September 15, 2013 10:00 pm

Masters in Management: Spending wisely

Happy Money: The New Science of Smarter Spending, by Elizabeth Dunn and Michael Norton, Oneworld, RRP£10.99

 

This book is different from the overwhelming majority of books about money. It is not concerned with how to get it, but how to spend it. This, the authors argue, is because “research shows that greater wealth often fails to provide as much happiness as many people expect”.

For example, a survey of Americans showed that individuals thought their satisfaction with life would double if they made $55,000 rather than $25,000. In fact, those who did earn $55,000 were only 9 per cent happier by the researchers’ calculations than those on $25,000. In the US, those earning more than $75,000 a year report no more happiness day to day than those on lower salaries. We make material purchases, convinced that they will increase our happiness, yet whatever cheer we derive fades rapidly.

Clearly this is a book for people worried about fulfilment and not starvation.

Yet it is an interesting and breezily written book, full of fun anecdotes and behavioural research, with the occasional bit of counterintuitive argument thrown in. Dunn, an associate professor of psychology at the University of British Columbia, and Norton, who lectures on marketing at Harvard Business School, provide “five key principles” for happy spending.

The goal is “to help you use the money you have to get more happiness … [as well as] guidance on structuring employee and customer experiences” to increase their happiness.

The first principle is to buy experiences, not material things. Reflecting on their lives, people are much more likely to list memories of vacations, rather than buying cars, as valuable moments, particularly if they were shared.

Second, make it a treat. Here the authors employ the wisdom of comedian Sarah Silverman who loves “pot, porn and fart jokes”. She developed her mantra, “make it a treat”, after a friend discovered her wasted and said: “If you want to enjoy these [things like weed], you have to make it a treat.” Subsequently she told writers on her show they must limit their reliance on fart jokes. “Abundance is the enemy of appreciation,” the authors argue. Think how much more Charlie Bucket, the hero of the book Charlie and the Chocolate Factory, enjoyed his birthday bar of chocolate, nibbled over more than a month, than Augustus Gloop, the gluttonous German boy who gorges on chocolate whenever he wants.

Third, buy time. “When people focus on their time rather than their money, they act like scientists of happiness, choosing activities that promote their well-being.” For companies this might mean compensating employees not just with money, but time. People are happier if they shorten their commutes to work and spend more time with friends and family.

Fourth, pay now, consume later. This goes against the grain of our credit-driven society that persuades us to buy now, pay later. Holidays are often enjoyed in advance, as the payment and planning helps increase the pleasure of anticipation. Moreover, people are less likely to overspend if they experience the pain of paying now, thus reducing their debt.

The last principle? Invest in others, either through buying gifts or donating to charity. Research in 136 countries found that, for the most part, people who donated to charity in the past month reported greater satisfaction with life.

Money may not be able to buy you happiness but purchasing this book might just help steer you in the right direction.

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