Does spending money make us happier? Only if we spend on others

Laura was late for the evening seminar on happiness at the local meeting hall. But even as she was rushing to get there in time, she knew that today she was running late for a good reason.  She had rushed after work to buy medications for a friend. Although she was worn out at the end of her work day but after going to the pharmacy in the heavy traffic and reaching the medicines to her friend, Laura strangely felt rejuvenated. She wondered what made her feel good; and attributed it to the anticipation of an exciting seminar on happiness. She had enjoyed the seminar facilitator Jay’s workshop at her office the week before; and when Julia, her colleague, informed Laura of this evening seminar, she had immediately signed up for it along with Julia.

 

When Laura reached the venue Jay had just started the introduction. She located Julia and was relieved that there was an empty seat next to her. Laura made her way there.

 

“I am going to talk to you about how to spend your money to increase your happiness” Jay said.  “You and all the TV commercials” somebody quipped.  Everyone laughed.

 

“True! Never thought of it that way, but, I hope to persuade you that this spending is different from those fostered by TV commercials,” Jay continued. “I want all of you to think a purchase you have made today and how you feel about it”.

 

cup of coffee top shot

 

After giving his audience some time, he picked out a young man, read his name tag and said, “ Dave, tell us about your purchase”.  “I bought coffee supply for the month and feel relieved that I do not have to show up at home without it”.  Jay pointed to a middle-aged man and said: “Mike, what about you?”  “Pair of jeans for myself, feel good about not having to go to the mall for a while”.  Few in the crowd smiled knowingly. Jay was scanning the back of the room, when Laura raised her hand.  “Yes, Laura, good to see you again” he said.  Laura stood up and said, “Good to be here.  I bought medications for my friend who has fallen upon bad times.  I feel pretty good about being able to help her”.

 

Jay smiled, “So, you are telling us that you spend money on a friend and you seem to be the most excited of the three. Who would have thought? Did some TV commercial urge you to do so?  They were probably pushing the new model of car, the skin lotion, latest gizmo for yourself to make you complete, make you happy! Right? But here it is some essentials for your friend and that is making you happy”.  He continued, “You are not alone Laura, this seems to be a universal phenomenon.  Let’s jump right into it.”

 

“Researchers from Harvard Business School studied university students in Canada and Uganda.  They randomly assigned participants in both countries to write about a time when they spent money on themselves or on others.  Following the task of writing, they assessed the participants’ subjective well-being on a standardized scale.  Among these hundreds of University students from two socioeconomically different countries with different cultural norms, the researchers found that  participants randomly assigned to recall a prosocial spending- purchase made for someone else reported significantly higher well being compared to those assigned to recall a purchase made for themselves.  It did not matter whether the study subjects described spending on someone’s needs or on wants.  Spending on others provided the same degree of boost in their own well-being”.  The audience realized that Jay had done his own mini-experiment by asking people about their purchase of the day and their reaction to it.

 

Jay continued, “Of course, one realizes there can be so many different aspects to this.  How much one earns? How much one spends on self or others? But here is another fun study.  Participants were approached in the morning and asked about their baseline happiness level.  They were then offered $5 or $20 and randomly assigned to two groups: group 1 was told to spend it on their own self; and group 2 was asked to spend it on others. They were contacted later in the day to re-assess their happiness level.  Those who had spent money on others were happier than those who had spent it on themselves. Interestingly, there was no difference based on the amount of money they received in the morning. It did not matter whether they got $5 or $20, and whether they spent $5 or $20. So, one can conclude that how much you earn is not relevant but the fact that  you spend on others holds relevance to your happiness level”.  The seminar participants were listening attentively.

 

Julia chimed in, “So, I have the same capacity to be happy as my boss who earns twice as much as I do, provided I spend some of my earnings on others?” Jay smiled, “Exactly! You are stealing words out of my mouth.  And what is more? The amount you spend on others is irrelevant, the fact that you do is what counts”.  He paused as if he was switching gears, “Some of you who have heard me before know that” he continued while looking at Laura and Julia, “I always try to incorporate some neuroscience evidence to make my case.  This seminar should be no different.  In a study conducted in 2006, functional magnetic resonance imaging (MRI) was performed on subjects while they figured out whether they want to donate to charitable organization.  Thoughts of donating to a charitable organization activated the same areas of the brain that was activated with other pleasure and reward stimuli such as earning more money, winning lotteries, going to arts festivals, or looking at attractive faces.”

 

Giving is inherently rewarding.

 

road view

 

Charlie, a man in his 30s, asked, “Are these studies on university students applicable to the rest of the population? Aren’t university students different in their attitudes, values, beliefs and experiences from the rest of us?”

 

Jay responded, “A true scientist! Charlie wants to know if these results are universally applicable.  Let me corroborate these studies with a couple of others to make my argument.  A nationally representative sample of Americans were asked to rate their general happiness.  They were also asked to report their  annual household income as well an estimate of how much their household spent on

(a) bills/expenses,

(b) gifts for themselves,

(c) gifts for others, and

(d) donations to charity.

 

Spending on others – prosocial spending- be it in the form of spending money on buying gifts for others (c) or making donations to charitable organizations (d) -  was associated with greater happiness than spending on oneself – category (a) and (b).  So even among population at large in America, the association between spending on others and happiness holds true”.

 

“Is this typical to Americans? Absolutely not!  Let me tell you about an international study”.  He continued, “Surveys were conducted in 136 countries between 2006 and 2008 as a part of the Gallup World poll.  On an average 1321 individuals were surveyed per country. These samples included residents from cities, towns, and rural areas, thus representing the population of an entire country. The surveyed individuals were asked whether they had donated money to charity in the past month and were also asked about their overall subjective assessment of their life. The investigators reported that the relationship between prosocial spending and well-being/happiness was positive in 122 out of 136 countries.  They further reported that prosocial spending has an impact on happiness akin to doubling of household income. So, ladies and gentlemen, being generous to others is linked to well-being in poor and rich countries alike all over the world. It is a universal truth!”

 

Julia chimed in again, “So, I was right. I can be as happy as someone twice my income by giving up some of my income for others”. Jay responded enthusiastically, “Exactly! By giving to others, you get the effect of earning double your income” he winked, “Isn’t that miraculous?  There is a lot of truth in what Eric Fromm said, “It is not the person who has much that is rich, but the person who gives much.”  Jay’s way of summarizing made him sound more like a new-age guru than the hard data driven social scientist that he was. Charlie, the scientists, sounded irritated when he voiced, “So, you are telling us that we have to keep spending on others to feel happy. We have to keep earning more, to spend on others to feel good about ourselves, is that the conclusion?” Jay was bemused.  “You remind me of the stand-up comedian who famously asked what good is happiness? It does not buy you money.” The participants roared in laughter.

 

Jay had a way of pausing at the right spot to let them ponder. Having made his point he continued, “It does not take much my friends, as little as $5 does the trick as we saw in the study among University students.  For all you know, it may not even take that much.  In 2004, some students were asked to commit five random acts of kindness a week for 6 weeks. What do you know?  They were much happier than those who were not assigned to this experimentation at the end of study period. So, it may not take much, even a random act of kindness may do the trick. It is the ACT of caring for someone not the amount that matters” A young lady from the front seat spoke up, “Every time I have done something good for someone else, I feel this warm and fuzzy feeling. I find myself having more enthusiasm and energy the rest of the day. So I see what you are saying”. Others nodded in agreement and Laura realized the source of her feeling good that evening.

 

Girls_from_Australia_sleeping_out_in_The_Mall_before_the_coronation_(8416664366)

 

Someone in the group spoke up, “So, it almost appears like I will be doing an act of kindness to get this happiness for myself.  Is it not a selfish act?” Jay had faced this question before, “Yes, Jacques Derrida, the French philosopher thought so. But then again, I am not asking you to engage it selfless act. I am asking you to engage in prosocial spending. Whether you consider it a selfless or a selfish act, it doesn’t matter”. The questioner realized he had mistakenly tried to put words in Jay’s mouth.

 

“Now, if I have convinced you that prosocial spending brings well-being and happiness” he continued to the nodding crowd, “let me share with you another aspect of this. As far back as 1972, social scientists studied the effects of a person’s positive mood.  They induced positive mood or well being, by offering cookies to students in the library. I like these studies where cookies and candies are offered” the crowd smiled.  “They found that there was a greater willingness to help another fellow student when students were feeling happy as a result of the cookies.  Well, you may say, who would turn away a fellow student in need when you are right in front of him. So, the same researchers further investigated the impact of positive mood when there was no fellow student involved. In this follow-up study they induced a positive mood by leaving a dime in a phone booth to be discovered by the half the study participants. The others did not benefit from such positive mood inducing dime. The researchers left a stamped and sealed letter in a phone booth where it would be easily observed by all the phone booth users. Interestingly, those who found the dime and hence had their mood elated were more likely to help an unknown stranger by mailing his letter. Remember, this was 1970s, dime still had some value and of course phone booths were ubiquitous. Even among children, it appears that positive mood will make them more generous. Second and third graders were assigned to positive or negative mood by asking them to think and talk about appropriate positive or negative mood inducing situations. They were then given the opportunity to give money from a treasure chest to their fellow students. It was noted that only those in positive mood were more likely to give money to their fellow students. Thus it becomes more evident that those in positive mood seem to help others”.

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He looked around and knew this crowd will have comments.  The young lady spoke up, “So, you are saying prosocial spending makes you happy and being happy makes you more prosocial?” Jay knew that they had imbibed the message, “That’s exactly what I am saying.  It is kind of like a virtuous cycle, one leads to another and then it keeps turning around by itself.  As a matter of fact this specific question of whether this circle of positivity exists, a sample of students were asked to think back and describe the last time they spent either $20 or $100 on either themselves or someone else and afterwards report their level of happiness. They were then asked which of the four options of spending $5 on themselves, $20 on themselves, $5 on others or $20 on others will make them the happiest.  As expected, those who recalled purchase made for someone else were happier than their peers.  Also, these same happy subjects were more likely to choose spending on others to enjoy further happiness. In summary, participants made happier by recalling a previous purchase for someone else planned to engage in prosocial spending in the future. So, it does form a cycle as your were mentioning”

 

Jay stopped to let the message sink in. Charlie, the scientist who was worried about having to spend his hard-earned money on others spoke up, “So, this means that once I start the process it will be a positive reinforcement. It will be a self-perpetuating cycle. In a certain sense, it will be the newer happier me that will be continuing the positive upward spiral once I start on it”.  Jay and the crowd were surprised at Charlie’s positive outlook when he had been so skeptical just a few minutes back. Before Jay got a chance to validate him, Laura asked, “I understand what you are saying Jay. But if this were true, then I also know a charitable organization that helps hungry kids, is not getting enough funding. Based on the research studies you have cited, donors should feel good about spending on others and this good feeling should encourage them to donate more the next year. But this just does not seem to be happening. As a matter of fact, this year, the charitable organization threw in some gifts for donors and they noticed a decrease in donations. How do these studies explain such a behavior?”  Jay was clearly surprised by the question but he seemed pleasantly surprised. He responded, “Laura, that is not very surprising at all. First of all, not everyone recognizes that prosocial spending makes them happier than personal spending. So there is an awareness issue. Further, what this organization did was to take away the happiness reward for donors and replace it with a monetary reward. They were donating and were feeling good about contributing to a social cause. By offering a tangible gift of monetary value, the organization signaled to them the monetary value of their donation. Now they no longer feel that it is worthwhile to donate $100 for a $10 tote bag. Donors were willing to help others for social reasons but once money was introduced, it made the donors calculate a cost-benefit analysis of their donations, and the small incentive was insufficient for the work they were doing for free. It appears that when such a mixed market of social and economic incentives is involved, it behaves more like an economic market. As an economist would say the cold cash crowds out the warm glow of altruism.

 

In a very famous study in 1970, a research called Titmuss demonstrated that when monetary incentive was provided for donating blood, it significantly decreased or eliminated the willingness to donate blood. More specifically in the realm of charitable organization, it is well documented that when altruistically motivated people are presented with self-interested appeals, it can have a negative and alienating effect. So, I would strongly encourage this charitable organization to rethink their strategy of incentivizing charitable acts by money or other monetary equivalents. It may back-fire”.

 

Mike, in the front row, spoke up, “Jay, I have been thinking about supporting a charity through my company. I am encouraging my staff to donate and I am also offering matching donations through my company.  Do you think this will help or will it back-fire?”  Jay responded, “That is very admirable. However, I will caution you that there have been some explorations into the impact of matching donation like the one you are suggesting. It has been shown that initial contribution rates do increase but the moment the matching offer ends, the contribution declines and the net effect is negative for the charity in question. If you are not going to continue to support by matching, you are better off appealing to their social side. If you are going to continue matching offer through the thick and thin of the company, it may be worth offering the matching incentive”.

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Jay looked around.  He could see the impact he had on them. They had an understanding and gratifying look. However, Laura spoke up for all of them when she said, “Jay, there is a lot of nuanced information you have given us today. It will take some time to grasp the meaning and significance of everything we heard.”  “True” Jay responded, “but a smart group of people such as you should be able to integrate it in your day to day life and make it second nature.  I think to reinforce our learning, why don’t two or three of you help me conclude this seminar by sharing with us ways in which you plan to utilize the information I have provided”

 

The group was silent. Everyone was trying to summarize the ideas in their mind. Finally, Charlie spoke up, “As an individual, I believe the choice is clear. I believe that spending part of my income on others will have an impact on my well-being more than landing with a job paying slightly more. I believe that actively engaging in prosocial spending will help me become a happier person. A $2 dollar cup of coffee for a friend or a $5 meal for the homeless will add up to my well-being. Once I am on this road, I believe I will keep going.”

 

Jay started an applause and the group joined in. Next, Mike chimed in, “I have been thinking about applying the research you have been talking about to figure out how to give back through my company. I will let my employees pick the charity they want to donate to and I will offer donation match. I will make the process transparent and let my employee know that this is a 5 year commitment and promise to renew my commitment as far as the company is making over 4% profit. I believe that by encouraging my employees’ prosocial spending, I will have happier employees and happy employees are productive employees”. Everyone applauded. Once the applause subsided, Jay asked, “You feel that since you will continue this for long term and so the negative impact of ending the match, if it comes, will be mitigated?”

 

“Yes, I think that 5 years with a commitment of renewal is going to negate any possible negative impact. Also, the company will not focus on one charity but on variety of them depending on employees choice, so the impact on any one of them by loss of matching contribution will be minimal” Mike responded. Jay said, “Great idea!  I hope that situation of losing your matching contribution never arises.  Anyone else?

 

Laura, your thoughts on charity work?”  Laura was keen on getting her ideas reviewed by Jay, so she was glad for this opportunity. “I believe that henceforth, I will encourage the charitable organization to advertise the positive impact of donation on donor’s well-being. The campaign should focus on enhancing donor’s well-being, their sense of self.  I realize that some organizations are doing it already, like slogans such as “Need is constant, gratification is instant” or “Are you inspired to save a life?”  I will also ask the charitable organization to figure out ways to get donors to reminisce about the last time they donated to any worthy cause and how it made them feel. This will start a positive cycle of prosocial spending. And also take away the tangible incentive to any donations, so that it is the social realm that dominates and eliminate the economic realm from the donor psyche” Laura concluded.  The other participants applauded.

 

Jay continued, “That was truly a great summary of what we covered today. All of you have comprehended the information we have about the benefits of prosocial spending in a nuanced manner and have shown ways to thoughtfully apply it to your day to day life. As a seminar coordinator, I cannot be happier.  Thank you for your attention!” he concluded.

 

Laura and Julia felt rejuvenated and were glad that they made time in their schedule to attend Jay’s seminar. They planned to have dinner together before parting ways. Each of them making plans to pay for the other’s meal!

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© Jignesh Shah, 2014

 

 

References:

  • Dunn, E. W., Aknin, L. B., & Norton, M. I. (2008). Spending money on others promotes happiness. Science, 319, 1687-1688.
  •  Harbaugh, W. T., Myer, U., & Burghart, D. R. (2007). Neural responses to taxation and voluntary giving reveal motives for charitable donations. Science, 316, 1622-1625.
  •  Heyman, J., & Ariely, D. (2004). Effort for payment: A tale of two markets. Psychological Science, 15, 787-793.
  • Isen, A.M., & Levin, P.F. (1972). The effect of feeling good on helping: Cookies and kindness. Journal of Personality and Social Psychology, 21, 384-388.
  • Isen, A.M., & Levin, P.F. (1975).  Further studies on the effects of feeling good on helping.  SociometryVol. 38, No. 1, Mar., 1975  141-7
  • Jorge Moll, Frank Krueger Roland Zahn, Matteo Pardini, Ricardo de Oliveira-Souza, Jordan Grafman Human fronto–mesolimbic networks guide decisions about charitable donation. PNAS October 17, 2006  vol. 103 no. 4215623–15628
  •  Lalin Anik, Lara B. Aknin, Michael I. Norton, Elizabeth W. Dunn. Feeling Good about Giving:The Benefits (and Costs) of Self-Interested CharitableBehavior. Working paper.
  •  Lara B. Aknin, Christopher P. Barrington-Leigh, Elizabeth W. Dunn, John F. Helliwell, Robert Biswas-Diener, Imelda Kemeza, Paul Nyende, Claire Ashton-James, Michael I. Norton . Prosocial Spending and Well-Being: Cross-Cultural Evidence for a Psychological Universal.  Working paper.
  •  Lyubomirsky, S., Tkach, C., & Sheldon, K. M. (2004). Pursuing sustained happiness through random acts of kindness and counting one’s blessings: Tests of two six-week interventions. Unpublished data, Department of Psychology, University of California, Riverside.
  •  Meier, S. Do subsidies increase charitable giving in the long-run? Matching donations in a field experiment. Working paper, Boston Federation.

 

Image References:

  • Coffee mug and road images by Dennis Dodson
  • Girls sharing coffee accessed from Wikimedia Commons at: http://commons.wikimedia.org/wiki/File:Girls_from_Australia_sleeping_out_in_The_Mall_before_the_coronation_(8416664366).jpg

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