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

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.