Spending Money to Be Content

03.07.2017 |

Episode #7 of the course Consumer behavior: Becoming an empowered consumer by Maureen McGuinness


Money is not valuable in itself. Money is a resource. Money is only valuable when it is exchanged for basic tools for survival: shelter, food, water, warmth. Money can also be valuable when exchanged for an investment to provide you with passive income. Hoarding money isn’t the goal. Money is a resource that can be used to add value to your life. With this new level of consciousness, how can you use it in a way that will add the most value to your life?


The Luxury Myth

When we get a raise, we may consider purchasing something luxurious like a flashier car, a new suit, or a bigger TV. By purchasing a luxury product, we will experience a moment of joy (at the point of purchase) that may last for a week or two. Hedonic adaptation will return us to the same level of life satisfaction as before. Since hedonic adaptation is unavoidable, is there really any value in purchasing luxury items?

On the flipside, purchasing a service or an item that removes significant inconvenience, e.g., replacing a broken dishwasher that you keep tripping over because the door won’t close properly, can be more valuable than purchasing a luxurious unessential item.

Below you’ll find another example of a luxury vs. value-added purchase:

Analyze your next purchase critically: is this just another luxury, or is it going to eliminate a source of pain or inconvenience?


Purchase Experiences

A wealth of research argues that we get more pleasure from spending our money on experiences rather than material goods. Part of this is down to hedonic adaptation—the observed tendency of humans to return to a relatively stable level of happiness despite major positive or negative events or life changes.

When we purchase a material item, we feel the immediate joy of owning something we wanted, but as we continue to own it, the feeling of joy quickly disappears. With an experience such as a vacation, we can relive the joy through our memories. This is why some of us buy souvenirs, as a way to take us back to our memories of visiting a place. Buying souvenirs isn’t necessary to access our memories. Seeing a souvenir may trigger our memory of a holiday, but we don’t need that trigger because our memories come from within. A photo can trigger the memory instead of a souvenir.


Spend on Others

A group of researchers asked a sample of 632 Americans (55% female) to rate their general happiness, to report their annual income, and to estimate how much they spent in a typical month on bills and expenses, gifts for themselves, gifts for others, and donations to charity. They found that spending more of your income on others predicted greater happiness both cross-sectionally (in a nationally representative study) and longitudinally (in a field study of windfall spending). They also found that participants who were randomly assigned to spend money on others experienced greater happiness than those assigned to spend money on themselves.

Can you remember the last time you spent money on someone else? How did it make you feel?

Tomorrow, we’ll look at the way you can enlist support from your peers as you apply what you’ve learned in this course.


Recommended book

Empire of Things: How We Became a World of Consumers, from the Fifteenth Century to the Twenty-First by Frank Trentmann


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