Book Review 01: Happy Money

In a week of firsts, I proudly present: the first book review!  The lucky victim is Happy Money, released in May 2013 by Elizabeth Dunn (Professor, University of British Columbia). and Michael Norton (Associate Professor, Harvard Business School).  Norton's research interests include consumer behavior, consumer psychology, and philanthropy, so that should give you some ideas about what you're in for.

Executive Summary

In the Financial Independence movement, much thought is given to how we might scrape together a few more dollars here and there by not spending; in contrast, there's much less discussion of how best to allocate what we do spend to maximize its positive effects.  That's the question that this book concerns itself with.

The answer?  In short: spend your money on experiences, not material things; spend it on unique events that build and strengthen social ties; treat yourself only occasionally, to keep it special and prevent it from becoming commonplace; take your time and savor the anticipation while you wait to experience your purchases; reallocate money away from low-satisfaction activities, like a bigger house, fancy cars, or TV, and instead use it to shorten your commute and eliminate other unpleasant tasks; spend money on others, and practice gift-giving and philanthropy.

Overall, the book was a worthwhile read.  The information was interesting and practically useful.  The only thing that stops me from wholeheartedly recommending it is the painfully informal writing style.  ★★★★☆.


The scientific literature shows that money doesn't buy nearly as much happiness as people think it will. Money offers diminishing returns in terms of life satisfaction, following a log-linear relationship that rapidly levels off at higher incomes. For those earning more than $75k a year, money has been found to have little influence on overall emotional state. But could money buy more happiness than it does? How you spend money can have just as much influence on your happiness as how much money you spend. By focusing on optimizing spending and thinking critically about each purchase, it is possible to increase happiness without falling into the trap of endless seeking more wealth. Because the mechanisms of happiness are mostly subconscious, this is not as trivial as you might think.

This book analyzes the results of thousands of scientific paper and suggest five strategies for maximizing happiness per dollar:
  1. buy experiences.
  2. make it a treat.
  3. buy time.
  4. pay now and consume later.
  5. invest in others.

1. Buying Experiences

It is commonly accepted that it is necessary to own a house to pursue 'The American Dream', but all evidence shows that neither home ownership nor the 'niceness' of the home correlate in any with improved happiness. In a common pattern that emerges for ownership of virtually all material goods, owners of more expensive homes report higher satisfaction with those homes, but exhibit no statistical difference in overall happiness. Home purchasing can offer a financial benefit, so the decision to buy should be based on the practical benefits conferred.

Leisure spending on experiences is highly correlated with happiness. Experiences create connections with others. The uniqueness and camaraderie of an experience is far more valuable than the inherent comfort (think: ice hotels, Tough Mudder). 'Memorable' is much more important than 'pleasant' — try remembering a comfortable memorable event!

Material goods have seductively concrete features, but this is also their downfall. Satisfaction with the purchase of a material good usually decreases with time, and buyer's remorse is common. The reason: we are happy with things, until we realize that there are better things available.

Conversely, satisfaction with experiential purchases increases with time. Experiences are unique, and it is not easy to directly compare the value of one experience to another. There is no post-purchase anxiety about getting a bad deal or having an inferior product, or worries about the onset of obsolescence. Instead, there is nostalgia! Satisfaction with an experience increases substantially right after the experience concludes, and continues to rise as time passes. When asked about purchasing regrets, material purchase regrets focused around overspending and buyer's remorse while experiential purchasers regretted NOT spending more on purchases.

It should be noted that some purchases fall in-between: is a book or an album or a videogame an experience or a material good? Studies show that this depends on how the buyer uses and thinks about these purchases.

Keep the following in mind to maximize the value of money spent on experiences:
  • the length of the experience is not very important
  • experiential purchases enjoyed with others are much more enjoyable
  • the more memorable the stories, the better!
  • experiences that connect to one's personal identity have a larger impact on happiness
Purchasing experiences is almost always a better deal than purchasing material goods, even if the latter feels 'smarter'. Just think about Chuck E. Cheese: you can play fun games, or you can play non-fun games and collect tickets to buy little trinkets. You'll remember the experience, and the trinkets will be quickly forgotten.

2. Making It a Treat

By every measure, abundance kills appreciation. Humans are highly adaptable creatures, and they very quickly habituate and become accustomed to the good things and the bad. Animals are, after all, wired to detect changes instead of absolutes: put one hand in hot water and one hand in cold water and then move them both to the same warm water to demonstrate this for yourself. Fight adaptation with temperance and moderation!

Thinking about the concept of wealth itself has been shown to interfere with our ability to savor, to appreciate, and to experience wonder. Though there is no evidence that completely abstaining can increase happiness, altering and restricting consumption patterns consistently increase enjoyment.

Fleeting opportunities provide more enjoyment than the exact same opportunity when availability isn't limited. This is the California Effect: people get used to the beautiful weather and lose the urgency to take advantage of it. This is also the London Effect: people don't visit their own region's landmarks until they are about to move away. When presented with scarcity or a shorter timescale of availability, urgency increases and both utilization and enjoyment of the experience increase.

Marketers know these facts! Deal-of-the-day sites, restaurants, Disney... imposed scarcity moves products! Beware! Even commercials have been shown to increase the enjoyment of television by repeatedly taking the stimulus away and then bringing it back. This must be enforced, because consumers won't do this themselves — resetting your set point requires accepting a temporary decrease in stimulation, which the vast majority will not do voluntarily.

Many believe that a better car will make them happier, but the data doesn't back it up. When asked specifically about their satisfaction with their nicer car they may rate it higher, but this improved product satisfaction has no measurable impact on how much they report enjoying use of the product or on overall life satisfaction. When presented with a product, we usually don't apply the knowledge that enjoyment of the product will fade with time.

Consumption mindsets can also have significant influence on enjoyment. Someone who consider themselves to be world travelers quickly lose the thrill of domestic destinations, becoming much less excited about the prospect of local travel. Priming someone with the idea that they ARE a seasoned traveler can even decrease their enjoyment of an experience at-hand. Feeling less well-traveled increases enjoyment of all travel — we can improve our own appreciation by focusing on the vast realm of possibility and all we haven't yet done!

The novelty of an experience has a huge impact on memorability and enjoyment. Try something out of the ordinary!

American culture values abundance, and the Protestant work ethic looks down on treats. When surveyed, many people predict that the occasional indulgence will result in guilt... but the guilt never materializes! Overcoming this failure to appreciate the value of the occasional treat could help maximize the happiness derived from each dollar.

Economic over-analysis can decrease happiness. Highly-conscientious people are especially prone to optimizing the economics of a purchase even when they know it will reduce their happiness.

There is little evidence of happiness decreases when a luxury is rationed; instead occasional enjoyment builds anticipation and substantially improves the experience.

3. Buying Time

By a number of mechanisms, time and money are frequently interchangeable. People often trade time for money at very poor rates. In general, high-income earners rarely use their money to buy more time, even though they are frequently stressed by time constraints. In fact, the wealthy spend more time working, commuting, shopping, and engaging in other high-stress, low-happiness activities than the average worker. Why haven't Americans used the higher wages they've earned over the last half-century to buy more time?

(To be fair, some people enjoy grocery shopping and vacuuming! But most do not.)

Making lifestyle changes, especially in the context of time management, is very difficult. Perceived time affluence has been shown to be highly correlated with quality of life and happiness. Perceived time affluence has been decreasing since 1960, while the average free time per week has increased by around four hours. There is no actual time famine, but we feel like there is!

As it turns out, perceived time affluence correlates much more strongly with other factors than it does with actual freetime. Feeling like your time is more valuable makes time feel more scarce. Time-saving products often increase impatience, contributing to perceived time scarcity, and only generated a net increase in happiness when they took away a significant hassle. Volunteer work, conversely, increases perceived time affluence, as do exercise, helping friends, and other activities in which we give our time away for free.

Perceived time affluence is a complicated topic, so it may not be immediately obvious what can be done to improve happiness by buying time. There are three areas where studies show that trading money for time is very beneficial:

1) Commuting. Long car commutes make people extremely unhappy, even if they have nicer houses and higher-paying jobs as a result. The average US household devotes 20% of total income to driving expenses, and this number increases to 40% at the poverty line. This is equivalent to working two hours a day just to pay for transportation, summing to over 500 hours per year.

As previously mentioned, owning a nicer car makes absolutely no difference on the large negative impact of a long commute. Similarly, owning a nicer house (above a minimum functionality threshold) has no impact on overall happiness and life satisfaction. Therefore, it is almost always advantageous to live closer to where you work to minimize the commute, even if it means taking salary and square-footage cuts.

2) Television. The average American watches television for the equivalent of 2 months per year. The act of watching television provides vanishingly little satisfaction, yet television has soaked up all of the average worker's free time gains since 1960... and then some. Television is cheap per hour of consumption, but the monthly absolute cost of television is high, and higher-cost equipment further increases utilization of this low-satisfaction activity. Reducing or removing television in your life almost guarantees an increase in happiness.

3) Socialization. Spending time with friends and family may cost money or reduce the amount of time you have available to work, but the happiness dividend that socialization pays is worth it. Studies show that most people significantly underestimate how much they will enjoy a social activity before it occurs, and significantly underestimate how social interaction will improve their moods and outlook. Don't fall into the trap of working life away to pay for junk that you believe will improve your family's life — it's almost certainly a bad bargain!

4. Paying Now, Consuming Later

Many modern technological innovations—credit cards, fast shipping, digital delivery—entice us with the prospect to consume now and pay later.  Studies show, however, that delaying receipt of something often enhances the experience!  Savoring the anticipation of something arriving that you've ordered or events that you've planned far in advance can create more happiness than the item or the event itself.

Consider the emotional power of the future by contrasting how you feel about Friday evening with how you feel about Sunday evening.  Our minds idealize future events, and uncertainty about the exact course of a future event—think Christmas lists and grab bags—can actually improve our future perception and eventual enjoyment.  Built-up positive expectations significantly color our perceptions of an event.  Many studies have shown that anticipating enjoying something increases the actual enjoyment significantly, especially when the event—like eating a chocolate-covered strawberry—is fleeting.

Most people consciously recognize that delays will improve their enjoyment; however, almost no one would be willing to pay more for that delay!  Given the opportunity, people would rather consume NOW instead.  Fight the urge!  Bundle! Pre-pay! Preorder!

While buying now and experiencing later is advantageous, decoupling the acts of buying and paying also improves enjoyment.  Anything that separates the paying and the consumption will help, especially delaying the pain of paying.  Unfortunately, this same effect encourages many to rack up significant revolving credit card debt.  In this respect, watch out for transaction-easing technologies.

Paying employees to work on side-projects can improve corporate innovation. Sabbaticals, too, can prevent burnout and spark new ideas.

Time constraints feel temporary. Look at your Tuesday a month from now: the calendar is very likely empty! This is one reason that people resist using money to buy time. Unfortunately, the time constraints themselves are often long-term, and that Tuesday will fill up as it gets closer. We discount the value of current time because future time seems plentiful, but this is an illusion.

Many advertising strategies tempt customers with products and features that will have no impact on how the customer actually spends their time. This is especially common in comparison shopping, where trivial differences are amplified in an attempt to upsell you. By thinking in terms of time and how a product will change how you use your time, you can come to purchasing decisions that are more likely to improve your happiness. This will prevent you, for instance, from installing a pool without considering all of the time and effort you will spend maintaining it.

5. Investing In Others

Counter-intuitively, the act of giving away money makes people feel wealthier.  Many studies have demonstrated that spending money on others can increase your happiness even more, per dollar, than spending it on yourself.  Importantly, people don't predict that donating will make them happier.

Smart, rich people like Warren Buffett and Bill Gates have supported The Giving Pledge, a commitment by the world's richest individuals to give away 99%+ of their fortunes to philanthropic causes.

Companies have taken advantage of this fact by offering customers cashback in the form of donations to nonprofits, and by awarding employee performance with money to give away.

The positive effects of giving have been found to be amplified by:
  • making sure the giving occurs by choice
  • donating in ways that strengthen social connections
  • having an obvious, physical, highly-visible impact
Cause Marketing, in which a for-profit company partners with a nonprofit for mutual benefit, is hit-or-miss for companies selling consumer goods.  In some instances, there has been backlash: the authors offer the (Red) campaign and buylesscrap.org as an example.


The epilogue offers a summary and some tips, directed at individuals, businesses, and policmakers, for maximizing the value of the lessons in the book.
  • Apply as many of these principles as possible in your daily spending!
  • Housing and transportation are poor spending choices - reallocate!
  • Saving money can boost happiness, too.
Governments could also use this information to spend, and to encourage citizens to spend in ways that maximize happiness:
  • everyone needs some discretionary income!
  • more even distributions of wealth are associated with more happiness
  • over-encouraging home ownership is a bad idea!
  • provide environments for experiential purchases!
  • people must have free time to enjoy a purchase!
  • tax people and issue a refund!
  • cut back on no-money-down, high-interest installment stuff!
  • progressive taxation!
  • make taxes feel like charitable contributions by introducing an aspect of choice!
  • provide tax incentives for giving!
  • spread awareness!
Cut down on your commute! Buy a bike!

Recognize that your own experience is insufficient for maximizing happiness! The direct pursuit of happiness may be self-defeating, if only because it's not as easy as it looks — when asked to guess what would make them happy, most people guess wrong.

Above all, think critically about every purchase!

My Thoughts

The Good
  • acknowledgement that housing and transportation are poor spending choices
  • no-holds-barred condemnation of TV
  • acknowledgement that saving can increase happiness, not just consumption
  • buying a bike is good!
The Bad
  • no discussion of investing
  • no discussion of non-money happiness
  • infuriating obsession with mentioning Starbucks, The Cheesecake Factory, other nonsense
  • most analysis assumes the lowest common denominator uberconsumer
  • savings is only considered as a way to pad against emergencies
Additional Notes
Philanthropy is most definitely EXTREMELY important
     Microfinance: kiva.org and related
      It’s easy to ‘give like a billionaire’ with a charitable endowment program:

Keep in mind that the studies cited by this book involve average people doing average things. Financial freedom can put you in a position to engage in business or social entrepreneurship that enable levels of self-actualization that you just can’t reach as a full-time employee.

The book only focuses on happiness that derives from spending, but there are PLENTY of opportunities to have adventures that meet all of the book’s other happiness criteria without spending anything at all.

Comfort and pleasantness are, as the book suggests, extremely overrated.

The world has an infinite variety of unique adventures to take part in, but the universe of material goods is far more limited.

The book doesn’t investigate the possibility of converting material purchases into experiential purchases, with bargain hunting and the power of DIY.

The entire ‘Make It a Treat’ chapter turns into an entirely different book if you read it with relationships in mind.

Avoiding the psychological effects of advertising is reason enough to avoid television.

What about investing? How does shopping for and buying investments influence happiness?

The ‘Invest In Others’ chapter emphasized that we receive far more enjoyment when we spend money on other people instead of on ourselves. ‘Buy Now, Consume Later’ suggested that we might not like delaying purchases because we see Future Us as different people than Current Us. What if I enjoy financing the Future Adventures of Future Me?

Can this week fit any more firsts?  I guess we'll find out!