Train Your Brain to Spend Smarter: A Chat With BeyondThePurchase.org

Posted on August 1, 2014 by Ryan Howell

A few months ago Linda Lombardi, a writer for the website Learnvest, asked us if she could conduct a Q & A to learn how our research helps people spend and save their money in ways that result in the most happiness. While much of that conversation recently appeared on LearnVest (and parts of that article are re-posted here), there were a few answers not included in the article which we thought warranted some attention. So, what follows below are highlights from our conversation.

Q: What does your research tell us about ways to trick our brains so we don’t overspend?

The Psychology of MoneyThere are things you can do to limit the pleasure from buying in the moment. What we found that was a little bit of a surprise is that there’s something about tracking your spending that takes the emotional enjoyment away from it. People report to us that when they’re shopping without a plan, without having to track, it’s an emotional experience - they get a lot of enjoyment out of the actual process of shopping. Just the knowledge that they’re later going to have track it makes it more difficult to make emotional, spur-of-the-moment purchases. So one way you can train the brain is to tell yourself that anything you spend, you have to write it down. By doing that, you take the emotional, addictive quality of shopping away and make it rational, and you’re much more likely to spend your money in wise and less impulsive ways.

Also, there’s really good research that shows that the pain of paying is much less painful when you’re paying on credit. For a lot of convenience reasons, people use credit cards, so there’s not an immediate painful experience that would make you think twice about this purchase. That is why, when people take our money management quiz, one of the things we tell them is if you think you’re not managing your money well, the most obvious place to start is with managing your cash.  Psychologically it’s more difficult to use bills - you’re not pushing the pain into the future.

Q: What are the most important things your research shows about how to be as happy socking money as spending it?

Actually, Gallup came out with a poll recently that said that most people report more enjoyment saving their money than spending their money. But there’s a difference between enjoying something and actually doing it - I might say I really enjoy running, but I tend to eat more doughnuts.

I think part of the problem with savings is that most people don’t have a goal for their savings.

There’s tons of research that shows that one of the best things you can do is have a tangible goal that you’re saving for.  You get a lot of anticipatory happiness from savings – you think, I’m going to Paris, it’s going to be awesome, I’m going to eat cheese – and that brings us lots of joy.

People need to have a vision - that’s why all the marketing materials for retirement are about what kind of life you want to experience.

And you want to have a goal to do something, not to avoid something. If you don’t have anticipatory happiness, you’ll say, I want to enjoy the fine things in life right now. You’re much more likely to be successful if you have a tangible goal you’re trying to reach.

Q: What if you don’t have a lot to save?

People think that if you can’t save a lot then it’s not worth doing. My colleague Peter Bielagus talks to college students about trying to get them to save, and the average college student will say, literally I can’t save a dime. He’ll say, OK, how about you start with a penny? I want you to save one penny a day. Saving, like any behavior, is reinforcing and becomes addicting.

Q: One of the questions your lab investigates is “Can money make us happy if we spend it on the right purchases?” Let’s say I just received a $1,000 tax refund, how do I figure out what ways to spend it would make me happiest?

Basically, there’s three things you have to do to maximize your happiness though your financial choices. The first is you have to get out of credit card debt. You cannot go into debt to make yourself happy. You may get some momentary happiness, but the financial stress will overwhelm that and make you worse off. Financial stress is pretty much the worst thing in the world for your happiness.

Then, once you have a little discretionary income – positive psychology in general says that if you want to know how to make yourself happier, find people that are happy and mimic their behavior. Happy people have a particular pattern they use to spend windfall money when their essentials are paid for. They take about 25% and save it or invest it. They take about 12% and give it to charities or religious organizations or gifts for other people – basically, pro-social spending. And they spend about 40% on life experiences. Those are the three most salient characteristics of their spending habits.

So if you believe that the best way to be happy is to mimic the behavior of happy people, that would be an interesting way to go about it. We’re going to test this this fall – get people to match a certain pattern behavior and see if it makes them happier.

Beyond The Purchase is a website dedicated to understanding the psychology behind spending decisions and the relationship between money and happiness. We study how factors like your values and personality interact with spending decisions to affect your happiness. At Beyond The Purchase you can take quizzes that help you understand what motivates your spending decisions, and you’ll get personalized feedback and tips. Your answers will contribute to our research as well.

Posted in Money Management, Press Coverage, Research Findings | Tagged , , , , , , , | Leave a comment

Values and Marketing: Beyond the Purchase Teams Up With Zenzi Communications

Posted on June 30, 2014 by Ryan Howell

Beyond the Purchase is excited to announce a partnership with Zenzi Communications, a public relations and marketing company based in San Diego, in order to further our understanding of how businesses and consumers can form mutually beneficial relationships based on values and psychological need satisfaction. A primary goal of the partnership is to help bridge the gap between the often disconnected worlds of academic research and the application of scientific findings to real world situations.

The quizzes and surveys offered on Beyond The Purchase are primarily designed to help people become happier through better use of their money, as well as to advance the scientific understanding of how and why consumers make the financial decisions they do. In addition to dealing with individual consumers, however, a full understanding of the science of money involves another factor – the businesses and entities that sell their products and services to the consumer. While the goal of the consumer is presumably obtaining maximum utility from their purchases, the goal of the seller has traditionally been thought to be turning a profit from their offerings. Depending on the company and its product, the psychological needs and happiness of the consumer may or may not be at the forefront of the seller’s priority list. More and more, however, businesses are realizing that in order to prosper in today’s consumer-centric economy, listening to and satisfying the psychological needs of their customers is important, and perhaps vital, to their financial success.

Zenzi’s Social Values practice seeks to identify relationships between a person’s psychological profile and the decisions they make as consumers. This information allows Zenzi to make specific, targeted recommendations to companies that want to better understand the needs and motivations of their current customer base, as well as identify new market opportunities. The Social Values team is comprised of experts from the fields of marketing, academic research, and data science. What separates Zenzi’s approach from other companies that have done similar psychographic segmentations is that the Social Values practice is grounded in established psychological theory. Largely based on Schwartz Values theory, Zenzi’s ValueBase is the world’s most comprehensive database of empirically derived values-based insights, and is the foundation helping business align their brand’s core values with those of their customers.

The partnership between Beyond The Purchase and Zenzi will help to integrate consumer psychology and happiness research with real world applications. Traditionally, many marketers have relied on guess work or limited data sources to gain insight into how consumers think and act. Leveraging data from Beyond the Purchase, as well as other partners such as Ranker and YourMorals, Zenzi will be able to obtain a more complete picture of the modern consumer, and apply these findings from a psychological perspective. While there is no shortage of data available to marketers today, there is a glaring deficit in how that data is interpreted into meaningful, actionable insights. The combined efforts of Beyond the Purchase and Zenzi will allow researchers to uncover the stories behind the data, not just how consumers behave, but why they behave in that way.

From the standpoint of the consumer, the partnership will allow for better insight into how scientific findings translate to real world purchase decisions. This understanding will help Beyond the Purchase further their goal of better educating and informing consumers as to how they can make decisions that will satisfy their psychological needs, maximize utility from their purchases, and ultimately make them happier.

It is for this reason we at Beyond The Purchase are excited to collaborate with Zenzi with the goal to uncover more insights into how businesses and consumers can create win-win relationships based on satisfaction of value-based goals and psychological needs. To learn more about your values register with Beyond the Purchase (and if you register with Facebook we will tell you how happy your status messages are) and take the Social Values Scale and the Schwartz Values Survey. After each quiz, we will provide you with personalized feedback and happiness tips. Your responses will also help researchers understand the connection between value-based goals and happiness.

Graham Hill, lead researcher at Zenzi communications and former PWB lab member, contributed to this blog. To learn more, visit zenzi.com and sign up for their newsletter, or email [email protected].

Posted in Uncategorized | Leave a comment

Is the United States materialistic? The geography of consumption.

Posted on March 25, 2014 by Ryan Howell

The belief that material possessions improve individuals’ personal and social well-being permeates America. However, contrary to this belief, multiple studies show that materialists, compared to non-materialists, have lower social and personal well-being. Compulsive and impulsive spending, increased debt, decreased savings, depression, social anxiety, decreased subjective well-being, less psychological need satisfaction, and other undesirable outcomes have all been linked with materialistic values and materialistic purchasing behaviors.

In light of these findings, many studies have tried to determine what causes these strong materialistic desires in America. In a recent paper, my colleagues and I examined the “geography of materialism.” We found a connection between one’s neighborhood socioeconomic status and materialism.

Consistent with past research that has demonstrated there are some negative influences of neighborhood characteristics on individual attitudes and behaviors, our results suggest that various local economic indicators of wealth (e.g., more financial development, higher median per-capita income) affect individuals’ materialistic values, impulsive buying tendency, and savings behavior. These signals of wealth conveyed by the local economy appeared to impact self-evaluations in a manner similar to when one is exposed to idealized advertising images. That is, individuals who were young, poor, and lived around wealth were most vulnerable to engaging in social comparison with idealized, wealthier individuals, and using their scant resources to accumulate possessions to, presumably, convey wealth they did not have.

The reason for the link may have to do with “relative deprivation,” or the feeling that people are less well-off than those around them. In this case living in a strong local economy may change individual’s comparison standards and encourage individuals to socially compare with respect to their material belongings, style, and consumption patterns. We suggest that people who live in more affluent areas are vulnerable to this implicit social comparison-if you see other people spending a lot of money, you feed a need to live up to that standard. Because of this, you end up buying a lot of material items, typically on impulse, even though they don’t actually make you happier.

Think about it—if someone is bombarded with images or reminders of wealth, such an abundance of investment banks nearby or neighbors driving luxury cars, they are likely to feel a need to spend money they may not have to project an image of wealth they don’t actually possess.

So, what is the next step? We want to explore whether there are ways to counter a neighborhood’s effect on an individual’s materialistic values. This could be done simply by making more people aware of the correlation, or through interventions developed to make people feel more grateful for their status.

That is why we developed BeyondThePurchase.Org; to help people make the connection between their spending habits – how do you spend your money and who do you spend it on – and their happiness. To learn about what might be influencing how you think about and spend your money, Register with Beyond the Purchase, then take a few of our spending habits quizzes:

How happy is your subconscious? Find out by taking our Implicit Happiness quiz.

How materialistic is your subconscious? Find out by taking our Implicit Materialism quiz.

Some people are gadget heads and some are foodies. Which do you spend your money on? Find out by taking our experiential buying quiz.

“Living in Wealthy Neighborhoods Increases Material Desires and Maladaptive Consumption” by Jia Wei Zhang, Ryan Howell, and Colleen Howell was published online on Feb. 7 in the Journal on Consumer Culture.

Posted in Research Findings | Tagged , , , , , , | Leave a comment

What is hedonism? A lesson from Dorian Gray.

Posted on February 3, 2014 by Ryan Howell

I must admit, when I was in high school I was more likely to read the sports page of the Dallas Morning News than my English assignments. But, for some reason, there was one book that I couldn’t put down: The Picture of Dorian Gray.

Maybe it was something about the question of if there is anything better than pure pleasure (is that the good life?); maybe it was the weird trade off between hedonistic pursuits at no cost and seeing one’s debauchery displayed on a painting one sin at a time. Or maybe it was the how the Brits reacted to Oscar Wilde’s character Dorian Gray, who has a lot of sex, drinks often, and cares only about pursuing pleasure over morality.

To this day I am still not sure what the draw was, but something still seems unsettled. Dorian Gray is what people call a “hedonist,” but what does that really mean? Who doesn’t like pleasure? Given the opportunity to experience more pleasure, who would turn that down?

What seems problematic is when a person pursues pleasure to an unhealthy extent. For example, eating cake three times a day, every day, seems unhealthy. What about once a year? Not likely. For this reason one of my students, Masha Ksendzova, decided to operationalize hedonism, not as valuing pleasure per se, but as the maladaptive pursuit of pleasure—that is, “hedonism” is an unhealthy pursuit of pleasure.

With that definition in mind, we decided to determine how hedonism, the unhealthy pursuit of pleasure, is related to happiness, meaning, and satisfaction. At BeyondThePurchase.Org, and its sister website Your Morals.Org, we asked people to tell us how much they were willing to sacrifice (e.g., overspend, risk relationships, ignore their health) to experience pleasure.

What did we find? Those who are willing to sacrifice for pleasure valued thrill-seeking and physical pleasure. For example, the more people enjoyed eating tasty food, the more maladaptive they pursued pleasure. Interestingly, there was no relationship between hedonistic tendencies and happiness. However, hedonists reported feeling anxious. Thus, we wonder if the unhealthy pursuit of pleasure is really the pursuit of happiness or a maladaptive attempt to cope with unhappiness.

You can help us better understand the (unhealthy) pursuit of pleasure and its relationship with happiness. First, Login or Register with Beyond The Purchase, then find out how hedonistic you are.

Take the Hedonism Value Scale and learn if you pursue pleasure to an unhealthy extreme.

How materialistic are you? Find out by taking the Materialistic Values Scale.

Are you a compulsive buyer? Take the Compulsive Buying Scale and learn about your spending habits.

With these insights, you can better understand the ways in which your financial decisions affect your happiness.

Posted in Personal Stories, Uncategorized | Tagged , , , , , | 2 Comments

What do personality traits tell us about consumer behavior?

Posted on January 26, 2014 by Ryan Howell

This is a guest blog entry by Kyle Thomas, V.P. of Research at TipTap Lab and Ph.D. candidate, Psychology at Harvard University.

While researchers can determine, quite easily, consumer behaviors from self-report data, it is almost impossible to get reliable data on why they buy what they do. How then can we predict why consumers make the decisions they make? If we leverage psychometrics and personality psychology we can predict motives, but only if the reason for a decision can be linked to a psychological trait.

Recent advances in personality psychology can help us predict consumer motivation. Traits are defined as enduring and stable patterns of behavior, attitudes, emotions, that vary between individuals. Traditionally, researchers were interested in understanding how individuals differ, and so they put a great deal of effort into discovering how to measure, map, and define personality traits. However, by the mid 1990’s, a consensus was reached about a universal structure of personality. Now almost all personality psychologists agree that the Big Five should be the common framework for personality.

Researchers are now reconceptualizing what traits are and where they come from-with traits being understood as chronic motivators that drive their decision-making. For example, researchers have linked personality traits to diverse outcomes such as experiential buying tendencies, political orientation, natural language use, preference in pets, the state of one’s personal living space, and even more important life outcomes such as divorce, morbidity, and occupational attainment. Some recent data suggests that people who find themselves in disease-ridden environments tend to be less open and extraverted, presumably because this makes them less motivated to explore and interact with others (which reduces the chance they will become infected). In addition to the growing evidence of the predictive power of personality, Will Fleeson is trying to unify motivational and personality psychology with his Whole-trait Theory. The theory conceptualizes traits as having both descriptive and explanatory elements, with the explanatory element representing the motivational component. Consistent with this theory, Fleeson and McCabe report that goal pursuit accounted for a whopping 74% of the variance in extraversion.

All of these advances offers a way to determine consumers’ motivations; think of personality traits as a back door to understanding motivations. Because personality traits and consumer behaviors can be measured accurately, understanding the relationships between the traits and behaviors allows a researcher to understand the motivations without having to ask people for this information. We believe that when a trait is correlated with a consumer behavior, it can be inferred that whatever motivation this trait is connected to is the motivation for that behavior.

For example, TipTap Lab has used these recent developments to develop an Image Selection Task, which can be used by anyone to measure a suite of traits related to consumer behavior. This allows people to understand customers’ true motivations, and figure out how to better tap into these motivations. This is all a result of understanding the psychology behind self-report data, and integrating that understanding with other areas of psychology to create methods that are capable of circumventing the potential problems that self-report data can present. This insight has the potential to revolutionize consumer research, as it offers the first method to get reliable and objective results for understanding why consumers do what they do, and their API was developed to give anyone access to tools that can assess this information.

At BeyondThePurchase.Org we want to know what you spend your money on so we can learn about the motivations for specific purchases. To learn about what might be influencing what you spend your money on, Login or Register with Beyond The Purchase, then take a few of our spending habits quizzes:

How materialistic are you? Find out by taking the Materialistic Values Scale.

Are you a compulsive buyer? Take the Compulsive Buying Scale and learn about your spending habits.

How hedonistic are you? Take the Hedonism Value Scale and learn if you chase pleasure to an unhealthy extreme.

With these insights, you can better understand the ways in which your financial decisions affect your happiness.

Posted in Consumer Behavior News | Leave a comment

Do Our Values Predict What We Buy?

Posted on January 22, 2014 by Ryan Howell

Every day more and more people are trying to understand the relationship between money and happiness. Lately I have been thinking about, what seems like, a simple question: do our values predict what we buy? Allen and Ng (see citation below) proposed that the influence of values on product evaluation will be different for utilitarian and symbolic products. First, some background.

Consumer values theories suggest that individual attributes of a product will be evaluated positively or negatively and through a process of abstraction, these evaluations will collectively form a product attitude. These attitudes will then be generalized to other similar products and product classes, eventually creating a value by which future product evaluations will be influenced. This is called the value-attitude-behavior hierarchy. Previous research distinguishes between utilitarian product meaning, which results from a sequential evaluation of tangible product attributes, and symbolic product meaning, which comes from a holistic, affective reaction to a culturally defined entity which is separate from the physical product form.

Allen and Ng (1999) hypothesized that human values exert a direct influence on symbolic products (e.g., sunglasses), but only an indirect influence on utilitarian products (e.g., cars), via tangible attributes. So what did they find? Using a very complex series of regressions analyses, their main hypothesis was supported for both product classes-though the effects were rather weak. The weak influence of values on product choice may be due to the fact that values are a very general construct, while ownership of two particular products is a very specific behavior.

So, what are the guiding principles in your life? Take the Schwartz Value Scale and compare your values on 10 dimensions from hedonism to benevolence? This online survey takes about 5 minutes. When your take this survey, you will learn which values are most important to you and how your value priorities influence your ideologies, attitudes, and actions in political, religious, environmental, and other domains. You will also see how your values compare to others.

Take the Schwartz Value Scale now!

At BeyondThePurchase.Org we help people make the connection between their values and spending habits – how do you spend your money and who do you spend it on – and their happiness. To learn about what might be influencing how you think about and spend your money, Login or Register with Beyond The Purchase, then take a few of our spending habits quizzes:

How do your current priorities impact what you buy? Take our Life Goals and Buying Choices and on your feedback page you will learn you will learn how current priorities impact what you buy.

How materialistic are you? Find out by taking the Materialistic Values Scale.

Are you a compulsive buyer? Take the Compulsive Buying Scale and learn about your spending habits.

With these insights, you can better understand the ways in which your financial decisions affect your happiness.

Allen, M.W., & Ng, S.H. (1999). The direct and indirect influences of human values on product ownership. Journal of Economic Psychology (20), 5–39.

Posted in Consumer Behavior News | Tagged , , , , , , , , , | Leave a comment

You Know That Sex Sells. Do You Know Why?

Posted on September 26, 2013 by Ryan Howell

Have you ever wondered why certain brands seem to add attractive models, for what appears no good reason? Well, here’s why. Take a look at this picture:

You may not realize this, but this photograph will make you take more financial risks. Why is that? I am glad you asked.

When you are exposed to erotic stimuli, a region deep within your brain—the nucleus accumbens—becomes activated. This is the part our brain that is “turned on” when we experience positive emotions. So, how do we know that this region of the brain will make you take more financial risks? A study by Knutson and colleagues provides evidence for the link between nucleus accumbens activation and financial risk taking.

In their study, participants were randomly presented with pictures of couples in erotic positions (highly arousing and positive), snakes and spiders (highly arousing and negative) or household appliances (neutral picture). They were then instructed make an investment—their two choices were to invest $1.00 or $0.10 (the less risky investment). The researchers also used functional magnetic resonance imaging (fMRI) techniques to “see” what parts of the brain were activated (what brain regions were “turned on”) during financial decision making. They then correlated activation in the nucleus accumbens with the person’s financial choices.

The researchers found that when people were shown pictures of couples in erotic positions, they were more likely to risk $1.00 compared to when they were shown pictures of a spider and snake or household appliances. Most importantly, they found that the nucleus accumbens, the part of the brain associated with experiencing positive emotional states, were activated when making riskier decisions.

Thus, because of activation in the nucleus accumbens region of the brain, people made risky financial investments.

So, this is all well and good, but why do these results matter? Well, this type of subtle “priming” happens all the time. In fact, this basic principle is widely used in casinos. Casino owners want people to make riskier decisions when gambling, so casinos are designed to maximize positive emotions like excitement. Casino floors are full of colorful lights, attractive servers, and appetizing food and drinks all working together to increase your nucleus accumbens activation.

Thus, the next time you’re in Las Vegas, pay attention to parts of the environment designed to activate your nucleus accumbens. While there is nothing wrong with going to Las Vegas, it might not be a bad idea to pause and consider what is influencing your spending habits. After all, casino owners know what will make you spend more money—you should too.

How can you find out what else influences your spending habits?

At BeyondThePurchase.Org we help people make the connection between their values and spending habits – how do you spend your money and who do you spend it on – and their happiness. To learn about what might be influencing how you think about and spend your money, Login or Register with Beyond The Purchase, then take a few of our spending habits quizzes:

How do your current priorities impact what you buy? Take our Life Goals and Buying Choices and on your feedback page you will learn you will learn how current priorities impact what you buy.

How does your expected happiness impact what you buy? Take our Forecasting your Happiness and on your feedback page you will learn if happiness matters more when you are buying a life experiences or a material item.

To find out more about subtle primes that influence your spending, we encourage you to first take the Implicit Buying Motives Study.

You might then try the Consumer Susceptibility to Interpersonal Influence Scale, which measures the extent to which the values of your family and friends influence your own behavior.

Along the way, we think you’ll find out a bit more about why you buy and what makes you happy. The results might be surprising.

This entry is based on the following research paper:

Brian Kuntson, G. Ellition Wimmer, Camelia M. Kuhnen and Piotr Winkielman (2008). Nucleus accumbens activation mediates the influence of reward cues on financial risk taking. NeuroReport, 19, 509-513.

Posted in Uncategorized | Tagged , , , , , , , , , , , , , , , , , | Leave a comment

People who manage their money are happier.

Posted on September 21, 2013 by Ryan Howell

Recent research into the age-old question “Can Money Buy Happiness?” has resulted in some intriguing results. There is now empirical support linking several specific financial strategies to increased happiness and life satisfaction. These suggestions include delaying gratification, savoring positive purchase memories, making purchases that satisfy needs as opposed to desires, purchasing life experiences as opposed to material objects, and, ultimately, spending money in ways that increase psychological need satisfaction as well as in ways that are central to the self.

Also, in today’s world, many consumers do not manage their money well and end up suffering from overwhelming levels of debt. Prominent financial counselor, Suze Orman suggests that “You’ve got to Face it to Erase it”, referring to the need to start looking at and managing your debt. Students in my lab were interested in determining if how one manages their money can also influence happiness. To answer this question they examined people’s responses to several money and happiness quizzes completed by members of the BeyondthePurchase.Org community.

Results indicated that how an individual handles their money (i.e., do they repay credit card debt on time, track their purchases, or save money regularly?) had a great influence on their feelings of security. Also, when people felt more secure, they experienced increased happiness and life satisfaction. Specifically, we determined that individuals who manage their money were happier, more satisfied with their lives, and experienced less negative emotion.

“Our findings suggest that dealing with credit card debt and loans has the biggest impact on happiness,” says Grant Donnelly.

Has your credit card or student loan debt gone unchecked? Developing a repayment plan might not only improve your financial situation, but might actually make you happier as well.

That is one of the reasons we created BeyondThePurchase.Org where we help people make the connection between their spending habits – how do you spend your money and who do you spend it on – and their happiness. To learn about what might be influencing how you think about and spend your money, Login or Register with Beyond The Purchase, then take a few of our spending habits quizzes:

How do your current priorities impact what you buy? Take our Life Goals and Buying Choices and on your feedback page you will learn you will learn how current priorities impact what you buy.

How does your expected happiness impact what you buy? Take our Forecasting your Happiness and on your feedback page you will learn if happiness matters more when you are buying a life experiences or a material item.

How materialistic are you? Find out by taking the Materialistic Values Scale. Are you a compulsive buyer? Take the Compulsive Buying Scale and learn about your spending habits.

With these insights, you can better understand the ways in which your financial decisions affect your happiness.
Posted in Money Management | Tagged , , , , , , , , , , , , | 5 Comments

Many people do not have $1,000 saved for an emergency.

Posted on September 8, 2013 by Ryan Howell

A few years ago I read a story in CNN Money (Most Americans can’t afford a $1,000 emergency expense) that reported over 60% of Americans did not have enough money in their savings or checking accounts to pay for a $1,000 emergency. I was shocked. Is it possible that only 36% of US adults have $1,000 in a savings account saved up for a rainy day? Well, maybe not.

The study CNN Money cited was a survey conducted by the National Foundation for Credit Counseling and their was something problematic with their study-the results were based on the NFCC’s July 2011 Financial Literacy Opinion Index which was collected on their homepage (www.DebtAdvice.org). So the only people included in the survey were individuals who would actively seek our “debt advice” and opt-in to complete a survey. Now, the results were starting seemed reasonable: of those people who would go to a debt advice website, and complete a financial literacy survey, only 36% of these individuals have $1,000 saved up for a rainy day.

Well, I have always been bothered by the fact we actually do not know how many US adults have $1,000 saved up for a rainy day. So, I added the same question the NFCC asked in one of our nationally representative surveys. We asked over 700 US adults “If you needed $1,000 for an unplanned expense, what would you do to obtain the money?” Here is what we found out from our representative US sample.

If you needed $1,000 for an unplanned expense, what would you do to obtain the money?

As the graph shows only 60.7% of people have $1,000 saved for an emergency. That number is the exact opposite of what the NFCC found (which reported that 64% of “US adults” did not have have $1,000 saved for an emergency). Though, this still demonstrates that maybe as many as 40% of US adults would need to obtain the $1,000 through less than desirable methods (borrowing the money from friends or family, taking out a loan, getting a cash advance, selling or pawning some assets, or disregarding some other month expense).

So, even though the NFCC had a skewed sample, I do agree with Gail Cunningham, the spokesperson for the NFCC at the time of the survey, who said in their press release ”without adequate savings, consumers have poor resolution choices when an emergency arises. People often say they can’t afford to save, but the truth is that they can’t afford not to.”

That is one of the reasons we created BeyondThePurchase.Org where we help people make the connection between their spending habits – how do you spend your money and who do you spend it on – and their happiness. To learn about what might be influencing how you think about and spend your money, Login or Register with Beyond The Purchase, then take a few of our spending habits quizzes:

How do your current priorities impact what you buy? Take our Life Goals and Buying Choices and on your feedback page you will learn you will learn how current priorities impact what you buy.

How does your expected happiness impact what you buy? Take our Forecasting your Happiness and on your feedback page you will learn if happiness matters more when you are buying a life experiences or a material item.

How materialistic are you? Find out by taking the Materialistic Values Scale.

Are you a compulsive buyer? Take the Compulsive Buying Scale and learn about your spending habits.

With these insights, you can better understand the ways in which your financial decisions affect your happiness.

Posted in Research Findings | Tagged , , , , , , , , , , , , , , | Leave a comment

Can Money Buy Happiness? Yes (when spent correctly).

Posted on September 2, 2013 by Ryan Howell

Every day more and more people are trying to understand the relationship between money and happiness. Although everyone desires to be happy, the pathways people choose are varied (and not always successful). People frequently believe that making more money will increase their happiness. However, although the United States economy has grown steadily since the 1950’s, happiness levels of Americans have not increased (Diener & Seligman, 2004). Also, after a person’s basic needs have been met (food, shelter, etc.), the relationship between income and happiness is quite small (Howell & Howell, 2008). This leads to a simple, yet important question: if materialistic pursuits, those that are embodied by the American Dream, are not making people happier, then are the hours we spend pursuing better careers, nicer homes, and faster cars, in vain? The problem is that people are simply spending their money on the wrong things (literally). People can spend their money in ways which will make them, and others around them, happier—by focusing their expenditures on activities that satisfy their basic psychological needs. Recently, research has begun to support this recommendation.

Based on one of the most prominent theories of motivation and well-being, Self-Determination Theory (SDT; Ryan & Deci, 2000), researchers have begun exploring the types of consumer choices that will satisfy a person’s psychological needs. SDT predicts that a person will be happiest when three basic psychological needs are satisfied: autonomy, competence, and relatedness. A person feels autonomous when his or her actions are freely chosen, self-guided, and internally (as opposed to externally) motivated. A person feels competence when they use their talents and abilities to master a skill or learn a new task. A person feels relatedness and connected to other people when their activities develop supportive relationships and when a person feels understood by others.

Also, and very important, literally thousands of studies demonstrate the positive effect of psychological need satisfaction on happiness. In one recent study, we asked people to track their activities hour-by-hour for three days. Additionally, we asked them to report how much psychological need satisfaction and happiness they experienced during each activity. The amount of happiness people experienced each hour was directly related to the degree to which the activity was autonomous and increased their relatedness with others (Howell et al., 2011).

Thus, because of the connection between activities that satisfy psychological needs and momentary happiness, we examined whether expenditures that satisfy higher level needs (as proposed by SDT) would make people happier. Specifically, we tested if money spent on life experiences (e.g. concerts, vacations, dining experiences), as opposed to material objects (e.g. clothing, jewelry, electronics), would better satisfy the psychological needs of autonomy, competence, and relatedness, and in turn increase happiness (Howell & Hill, 2009). To test our hypothesis, we asked people to write about a recent life experience or a material object they had purchased and report the degree to which the purchase made them happy and made others happy. They also rated the degree to which their purchase satisfied their psychological needs. As we expected, when compared to material items, life experiences were found to make the buyer and others happier. The reason for the increased happiness from life experiences was that these purchases, first, satisfied the need for relatedness and this increased relatedness resulted in people feeling more alive. Life experiences were also less likely to be socially compared (a tendency which can undermine happiness).

At BeyondThePurchase.Org we help people understand the relationship between money and happiness. To better understand the benefits of specific consumer choices, we continue to investigate the relationships between consumer preferences, psychological needs, happiness, and values at our website by allowing people to take tests on personality. To learn about what might be influencing how you think about and spend your money, register with Beyond The Purchase, then take a few of our personality quizzes:

How do you find happiness? Take our happiness quiz and find out your happiness score.

Some people are gadget heads and some are foodies. Which do you spend your money on? The Experiential Buying Scale provides you with personalized feedback to learn what kind of things you tend to acquire.

How materialistic are you? Find out by taking the Materialistic Values Scale.

Are you a compulsive buyer? Take the Compulsive Buying Scale and learn about your spending habits.

In what ways do you hope your purchases will transform your life? The Transformation Expectations Questionnaire will tell you about what you expect from your next big purchase.

Diener, E., & Seligman, M.E.P. (2004). Beyond money. Toward an economy of well-being. Psychological Science in the Public Interest, 5(1), 1–31.

Howell, R.T., Chenot, D., Hill, G., & Howell, C.J. (2011). Momentary happiness: The role of psychological need satisfaction. Journal of Happiness Studies, 12(1), 1–15.

Howell, R.T., & Hill, G. (2009). The mediators of experiential purchases: Determining the impact of psychological needs satisfaction and social comparison. The Journal of Positive Psychology, 4, 511–522.

Howell, R.T., & Howell, C.J. (2008). The relation of economic status to subjective well-being in developing countries: A meta-analysis. Psychological Bulletin, 134, 536–560.

Ryan, R., & Deci, E.L. (2000). Self-determination theory and the facilitation of intrinsic motivation, social development, and well-being. American Psychologist, 55(1), 68–78.

 

Posted in Research Findings | Tagged , , , , , , , , , , , , | 2 Comments