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Money Can Buy Happiness When You Invest in Giving

05/15/2013 12:31 EDT | Updated 07/15/2013 05:12 EDT
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Imagine if someone walked up to you on the street today and handed you a $20 bill. You'd probably be pretty happy, right? That will get you a good lunch. But you'd be even happier if you used the $20 to buy someone else lunch. It's true, and it's been scientifically proven.

Elizabeth Dunn, an Associate Professor of Psychology at the University of British Columbia (UBC), has spent the past six years studying the link between wealth and happiness. She has discovered that money can buy you happiness -- if you spend it the right way. And one way you can get more bliss from your bucks is by spending it on others.

We recently chatted with Dunn about her new book, released this week, entitled, Happy Money: The Science of Smarter Spending (Simon and Schuster) co-authored with her friend and fellow researcher Michael Norton, an Associate Professor of Marketing at Harvard Business School.

Dunn was fresh out of grad school in 2005 when she landed her first teaching and research position at UBC. Suddenly, the once impoverished student was earning a decent income.

"It felt like I was making tons of money so I thought, well, what do I do with it?" Dunn told us.

Figuring out how to get more satisfaction from her own money sparked Dunn's curiosity about the link between wealth and happiness, and whether people can increase their happiness by changing the way they spend their money.

Her first experiment involved simply handing people money. Randomly-selected students were approached on the UBC campus and asked about how happy they were feeling. Each student was then handed an envelope containing $5 or $20, and a note. Half the notes instructed the student to spend the money on her or himself, the other half directed the individual to buy a gift for someone or donate the cash to charity. Later that day, Dunn's team contacted each student again to ask how they had spent the money, and how happy they were feeling.

Dunn found those who had bought a gift for others or donated the money expressed greater feelings of happiness than those who had spent the money on themselves. And the dollar figure made little difference. The person who gave away $5 was still happier than the person who had spent $20 on themselves.

The next question that intrigued Dunn and her colleagues was whether joy from giving is learned, or hardwired in us. During a puppet show, two-year-olds were offered Teddy Graham cookies -- children in one group could eat the cookies, those in another group were asked to give them to one of the puppets. A group of volunteers watched videos of the children and ranked each child on how happy he or she seemed to be, based on reactions and facial expressions. They concluded that the children who gave away their snacks were happier.

Dunn also wanted to find out if it makes a difference when the gift is our own property, as opposed to something we simply found, so she set up two scenarios. In the first, one of the puppet show presenters "found" a cache of treats hidden on the stage, then asked the children to come up and give a treat to a puppet. In the second scenario, the children were given a snack for themselves and then asked to give it away.

According to Dunn, children were happier giving away their own treat than one they saw as a windfall. To translate that to adults -- you'll actually feel happier giving away $20 of your own money than giving away that $20 you found on the sidewalk.

Happy Money also explores other strategies to increase happiness by changing spending habits. For example, you'll get more joy from buying experiences than buying things -- a once-in-a-lifetime vacation or dining out at the most expensive restaurant in town will net you more happiness than a new flatscreen TV. Dunn said that investments in household time-savers -- she cited a robot vacuum cleaner as an example -- can buy happiness by increasing our sense of "time affluence."

Businesses can also reap rewards from investing in the happiness of employees. Dunn pointed to Google, which pays employees to spend 20 per cent of their time on personal pet projects at work. The result has been happier and more productive workers -- and the development of some of Google's most successful innovations, like Gmail.

Happiness is not something you'll hear much about from any financial advisor or financial literacy course. And yet the clear implication of Dunn's research is that the way we spend our money has a direct impact on our happiness and quality of life. Perhaps it's time to evaluate the "happiness return" on our investments.

Craig and Marc Kielburger are co-founders of international charity and educational partner, Free The Children. Its youth empowerment event, We Day, is in 11 cities across North America this year, inspiring more than 160,000 attendees from over 4,000 schools. For more information, visit www.weday.com.

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