How to financially invest in happiness

Why spending you rmoney on experiences like vacations are worth more than spending money on material goods.

Most Americans have access to the latest and greatest when it comes to technology, fashion and trends. Besides the pressure to 'Keep up with Joneses,' we often consume goods because it can make us feel better.

Dr. Ryan Howell, associate professor of psychology at San Francisco State University, studies the connection between money and happiness. His research tries to answer, "Can people spend their money to make themselves happier?" And yes, he says, money can buy happiness.

"Your discretionary money, if it's spent on bringing you closer to your friends and family [or] if it's spent building up psychological needs, it can make you happy," Howell says.

Experiential purchases such as vacations, ball games, and concerts, offer a sense of happiness that, in hindsight, people say they don't feel when purchasing material goods.

"What we find is when people spend money on life experiences as opposed to material items, they find their lives to be better, more fulfilling, more enjoyable, and ultimately they're happier," Howell says.

It's not that material things provide zero happiness, but they lack the sustained happiness that experiences provide.

"You see an initial surge in happiness, what we might consider a 'buy high' that occurs really early on. But people literally say, sometimes as they're walking out to the mall, that the enjoyment is gone." Howell says. "Whereas the most amazing things about vacations and dining out and different types of services is that you build these memories that never decay and actually often get better with time."

The reasons we tend to purchase material things over experiences may have to do with perceived value. Howell says that humans are pretty good at placing a value on clothes, cars, and electronics, but we have a harder evaluating experiences because we are essentially placing a value on memories.

One way to place a monetary value on a memory is to imagine being paid to rid your brain of that memory.

"Imagine that someone were to say to you, you can still have that meal, you can have the experience itself, but we're going to wipe out the memory. Sometimes, and we hear people say this, for certain life events [the memory] is priceless."

Think about all the times you've ever had buyer's remorse. Was it a material purchase or was it an experiential purchase? Email us or Tweet at us @LiveMoney

About the author

Candace Manriquez is a freelance producer for Marketplace.

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