March 20, 2008 — -- You may not be able to buy happiness, but the way you spend your money can make you happier, researchers say.
According to a new set of studies, people who spend money on others, either by donating to a charity or buying gifts, are markedly happier than those who do not.
The paper, published jointly by Harvard Business School and the University of British Columbia at Vancouver in the journal Science this week, found that people who gave away as little $5 rated themselves as happier than they did before giving the money away.
"I kept seeing the conclusion drawn that money can't buy happiness. That was based on the fact that the correlation between income and happiness was pretty low," said Elizabeth Dunn, the lead author of the paper and an assistant professor of psychology at the University of British Columbia. "But just because money doesn't typically buy happiness shouldn't be taken to mean that it can't. How could people use their money more effectively so that it would actually deliver more happiness?"
To explore this question, Dunn and her research team performed three experiments to explore the relationship between money and happiness.
The first study asked a representative sample of 632 Americans to rate their general happiness on a five-point scale and to report their annual income. Participants were also asked to estimate how much they spent in a typical month on bills, gifts for themselves, gifts for others and donations to charity.
"We wanted to know whether we could find the overall relationship between how people spend money and how happy they were," Dunn said. "We found people who reported spending more on others reported greater happiness. But it doesn't tell us much about causalities."
To find out whether spending money on others and happiness are directly connected, Dunn conducted two additional studies.
In the first one, the team asked 16 employees at a small Boston company how happy they were before receiving their bonus, on average $5,000.
"We found that people who donated more of their bonus where happier than they were prior to receiving it," Dunn said. "Basically someone who spent a third of their bonus on others as opposed to none of their bonus [on others] -- we would expect their happiness to go up one point on our five-point scale ... which would be a big difference."
In the final study, researchers gave 46 students anywhere from $5 to $20. Half of the group was told to spend money on themselves by paying a bill or buying a gift. The other half of the group was told to spend money "prosocially," or on someone else or on a charitable gift or donation. The students were told to spend the money by the end of the day.
When they returned, the students who had spent their money on others reported being happier.
Although the sample sizes of the final two studies appear to be quite small, Dunn defends them. In the second study, she says she was limited by the size of the company. In the final study, she defends 46 as a large enough number of subjects for the type of study she was doing.
Harvard psychology professor Daniel Gilbert, author of the award-winning book "Stumbling on Happiness" and a former instructor of Dunn's, finds the study interesting for what it says about wealth in our society.
"The reallocation of wealth in societies such as ours has traditionally been justified by the fact that the poor seem to benefit from the gain of a dollar more than the rich suffer from its loss," Gilbert said in an e-mail. "[Dunn and her team's] studies suggest that when reallocation is voluntary rather than mandatory, both the poor and the rich gain a benefit and no one seems to suffer a loss. Mandatory reallocation may bring more pleasure than pain, but 'pleasure for all and pain for none' is a much more exciting possibility."
Dunn, who wasn't surprised by the studies' outcomes, said that she believes that her hypothesis could extend beyond just giving money to others, but giving time to others as well.
"We wanted to do this first with money. We think it's an interesting question ... [but] I don't think there's anything truly special about money," Dunn said. "Whether that's money or time or special skills -- if we use those resources for other people, we'll feel better about ourselves. [Money] is a vehicle -- and a powerful one -- that can be used to accomplish any goal and why shouldn't it be directed to a goal that can help others?"