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The Joy of Spending
Topics: Finance-SpendingMarkets-Consumer BehaviorPsychology-HappinessPsychology-EmotionsFinance-InvestmentIn their early years as cash-strapped grad students, Mike Norton and Elizabeth Dunn never worried about the luxury of disposable income. When they each finally started making a salary, though, they faced a quandary. "We realized there was very little research on what to do when you make more money," says Norton, now an associate professor in the Marketing Unit at HBS.
That search for answers led to their new book, Happy Money: The Science of Smarter Spending, which offers peer-reviewed guidance for the purse strings—much of it illustrated by the authors' own anecdotes. "The things we talk about are not mistakes that laypeople make," says Norton, who admits that even he fails to heed the science from time to time. "They are mistakes that humans make." Below, Norton offers five principles that can ensure you swipe your credit card with a smile.
Buy Experiences
"Think back to a TV that you bought in college," says Norton. "Now think back to spring break in college. It might have cost the same amount to go on spring break as it did to buy that TV, but the memories from spring break are making you happier now." But satisfaction doesn't require a trip to Cancún. Norton notes that even small purchases can have an effect—like going out to lunch with a coworker rather than eating a sandwich by yourself.
Make It a Treat
Binge-watching your favorite TV show on Netflix? Beware, says Norton. "The waiting that we had to do for the next episode of Cheers or Friends was actually a good wait, because we got really excited about it. Now that we can watch them all the time, we lose the excitement of anticipation."
Buy Time
Norton suggests resisting the siren call of the big house in the suburbs. "What we've really done is commit ourselves to a horrible commute every day for the rest of our lives." One way to think about it: forget the granite countertop or the pool—how much time are you going to spend in the house compared to the time you spend driving to and from work?
Pay Now, Consume Later
"The worst thing to do on vacation is pay as you go," Norton argues. Paying upfront and months in advance allows you to forget about the pain of paying and gives you ample opportunity to anticipate the trip.
Invest in Others
Some of Norton and Dunn's first experiments involved giving people money and asking them to spend it either on themselves or on others. The result: Those who gave the money away felt happier. Forgoing that $5 cup of coffee every morning and donating the money to a charity of your choice—or treating your friend to lunch—will pay dividends in the long term.
Norton will discuss his research as part of a Trending@HBS webinar on November 12.
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