💸 How Your Spending Habits Impact Your Happiness
What happens when you give 200 people $10,000 and analyze how they use it?
It’s time to ask that question again: can money buy happiness?
When people ponder this, they’re normally thinking about earnings and bank account balances. The relationship between income and life satisfaction is rather complex (as my last post for paid subscribers highlighted), but there’s a more literal and less controversial way to think about the question too. It’s less about how much money you have and more about how you use it.
When you think about the different ways you can spend or save your money, the idea that it can impact your happiness seems obvious. For example, think about the happiness returns of spending money on an evening out with friends vs a food delivery app at home. Or consider how much happiness you got from your most recent vacation travel vs your most recent television purchase.
The question of what types of purchases make us happiest will vary somewhat between people since we all live in different cultures and have our own hobbies and interests. But it’s possible to identify overall patterns and themes that people have in common in addition to looking for individual or cultural differences. A study published earlier this month did exactly this.
💰 Which spends make people happiest?
In a study published in December 2024, researchers recruited 200 participants (aged 21 to 75) across 7 countries including the US, Brazil, Kenya, and Indonesia. Each participant received a single tax-free gift of $10,000 and was told to spend it within 3 months. At the end of each month, they completed a survey asking them about what they bought and how happy it made them. Participants also reported back on their overall subjective well-being for a total period of 6 months.
Half of the participants in the study were told to be very public about what they were buying during the study by sharing updates with friends, family, and followers on Twitter. The other half were told to be as private as possible and avoid sharing any information.
The researchers wanted to see whether some types of purchases made people happier than others. To do this, they analyzed within-person effects of spending categories. This means they looked at how each individual person’s happiness changed when they spent money on a category such as entertainment experiences vs a category such as bills. By removing between-person effects, the researchers could avoid worrying about varying levels of wealth or other individual differences across participants that might interfere with spending category effects.
The analysis showed that people were happiest when they spent money on charitable donations, gifts for others, experiences (e.g. trips, concerts), personal care (e.g. fitness, beauty), and education (e.g. a writing course).
People were least happy after spending money on bills, transport, essential groceries, housing, and medical expenses.
Interestingly, donations and gift purchases made people happiest when they were in the private condition rather than the public condition. When people told others about their charitable purchases and gift-buying, they derived less happiness than when they kept it to themselves. This argues against the idea that charitable actions make people feel good because they’re a social signal of moral superiority. In fact, happiness seems to come from something deeper and more intrinsic about altruistic actions.
But how did these effects differ across countries?
People in richer countries got more happiness from gift-buying or time-saving purchases than people in poorer countries did. They also got less happiness from money spent on debt or housing.
If you’ve ever heard of Maslow’s hierarchy of needs, this probably makes sense to you. When you’re struggling with more fundamental aspects of survival, successfully paying for a roof over your head gives you more happiness than it gives someone who can take shelter for granted. In contrast, when there’s no real threat to your everyday survival, you’ll get greater happiness from purchases that fulfill higher-level needs around mental well-being—e.g. time to relax or gifts to support relationships—compared to someone less fortunate.
The more happiness people got from their $10,000 worth of spending over the course of 3 months, the more growth they saw in their overall subjective well-being. This was true both at the end of the 3-month study and at the end of the 6-month follow-up period.
To put the numbers into perspective, the people with the happiest spending boosted their subjective well-being by more than twice as much as the people with the least happy spending. This was roughly in line with the well-being difference between people who received $10,000 in the study and a control group who received no money.
It goes to show that the way you use your money is just as important for your happiness and well-being as how much money you have.
⭐️ Takeaway tips
#1. Regardless of how much money you have, be intentional about how you use it
A higher income can make life easier by pushing you up the “needs” ladder, where you worry less about basic survival and more about personal flourishing. But this certainly doesn’t guarantee happiness. Most of us work hard for the money in our pockets, so how we use that money deserves careful attention and awareness. For each of the purchases in your life, think carefully about what it means to you and how much happiness it gives you. When a habitual purchase starts to feel wasteful, don’t hesitate to try a life without it. And when you identify a new opportunity for happiness or well-being, be conscious about exploring it even if it costs you extra money.
#2. Don’t underestimate the private happiness value of gifts & charity
Spending money on other people seems to return a lot of happiness, and many experiments now support this idea. You don’t have to wait for the festive season to buy gifts or donate to charity. When you feel you have the space in your budget, make someone’s day with a small, thoughtful purchase, or think about which charities would put your money to best use. These altruistic spends give people a very personal sense of happiness that doesn’t depend on social signals; in fact, they’re strongest when they are kept private.
#3. Invest in yourself
Charities and gifts are worthwhile investments, but some of the greatest happiness benefits also come from spending your money on experiences (rather than material purchases), personal education, and self-care. If there’s something you’ve always wanted to see, something you’ve always wanted to learn, or something you’ve always wanted to try for your personal betterment, it’s unlikely to be a regretful spend if you decide to go ahead with it. So avoid leaving your personal well-being priorities on the sidelines and start planning for these kinds of activities.
“The earning of money should be a means to an end; for more than thirty years — I began to support myself at sixteen — I had to regard it as the end itself.”
~ George Gissing