Money and Happiness: Friend or Foe? Depends on How You Spend Your Cash

05/26/2010 11:52 am ET | Updated Nov 17, 2011

Science cannot "prove" anything. The word "proven" is a clear sign that you are no longer in the province of science, rather you are in the province of people with an agenda. Be wary! But we can find evidence strongly in favor of one idea compared with another. The idea that money leads to happiness or unhappiness is a soundbite. Perfect for a radio advertisement. Ridiculous if you are trying to describe decades of research on the topic. You want a soundbite? Whether money leads to happiness or unhappiness depends on how you spend your money.

Want to dive into the research? If you live in a household that earns more than $40,000 per year, increases in income have a minuscule impact on happiness. You can afford taking your child to the emergency room when the knife misses the bagel. Unlike families with less income, you are not required to do a cost-benefit analysis of whether taking your child to the hospital is worth living on bologna and water for the next week. This leads to my first common sense point.

The value of money depends on how much money is at your disposal.

In a 2008 national survey of Americans, 93 percent said people are too focused on working and making money, and 87 percent said living in a materialistic world makes it difficult to teach children ethics and morals (Center for a New American Dream, 2008).

The prejudice and hatred of materialism is widespread. But perhaps we can sidestep these automatic, reflexive reactions to money and materialism. One way to do this is to distinguish between personal and communal motives for material purchases. Personal motives are about spending money with the primary aim of acquiring goods for oneself to feel good and be seen as a person of worth. Think of materialism as a means to boost self-esteem. Women wearing fur coats and men driving a mint condition 1963 Corvette feed our stereotype of self-enhancing, materialistic people (in a midlife crisis).

What researchers have shown is that when people spend money to acquire tangible objects for themselves they get nothing more than a short-term boost of happiness. Soon after, they need their next "fix." This leads to my second point.

Spending money on tangible objects, for self-centered means, fails to offer a route to sustainable happiness.

This fits nicely with journalists who pronounce that science has "proven" that money leads to unhappiness. However, there are two huge exceptions to the stereotype that money and materialism are evil. Some of our purchases are for tangible objects, other times we purchase meaningful events.

Consider a family saving up money to go horseback riding together at a dude ranch or a romantic couple dining once a month at an exquisite seafood restaurant. Money is being spent on experiences -- memories that can be savored. All of us are aware of this distinction between spending money on goods versus events, yet we often ignore this when holding tightly to our largely negative stereotypes of materialistic people. What researchers have shown is that when people spend money on experiences, especially when they include other people, the boosts to happiness are more intense and last longer. This leads to my third point.

Spending money on well-chosen experiences is a useful route to sustainable happiness.

Let me end with one other commonsense idea supported by science. Spending money on other people as a sign of generosity or love has a more intense, lasting impact than spending money on the self. This leads to my final point.

Communal motives for spending money is an effective strategy for increasing happiness in other people as well as the self.

Appreciate the complexity of these issues. Human beings are infinitely messy, complex, bizarre and damn interesting. How we spend money and how it influences our happiness, meaning in life and psychological needs is no different. This is one of the reasons I prefer psychology over chemistry or physics. Soundbites fail to tell the story.

Dr. Todd B. Kashdan is a clinical psychologist and professor of psychology at George Mason University. He is the author of Curious? Discover the Missing Ingredient to a Fulfilling Life. For more about his speaking engagements, books, and research, go to or Research Laboratory