royal Economic Society
- Dunn, 2008 Spending Money On Others Promotes Happiness, Science Magazine
- Jaeggi, 2013 Natural Cooperators: Food Sharing in Humans and Other Primates, Evolutionary Anthropology
- Kiff et al, 2017, Wealth, Poverty, and Happiness: Social Class Is Differentially Associated With Positive Emotions, American Psychological Association
- Kumar, 2014 Waiting For Merlot: Anticipatory Consumption of Experiential and Material Purchases, Psychological Science
- Moll and Grafman et al,2006, Human Fronto-mesolimbic networks guide decision about charitable giving
- Patras, 2019 Why Do People Spend Money to Help Vulnerable People? PLOS One
- Piff, 2013, Wealth and the Inflated Self, Personality and Social Psychology Bulletin
- Pfaff, 2015, The Altruistic Brain, published by Oxford University Press
- Rock, 2008, SCARF Theory, Neuroleadership Institute
- Schimmel, 2007, Development as Happiness: The Subjective Perception of Happiness and UNDP’s Analysis of Poverty, Wealth, and Development, Journal of Happiness Studies
- Waxler, 1984, The Origins of Empathy and Altruism, National Institute of Men’s Health