How to buy happiness - Michael Norton

[Music] [Music] [Applause]

So I want to talk today about money and happiness, which are two things that a lot of us spend a lot of our time thinking about, either trying to earn them or trying to increase them. A lot of us resonate with this phrase, so we see it in religions and self-help books: that money can't buy happiness.

And I want to suggest today that, in fact, that's wrong and that I'm at a business school, so that's what we do. So that's wrong, and in fact, if you think that, you're actually just not spending it right. Instead of spending it the way you usually spend it, maybe if you spent it differently, that might work a little bit better.

And before I tell you the ways that you can spend it that will make you happier, let's think about the ways we usually spend it that don't, in fact, make us happier. We had a little natural experiment. CNN, a little while ago, wrote this interesting article on what happens to people when they win the lottery. Turns out people think when they win the lottery their lives are going to be amazing. This article is about how their lives get ruined.

So what happens when people win the lottery is, number one, they spend all the money and go into debt, and number two, all of their friends and everyone they've ever met find them and bug them for money, and it ruins their social relationships. In fact, they have more debt and worse friendships than they had before they won the lottery.

What was interesting about the article was people started commenting on it—readers of the thing—and instead of talking about how it had made them realize that money doesn't lead to happiness, everyone instantly started saying, "You know what I would do if I won the lottery," and fantasizing about what they'd do. Here are just two of the ones that we saw that are just really interesting to think about. One person wrote in, "When I win, I'm going to buy my own little mountain and have a little house on top," and another person wrote, "I would fill a big bathtub with money and get in the tub while smoking a big fat cigar and sipping a glass of champagne.

This is even worse. Now then, I'd have a picture taken and dozens of glossies made. Anyone begging for money or trying to extort from me would receive a copy of the picture and nothing else." So many of the comments were exactly of this type, where people got money, and in fact, it made them antisocial.

So we— I told you that it ruins people's lives and that their friends bug them. It also makes us feel very selfish, and we do things only for ourselves. We said, "Well, maybe the reason that money doesn't make us happy is that we're always spending it on the wrong things, and in particular that we're always spending it on ourselves." We thought, "I wonder what would happen if we made people spend more of their money on other people." So instead of being antisocial with your money, what if you were a little bit more pro-social with your money?

We thought, "Let's make people do it and see what happens." So let's have some people do what they usually do and spend money on themselves, and let's make some people give money away, and measure their happiness to see if, in fact, they get happier.

The first way that we did this, on one Vancouver morning, we went out on the campus at the University of British Columbia and we approached people and said, "You want to be in an experiment?" They said yes. We gave— we asked them how happy they were, and then we gave them an envelope. One of the envelopes had things in it that said, "By 5:00 p.m. today, spend this money on yourself."

We gave some examples of what you could spend it on. Other people, in the morning, got a slip of paper that said, "By 5:00 p.m. today, spend this money on somebody else." Also inside the envelope was money, and we manipulated how much money we gave them. So some people got this slip of paper and $5, and some people got this slip of paper and $20. We let them go about their day; they did whatever they wanted to do.

We found out they did, in fact, spend it in the way that we asked them to. We called them up at night and asked them, "What did you spend it on, and how happy do you feel now?" What did they spend it on? Well, these are college undergrads, so a lot of what they spent it on for themselves was things like earrings and makeup. One woman said she bought a stuffed animal for her niece. People gave money to homeless people; huge effect here of Starbucks.

So if you give undergraduates $5, it looks like coffee to them, and they run over to Starbucks and spend it as fast as they can. But some people bought a coffee for themselves, the way they usually would, but other people said that they bought a coffee for somebody else. So the very same purchase just targeted toward yourself or targeted toward somebody else.

What did we find? When we called them back at the end of the day, people who spent money on other people got happier. People who spent money on themselves—nothing happened. It didn't make them less happy; it just didn't do much for them.

The other thing we saw is that the amount of money doesn't matter that much. People thought that $20 would be way better than $5; in fact, it doesn't matter how much money you spent. What really matters is that you spent it on somebody else rather than on yourself. We see this again and again when we give people money to spend on other people instead of on themselves.

Of course, these are undergraduates in Canada, not the world's most representative population. They're also fairly wealthy and affluent and all these other sorts of things. We wanted to see if this holds true everywhere in the world or just among wealthy countries, so we went, in fact, to Uganda and ran a very similar experiment.

So imagine instead of just people in Canada, we say, "Name the last time you spent money on yourself or other people. Describe it. How happy did it make you?" Or in Uganda, "Name the last time you spent money on yourself or other people and describe that," and then we ask them how happy they are again. What we see is sort of amazing because there's human universals on what you do with your money and then real cultural differences on what you do as well.

For example, one guy from Uganda says this: "I called a girl I wish to love; we basically went out on a date." He says at the end that he didn't achieve her up till now. Here's a guy from Canada, very similar thing: "I took my girlfriend out for dinner; we went to a movie, we left early, and then went back to her room for only cake." Just human universal.

So you spend money on other people; you’re being nice to them. Maybe you have something in mind; maybe not. But then we see extraordinary differences. So look at these two: this is a woman from Canada. We say, "Name a time you spent money on somebody else." She says, "I bought a present for my mom. I drove to the mall in my car, bought a present, and gave it to my mom." Perfectly nice thing to do. It's good to get gifts for people that you know.

Compare that to this woman from Uganda: "I was walking and met a longtime friend, whose son was sick with malaria. They had no money. They went to a clinic, and I gave her this money." This isn't $10,000; it's the local currency, so it's a very small amount of money in fact, but enormously different motivations here. This is a real medical need—literally a life-saving donation—above it's just kind of, "I bought a gift for my mother."

What we see again, though, is that the specific way that you spend on other people isn't nearly as important as the fact that you spend on other people in order to make yourself happy, which is really quite important. You don't have to do amazing things with your money to make yourself happy; you can do small, trivial things and yet still get these benefits from doing this.

These are only two countries. We also wanted to go even broader and look at every country in the world if we could to see what the relationship is between money and happiness. We got data from the Gallup organization, which you know from all the political polls that have been happening lately. They asked people, "Did you donate money to charity recently?" and they asked them, "How happy are you with your life in general?"

We can see what the relationship is between those two things. Are they positively correlated? Giving money makes you happy? Or are they negatively correlated? On this map, green will mean they're positively correlated, and red means they're negatively correlated. You can see the world is crazily green.

So in almost every country in the world where we have this data, people who give money to charity are happier people than people who don't give money to charity. I know you're all looking at that red country in the middle. I would be a jerk not to tell you what it is, but in fact, it's Central African Republic.

You can make up stories; maybe it's different there for some reason or another. Just below that, to the right, is Rwanda, though, which is amazingly green. So almost everywhere we look, we see that giving money away makes you happier than keeping it for yourself.

What about your work life, which is where we spend all the rest of our time when we're not with the people we know? We decided to infiltrate some companies and do a very similar thing. So these are sales teams in Belgium. They work in teams; they go out and sell, basically, to doctors and try to get them to buy drugs.

So we can look to see how well they sell things as a function of being a member of a team. Some teams we give people on the team some money for themselves and say, "Spend it however you want on yourself," just like we did with the undergrads in Canada. But other teams we say, "Here's €1.15; spend it on one of your teammates this week. Buy them something as a gift or a present and give it to them."

Then we can see now we've got teams that spend on themselves, and we've got these pro-social teams who we give money to make the team a little better. The reason I have a ridiculous piñata there is one of the teams pooled their money and bought a piñata, and they all got around and smashed the piñata, and all the candy fell out and things like that— a very silly, trivial thing to do.

But think of the difference between a team that didn't do that at all that got €1.15, put it in their pocket, maybe got themselves a coffee, or teams that had this pro-social experience where they all bonded together to buy something and do a group activity.

What we see is that, in fact, the teams that are pro-social sell more stuff than the teams that only got money for themselves. One way to think about it is, for every €15 you give people for themselves, they put it in their pocket; they don't do anything different than they did before. You don't get any money from that; you actually lose money, because it doesn't motivate them to perform any better.

But when you give them €15 to spend on their teammates, they do so much better on their teams that you actually get a huge win on investing this kind of money. I realize that you're probably thinking to yourselves, "This is all fine, but there's a context that's incredibly important for public policy, and I can't imagine it would work there."

And if, basically, if he doesn't show me that it works here, I don't believe anything he said. I know that what you're all thinking about are dodgeball teams. This was a huge criticism that we got, you know, to say, "If you can't show with dodgeball teams, this is all stupid." So we went out and found these dodgeball teams and infiltrated them, and we did the exact same thing as before.

So some teams we give people in the team money; they spend it on themselves. Other teams we give them money to spend on their dodgeball teammates. The teams that spent money on themselves had the same winning percentage as they were before. The teams that we gave them money to spend on each other, they became different teams, and in fact, they dominated the league by the time they were done.

Across all of these different contexts— your personal life, your work life, even silly things like intramural sports— we see spending on other people has a bigger return for you than spending on yourself.

And so I'll just say, I think if you think money can't buy happiness, if you're not spending it right, the implication is not, "You should buy this product instead of that product, and that's the way to make yourself happier." It's, in fact, that you should stop thinking about which product to buy for yourself and try giving some of it to other people instead.

And luckily, we have an opportunity for you. DonorsChoose.org is a nonprofit for mainly public school teachers in low-income schools. They post projects, so they say, "I want to teach Huckleberry Finn to my class and we don't have the books," or "I want a microscope to show my students science, and we don't have a microscope." You and I can go on and buy for them. The teacher writes you a thank-you note; the kids write you a thank-you note. Sometimes they send you pictures of them using the microscope.

It's an extraordinary thing. Go to the website and start yourself on the process of thinking again less about how can I spend money on myself and more about, "If I've got $5 or $15, what can I do to benefit other people?" Because ultimately, when you do that, you'll find out you'll benefit yourself much more.

Thank you. [Applause]