Wealth, health and happiness: the psychology of money


Australian money

There are many things that play into our relationship with money, including our upbringing, education, and employment, but we often overlook the psychological factors at play.

Psychology lecturer and broadcaster Claudia Hammond recently published a book in which she argues a better understanding of our relationship with money can help us grasp how it affects our thinking and behaviour.

During her research, she looked at hundreds of studies and discovered ways we can get a better handle on our money, and the impact it has on our health and happiness.

Happiness and money, it’s complicated

The relationship between money and happiness is complex.

When researchers have tried to tease this out by looking at those who suddenly find themselves with loads of money, like lottery winners, they have found more money doesn’t necessarily mean greater happiness.

A famous study from the 1970s compared lottery winners with a group of people who had been paralysed and a group who had had no change in their circumstances. The researchers found that within a year the lottery winners were not much happier than they had been before their win, and that their newly acquired wealth had stopped bringing them happiness.

The study’s findings have since been backed up by other research that shows money can come and go, but our happiness largely remains the same.

But when you look at those living in poverty, a different picture emerges. In a given society, people with money in a society tend to be happier than those who don’t have enough.

“The people with more money are, on average, happier than the people with less money. They have less to worry about because they are not worried about where they are going to get food or money for their accommodation or whatever the following week,” Ms Hammond said.

But even taking this into account, people massively overestimate the happiness money brings.

“So if you ask people to guess how happy somebody on a low salary is and how happy somebody on a high salary is we tend to think that people earning loads must be really, really happy all the time and that people earning a little must be miserable all the time. It’s just not the case at all.”

Experiences not things

Retail therapy might not be a great option if you’re spending to boost your mood.

Spending on experiences is more likely to make us happy than buying material goods, Ms Hammond said.

Her advice: choose experiences over material goods. So opt for a weekend away over a new television.

Even if you desperately want that new TV, research suggests the thrill of the purchase will soon pass.

And yes, the weekend will be over sooner, but the memories live on. Not only will reminiscing about your lovely weekend likely give you pleasure for months (or possibly years) to come, you also get to enjoy the delicious anticipation.

“Experiences make us happier because we anticipate them beforehand, we think about them, we imagine ourselves in that situation.”

This doesn’t mean buying things will never bring you pleasure, especially if the things you buy are going to lead to pleasurable experiences (a new bike for instance), but it’s important to consider the value of experiences.

Another tip: pay for your weekend away in advance, it divorces the pain of parting with your cash from the pleasure of the experience.

Cash or card?

By now most of us are familiar with the sense of regret that comes from the mindless purchasing that new technology facilitates.

It seems the decisions we make at the checkout are affected by how we pay for our purchases β€” cash or card.

When researchers followed up with people immediately after they had made a purchase using their card, they found these people are less likely to know how much money they have spent when compared to those who had to count the cash.

“You’ve got to work out, ‘I need a 5 and a 2 to make the right amount’, you really think about it, whereas with a card you just tap it and it doesn’t quite feel real. So you are more likely to spend it.”

But not only are you likely to spend more money when you pay by card, research suggests you’re also more likely to treat yourself with unhealthy snacks when you don’t pay with cash.

The US study monitored people’s supermarket shopping for a whole year, and half the people paid in cash and half of them paid on a card. The people who paid on a card spent more money and bought more unhealthy snacks than the others did.

“It’s almost as if the money didn’t feel real, so they could spend what they liked. And the calories of the unhealthy chocolate and so on didn’t feel real either. It’s almost like nothing felt real,” Ms Hammond said.

Cheaper may not be better

While many of us need to get better at watching our pennies, it’s not always the case that cheaper brands are better.

One interesting piece of research into painkillers found there were benefits to opting for a more expensive brand.

“Even though it contains the same ingredients in the same quantities as the generic versions, in experiments people tolerate pain better when they take the branded stuff,” she said.

These experiments involved testing people’s pain thresholds by getting them to put their arms in a bucket of iced water and hold them in there for as long as they could (this is a seriously painful exercise). The participants were given painkillers before plunging their arms into the water.

Those who thought they had taken the branded expensive drug were able to withstand their arms being in the ice bucket for longer than the people who had taken the cheaper version of the drug (even though they had the same amount of active ingredient.)

“This really is the placebo effect coming into play here, it’s harnessing that extra bit of it. So in a way, if your headache or your backache is really, really bad, what you want to do is to pay to have the branded drug because you will believe it’s better and it will work a bit better for you.”

Lessons learnt

When it comes to changing her own behaviour, Ms Hammond said after digging into the research she’s much more careful about how she spends her time in order to save money.

“Working out what’s a good deal and where it is worth saving some money and where it’s not worth saving some money,” she said.

“I maybe used to spend two hours online looking through all the budget flights to try and find the best deal of all, and then choosing something ridiculously early in the morning.

“Then realising that I can’t get to the airport at that time without spending far more money on a taxi to get there, when it would have been much more sensible just to choose a flight at another time and spend a bit more in the first place.”