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Episode #54: Elizabeth Dunn, “How Can I Use My Money Most Effectively in Order to Promote My Happiness?”

Episode #54: “How Can I Use My Money Most Effectively in Order to Promote My Happiness?”

 

 

Guest: Dr. Elizabeth Dunn. Elizabeth is a professor in the Department of Psychology at the University of British Columbia. She conducts experimental research on self-knowledge and happiness, with a current focus on how mobile technology can both support and undermine human well-being. She is the co-author of “Happy Money: The Science of Happier Spending” (Simon & Schuster) with Dr. Michael Norton. Her work has appeared in top journals, with three papers published in Science, and she has given talks at PopTech! (here) and TEDx (here). She was selected as one of the “rising stars” in academia by the Chronicle of Higher Education in 2004 and was an honoree for the 2007 Mind Gym Academic Prize for pioneering work in positive psychology. Her research has been featured in hundreds of media outlets around the world, including The New York Times, The Globe and Mail, The London Times, Maclean’s, Time, and CNN.

Date Recorded: 5/17/17

Run-Time: 48:37

 

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Summary: In Episode 54, we welcome Elizabeth “Liz” Dunn, author of the book, “Happy Money: The Science of Happier Spending”.

Meb suggests they walk through the book using its five broad takeaways as their outline. But before they dive in, he asks Liz about her inspiration for writing the book.

Liz tells us that when she began making a “real, grown up” salary, she wasn’t entirely certain what to do with it. She was curious how to use it most effectively to promote her own happiness. Interestingly enough, there wasn’t a great deal of research on the topic.

Next, Meb asks Liz to discuss her first main finding (and likely the best-known finding) – our happiness tends to increase when we spend money on experiences rather than things. Liz gives us the key takeaways, after which Meb asks why buying experiences over things is hard for us, when we know that’s what we should do.

The problem is we’re bombarded with opportunities to buy things. And it’s easy to see the differences between, say, Liz’s Honda and Meb’s Ferrari (no, Meb doesn’t own a Ferrari). With this comparison, Meb would feel great. But it cuts both ways – it’s also very easy for Meb to see someone else’s far more expensive Bentley, therein making him feel less satisfied with his Ferrari. Conversely, it’s more challenging to compare experiences. Each experience is somewhat unique, therein reducing the tendency to compare. Liz gives us an example using a safari she went on.

Meb and Liz soon move on to the second takeaway from the book: “make it a treat.” One of the greatest misunderstandings of happiness is the idea that if something makes us happy, then more of it should make us even happier. Apparently, that’s not the case. Whether we’re talking someone’s salary or a little luxury like “avocado toast” (Meb and Liz are both big fans), when we have more of it, this can erode our capacity to appreciate it.

This dovetails into the discussion of the salary “line in the sand” above which added dollars has diminishing impact on real happiness. Liz tells us that in the U.S., this figure is about $75K. But she mentions it with an interesting context…

There are two “flavors” to happiness: 1) the kind that comes when you evaluate a question like “am I living the kind of life I want to live?” and 2) the kind that comes when you ask “did I laugh or smile yesterday?”

If you’re making more money – well beyond $75K, you’re more likely to answer #1 in an affirmative way. Sure, as you jet off to Bora Bora and evaluate your life, you’re likely to feel good about having the wealth to enable such a trip. However, it turns out this added wealth has very little effect on the second type of happiness – day-to-day happiness.

The third takeaway is “buying time.” What are we actually doing with the minutes of our lives? Is there a way to trade our money for more time? Liz and Meb discuss spending an hour commuting to work every day, and how miserable that makes people. Wherever appropriate, it makes sense to spend money on things/services/people that can give us back our time, which we can then spend with loved ones or volunteering, etc.

Meb makes the point “show me your calendar and checkbook and I’ll show you what you care about.” While Liz agrees to an extent, she points out that many times the calendar and checkbook DON’T align with things we truly care about because we get into habits – say, mowing the lawn even though we have enough money to pay someone else to do it for us. So part of our challenge is to sniff out where our priorities are out of alignment with where we’re actually spending our time/money, then look to shift out of that mindset.

The fourth takeaway is “pay now, consume later.” This is hardly the way our culture does things, with its credit card mentality. Unfortunately, consuming first and paying later is exactly the wrong thing for happiness. Liz and Meb discuss this in detail, dovetailing into the toxic effects of debt.

The final takeaway is “invest in other people.” Liz has found that we tend to be happier when we spend our money on other people, more so than ourselves. In supporting this takeaway, she tells us of her study in which she gave people either a $5 or $20 bill, and asked them to spend it by the end of the day – the caveat was that some people were asked to spend it on themselves, while others were asked to spend it on other people. Liz’s team followed up at the end of the day, calling the participants, and found that those who spent the money on others reported feeling happier than the people who’d spent it on themselves.

After finishing discussing the book, Liz and Meb go over a paper Liz just published. It’s a fascinating look into what motivates wealthier people to give more to charity. In short, people with lots of money tend to focus on personal achievement more so than the communal “group achievement.” As such, a messaging strategy that reframes the wealthy individual as the hero or standout tends to result in more charitable donations as compared to a communal message.

There’s plenty more in this episode, including Liz’s next research project, discussion of Syrian refugees, what prompted a classic Meb-meltdown as a child, and finally, Meb’s pointed question to Liz: If I put you on the spot and asked you to give us one single piece of advice for achieving more happiness, what would it be?

What’s Liz’s answer? Find out in Episode 54.

Links from the Episode:

 

Transcript of Episode 54:

Welcome Message: Welcome to the Meb Faber show where the focus is on helping you grow and preserve your wealth. Join us as we discuss the craft of investing and uncover new and profitable ideas, all to help you grow wealthier and wiser. Better investing starts here.

Disclaimer: Meb Faber is the Co-founder and Chief Investment Officer at Cambria Investment Management. Due to industry regulations, he will not discuss any of Cambria’s funds on this podcast. All opinions expressed by podcast participants are solely their own opinions and do not reflect the opinion of Cambria Investment Management or its affiliates. For more information, visit cambriainvestments.com.

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Meb: Good afternoon, podcast listeners. Today, we have a special guest. She is associate professor of psychology at the University of British Columbia, and the co-author the book, “Happy Money.” Welcome to the podcast, Liz Dunn.

Liz: Thanks for having me.

Meb: And where are you located? Where are you calling in from now? Are you in Vancouver?

Liz: I sure am. I’m in Vancouver where it is a cool and cloudy day.

Meb: You know, we’re hosting a barbecue beer meetup today. And in LA, it’s normally super easy to do that, but it’s pretty brisk so I’m a little worried that people are gonna be a little chilly. But I actually love Vancouver. We spent some time up there this year, hopped over to the Powder Highway to do a little skiing in Eastern British Columbia. Wonderful part of the world you’re in.

Liz: I’m going mountain biking later today, so making the most of it.

Meb: Man, that sounds awesome. Okay, well, you seem to have…that’s kind of the prelude of your book already. So, the show that we’ve been doing really focuses on building and maintaining wealth through investing. And we get very deep into the nuances of investing, but implicit in that focus is that more wealth is better, because more money, usually people think equals more happiness. But this book, “Happy Money,” which listeners, we’ve mentioned on the blog many times over the years, and I’ve been after Liz for a while to get her on the podcast, it suggests that it’s necessarily not that simple. And she talks a lot about what we do with our money and how we spend it has actually a profound impact on our happiness, far more than the quantity of wealth itself.

So, what I thought we could do today is kind of discuss your book and go through the framework of it. And there’s really five broad sections. We’ll tackle it, at some point, on how to spend your money. But why don’t you tell us just briefly, what was the inspiration for you writing this book and the original process with your co-author, Michael Norton.

Liz: Well, my inspiration was that I suddenly started actually making money. So, I was pretty much living somewhere around the poverty line as a graduate student earning my PhD. So, when I got my first real job as a faculty member, even though, you know, it certainly didn’t put me at the top of the income distribution, I was suddenly making a real grown-up salary. And I actually wondered, you know, what do I do with all of this money. To me, at the time, it just seemed like an incredible windfall to be getting this, you know, regular reasonably-sized paycheck.

And so, as a happiness researcher, my inclination was to turn to the research literature and try and see, you know, how can I use my money most effectively in order to promote my happiness. And actually, at the time, I was kind of surprised to discover that there wasn’t all of that much research illuminating that question. And so, that’s when I called up my friend, Mike Norton, who I’d gone to like this social psych summer camp thing with, and I said, “Hey, you know what, it’s let’s see if we can figure this out.”

And so, we started running studies to try to decipher how people could use their money in the happiest ways. And from there, you know, it turned out…I was really just doing this out of personal curiosity. And so, it kind of came as a surprise to me when this work ended up getting published in science and getting a lot of attention and stuff because it was really just driven by my own curiosity. But it turned out that other people were curious about it too. And so, that eventually led us to write a book so that we could share what we’d been finding with a broader audience.

Meb: The cool part about this book, and listeners, you should definitely pick up a copy, is that you read through it and, as Liz talked about and illustrates a lot of these nuances of spending, there’s so many instances I was like, “Oh my god, I remember when I did X. And this is such a perfect example of why” and you start to reflect about it. But let’s dive in. And there’s four, sort of, I mean…excuse me, there’s five broad sections on how to probably optimize spending your money. Why don’t we dive in and you can just take us through all five? But let’s start with the first one which is, you’re talking about prioritizing experiences over things.

Liz: Right. So, study after study has shown that it’s better to spend money on experiences like trips, concerts, or special meals than on material things from couches all the way up to houses. And this is really the one area, when we started doing this research, that had been pretty well explored. So, there’s a whole bunch of studies now showing this idea that people get more lasting happiness, actually, from buying fleeting experiences than they do from buying more durable material goods, which is kind of surprising. It seems like, you know, you go to that concert, it’s an awesome night, and then it’s over. But actually, people seem to get quite a bit of happiness from reflecting on those really enjoyable past experiences.

Meb: And I think this is something that, at least for most of listeners, probably say, “Look, you know, that sounds intuitively obvious. I kind of get that.” But it’s kind of like losing weight in my mind, it’s like the formula isn’t that complicated, but it’s still hard to do. Like there’s…to me, there has to be some sort of genetic component that like makes me walk outside say, “Man, look at that beautiful Ferrari.” Or, you know, one you talk about a lot in the book which, by the way, historically, hasn’t been that great of an investment, you know, it’s thinking about, you know, housing.

And so, people, a lot of times thinking about…I mean, I’m thinking back to as a child. My like biggest meltdown as a child is I wanted this little blue toy airplane and threw a total tantrum at Target. And I ended up getting it for Christmas so I played with it once, but my parents kept it as kind of an illustration the rest of my life. They still have it…I should put it in the office probably. But as an example of this, why do you think it’s so hard for people, even when they know that they should probably prioritize experiences, they still end up kind of lusting after things?

Liz: Mm-hmm. I mean, I think we’re so bombarded with opportunities to buy material things. And it’s really easy to see the distinctions between different kind of material things. So, it’s easy to see, you know, that your Tesla or Ferrari or something is nicer than my Honda. And so, you know, it’s easy to draw my attention to the benefits of having that nicer car. But ironically, that very same property, that sort of comparability of material things, where it’s so easy to see the differences between them, is actually part of the problem, it turns out.

So, you know, the fact that it’s easy to see that your Ferrari is nicer than my Honda becomes a problem when somebody else gets a car that’s even nicer than your Ferrari, and then you start comparing it. And because material things are easy to compare it’s easy to feel like, “Hey, you know, the thing that I bought isn’t quite as good as this other thing.” And so, that actually can end up detracting from the happiness that people derive from their purchases, whereas, with experiences, they’re remarkably hard to compare.

So, you know, I went on an African safari some years ago that was on the low end cost-wise compared to what some of my other friends have done. But we still just had all of these unique elements, like, we saw one lion eating, you know, some other animal. And like, that was just the unique, special, crazy thing that makes my experience feel uniquely mine. And so, I don’t feel tempted to, you know, downgrade it or to wanna trade up for some other kind of experience, in the same way that I might with a material thing.

Meb: That reminds me of that viral YouTube video, I was gonna say, Liz, were you the one that uploaded, was it Battle at Kruger Park? Have you ever seen that, where it’s like the alligator is attacking the wildebeest? You know which one I’m talking about?

Liz: I haven’t seen that particular one so I was not the uploader.

Meb: It is so much…I’ll send it to you after this episode. We’ll put in the show notes. There’s so much drama to this. I won’t spoil it for listeners because it is that…you’ll be cheering out loud by the end. It’s really cool. It has like 100 million downloads. Anyway, so, I mean, I think that’s a great point. And to talk about that, it’s like, it’s so easy to look at your neighbor’s house or to look at your neighbor’s car, whatever it may be and feel that feeling of jealousy.

But, like, thinking of experiences, I look back at some of the most fond trips. I mean, it’s not…it rarely is it, “Man, that one time I stayed at the Ritz.” It may have been, “Hey, when I was with a bunch of buddies and we stayed at this terrible hostel and we got to go see this concert.” Those type of experiences are not necessarily, you know, optimized on pure[SP] cost, but are there any common characteristics to the type of experiences that give us a bigger bang for the buck, so to speak? So like, when we’re to say, “Okay, I get it. I’m gonna focus on experiences.” Are there some that you think are more powerful than others?

Liz: Yeah. I mean, I think you may even have this intuition, is that experiences that make a good story can just sort of be retold and reflected upon more often. So, sometimes even the experiences that go a little bit wrong or, you know…I also have this memory of this hostel we stayed in with friends once where, you know, it was just like so not what they advertised on the website. And like, there were, I mean, this place was just a zoo. But because we all sort of shared in it together, it’s a story that like, becomes part of the sort of culture of our group of friends.

And so, you know, that ties in with another element that makes experiences so valuable, which is that they can bring us closer to other people. And so, experiences that we don’t just, you know, enjoy in isolation but that actually provide us with an opportunity to connect in a meaningful way with people we care about are more likely to provide us with that lasting pleasure.

Meb: Interesting. Jeff was just talking about joining in a fraternity and some of the… But I don’t think we wanna hear about any weird, Chapel Hill, Carolina ritualistic experiences, Jeff. So, we’re gonna move on. So, just wanna…

[crosstalk]

Liz: …other people, yeah.

Meb: Yeah, right. We’ll pass on that one. So, this one makes sense and this is easy. The second one I think is also really clear, but also it’s still hard to do. And so, you talk about, if you’re buying something…if you’re going to buy something or experience, think about making it a treat. And this is the first time I’ve seen someone relate this to fart jokes, but maybe you could talk about section two, which is making it a treat.

Liz: Yeah. So we took this wording actually from Sarah Silverman who says that, you know, when it comes to fart jokes, she tells her writers to make it a treat. Don’t overuse those gross jokes, save them so that, you know, once you occasionally throw them in, it actually feels like a treat. And I think, you know, although, she’s a comedian kind of reflecting on fart jokes, she’s actually tapping into what is perhaps the greatest misunderstanding about happiness which is that, we tend to assume that, you know, if something makes us happy, then more of it would make us even happier.

So, clearly it’s the case that, you know, going from having almost no money, living in the poverty line, to having $80,000 a year makes a big difference for people’s happiness. And the misunderstanding that we tend to fall into is that, “Hey, having even more…”, so going from having $800,000 a year to having $2 million dollars a year is also gonna make a big difference for happiness. And that’s where we sort of seem to go awry. Now, you know, beyond just thinking about salaries. We can think about this in terms of the sort of little pleasures of daily life that we might enjoy.

So, you know, if you like getting fancy coffee drinks, for example, then like, it might seem as though, well, getting to have those every day, or every time you go get coffee would be awesome. But in fact, what we see in research on happiness is that, when people have something more often or even just feel like they have abundant unlimited access to something, that can actually erode their capacity to really appreciate it.

Meb: You know, the interesting social media example, it’s from Twitter yesterday, I think, was the avocado toast. People were talking about personal finance in $19 avocado toast.

Liz: I so[SP] just ate avocado toast and I thought of that.

Meb: I love it. I, you know, I mean, this is so cliché of me being in LA, but it’s like my favorite thing on the planet. And there’s this Mexican spice called tajin. I may have the word wrong…pronunciation wrong, but it’s the best thing to put on avocado toast. So you gotta look that up on Amazon. We’ll put it on the show notes but that is the perfect…

Liz: If I learned nothing else in this experience, I will take that away. So, again, I think, applying the make it a treat idea to avo toast, right? It’s like, when I was in grad school, avo toast would have actually been like a serious indulgence for me. And so, I would have…when I had, it would have been like something that I really appreciated. And so, what we tend to maybe not recognize is that like having it seven days a week may actually not be as good as having it once a week because we are likely to focus on something more when we don’t have it quite as often.

Meb: And I feel like this is something you got to kind of come up with a system for because it’s hard to turn down. And maybe the… I had this example yesterday where we ordered pizza for lunch. And the first piece, amazing, second piece, less amazing, you know. And that’s a class like Econ 101 sort of concept. But it’s still hard to put into practice. And even the coffee one, because so many people love coffee can relate to that. I have a very similar…there’s this amazing Australian coffee shop on the way to work, but, you know, having it every day is…I totally agree with it.

But again, one of the biggest challenges of kind of your area of research is implementing kind of automatic, you know, what Professor Thaler talks about, these nudges that make a lot of these into systems rather so you don’t have this decision fatigue all the time of, you know, thinking about a lot of these things. But we’ll come back to that in a minute.

One of the things you did mention here, that I was gonna bring up later, but think we’ll just talk about now, is that you talk about salary. You’ve seen a lot of different research and you mentioned in the book that perhaps there’s a kink that happiness increases with salary to a certain point, and then maybe levels off. Is that the kind of correct interpretation of the research out there right now? And if so, what is that kind of general level?

Liz: An important distinction that happiness researchers make that’s important, in kind of considering the effects of income, is that we talk about two different flavors of happiness. So, one flavor is when you look at your life and you kind of go, “Hey, how are things going? Do you feel like you’re living your best life? You’re living the kind of life you wanna live?” And that’s one kind of more cognitive, thoughtful, reflective flavor of happiness, and it matters. But there’s another flavor too, which is just…I could capture by asking you, “Did you laugh yesterday? Did you smile yesterday? Did you ever feel sad yesterday?” That’s a more kind of emotional momentary fleeting form of happiness.

And I would argue that both of those forms matter, right? So, ideally, you probably want a life where you feel good in the moment, you’re experiencing laughter and smiling on a day-to-day basis, and you also like to look at your life and go, “Hey, yeah, I’m living the kind of life that I wanna lead.” But interestingly, although those two forms of happiness hang together for the most part, they’re actually differentially affected by wealth. Pretty much, you know, the more money you have, the more you look at your life and go, “Yep, things are going well” and, you know, the more you kind of ask people to think about their lives like a ladder, get them to really engage in reflection, the more their money kind of translates into them seeing their lives as better.

That makes sense, right? Because how much money you have…if you look around your world and see, “Oh, yeah. I’m living in a beautiful penthouse with a jet plane waiting for me. And like, I’m heading off to vacation in Bora Bora.” Then, you know, you’re gonna say, “Hey, my life is going well.” What’s interesting, though, and where this like kink comes in is that money doesn’t seem to have as much of an impact on people’s day-to-day feelings of happiness.

So, once people are making about $75,000 a year in the U.S., there is really no relationship between further increases in income and how much they laugh or smile on a given day. So basically, you know, you’re better off having $75,000 than having $40,000, in terms of your propensity to smile on a given day. But it doesn’t actually make much of a difference if you make $75,000 versus $750,000 in terms of whether you laugh or smile on a given day. So, there’s this interesting trade-off where money seems to kind of trail off in its ability to promote good feelings on a day-to-day basis, at a level that I can give lower than most of us would assume.

Meb: And listeners, a small corollary to this as you think about investing is, a lot of people optimize on investing on the pure return and don’t think as much about risk and drawdowns. And so, if you come from the standpoint of, look, more money is better, but at the same time it may not necessarily make me happier. Then, I think a lot of people would actually take a little bit less risk in their portfolios because that ends up having…the high risk ends up having catastrophic loss when you end up not making money but end up losing 50, 80%.

All right. Moving on. Next topic. This is a big one for me because I have a co-worker who doesn’t listen this podcast, he should, but who commutes probably two hours a day, each day. We let him work from home a couple of days a week. But I say, “Look, you’re an adult. You can do whatever you want but I think you’re insane.” So talk to me a little bit about buying time.

Liz: Yeah. So what really matters, especially for our sort of day-to-day feelings of happiness, is what are we actually doing with the minutes and hours of our lives? And it turns out that one of the worst ways you can spend the minutes and hours of your lives is behind the wheel of a car. So, when people are commuting, they tend to be pretty unhappy. And, in fact, there’s some evidence that taking a job with an hour long commute has an effect on happiness equivalent to being unemployed, which is one of the worst things that can happen to you, in terms of happiness.

And so, this suggests that, you know, if you’ve got a little bit of money to work with, you know, maybe one of those investments paid off, one thing you should do is think about, can you use that money to change the way you’re spending your time? Like, think about the way you spend your time on an average Tuesday. Could you use money to buy yourself better time?

Now, of course, you know, there are people out there who enjoy driving. So, if you’re one of them, then fine, like, go ahead and have that long commute. For most people, the long commute would be bad. But everybody has something in their day that’s just like the downer of the day. And often, I think people don’t fully stop to think about whether they could buy themselves out of that sort of momentary misery.

Meb: We’ll stick on transport for a second then we’ll get back to a little bit more on this. But, you know, you talked about in the book that people often spend 20 to, if you’re in the lower income, 40% of your salary on transportation related expenses. Which, if you end up doing the math, is something like you’re spending two hours a day just to pay for the transportation. So, for the people that buy that BMW and then commute for an hour, think of all that massive amount of time you’re spending that could be spent, you know, doing something else or being more productive or, you know, whatever it may be.

I laughed as you said about being miserable commuting because I drove down…I work two miles from work. I drove down to Irvine the other day for a conference or something, and I got flipped off twice on the way down. And I’m a pretty normal driver but people just…it’s kind of the worst commutes in the world. So, along the same lines of just people thinking in terms of time, and I talk about in the office because a lot of people have the tendency to always…people email me every day and say, “Let’s just hop on a call.” You know, I say look, “I really don’t wanna talk on a call. Let’s just keep this on email” or they say, “Let’s do a meeting.” And you start to input the cost of a meeting and say, “Look, there’s six, seven people in a meeting. Each person’s time whatever worth $50, $100 an hour, whatever may be. This meeting is costing us $1,000. Like, is that a reasonable use of everyone’s time or should they be doing something else?” But it kind of goes also along the lines of what you talk about, I think, is this illusion of busyness. And maybe talk a little bit about that.

Liz: Yes, there’s an interesting idea out there that most people have probably heard that we’re busier now than people were in previous decades. And it really does feel that way, I mean, it feels that way to me. It turns out, though, that the best research does not actually support it. Like, if anything, people have a little bit more free time now than they did in previous decades. So, we really feel busier…and in particular, people as they sort of move from, you know, being in their 20s scraping by, making a little bit of income, to 30s, 40s having real jobs and real salaries, it turns out that as you make more money, you actually feel like you have less time. And that’s even holding everything else constant.

So, as time becomes worth more money, people tend to see their time as more valuable. And we have this very well-learned heuristic that what is valuable is scarce. And so, when something becomes very valuable, like our time becomes very valuable, we can tend to see it as scarce. And that mindset of scarcity can actually be a bit of a problem when it comes to time. So, when we think of our time as being really scarce, we may actually be reluctant to do things like engaging in volunteer work, giving it away for free, basically, even though these things are good for society and good for our own happiness.

So, you know, it’s a really…it’s kind of a tricky bind. Because on the one hand, you should value your time, you should be careful about, you know, burning time sitting on a terrible conference call with six people, three of whom are actually doing something else at the time. But on the flip side, you don’t wanna start to feel like, “Hey, my time is so valuable that I’m not gonna spend, like, seven minutes hearing my four-year-old’s description of, you know, the thing that happened at daycare today.” So, it’s sort of a tricky line to walk.

And I think, at least one thing that we can do is think about, once we’ve reached that kind of $75,000 point of income, in particular, reapportioning some of that money in order to free up our time. So, use your money to kind of get yourself out of that scarcity mindset when it comes to time and think about, “Hey, can you free up time for yourself?” And then, say, “Hey, you know, this is the time that I’m gonna spend with my family, or this is the time that I’m gonna spend volunteering” and therefore feel like, okay, you know, I’m fine with that, like I have this time to give, or I have this time to listen, or I have this time to work out because I’ve spent my money in a way, either by buying a place close to home or hiring a house cleaner or doing whatever else I need to do in order to create that sort of feeling of time affluence.

Meb: And there’s a couple good sayings that people have used over the years that I think are really appropriate. Because when someone says, “I’m so busy. I just don’t have any time” you know, what they’re really saying in many ways is like, “It’s not a priority.” And there’s a phrase I love that I use is that it says, “Show me your calendar and your checkbook and I’ll show you what you really care about.” So, this concept that people talk about in personal finance that I think is actually really useful is, for a lot of people, outsource a lot of the things that you may be doing that take a lot of time that you, A, either hate doing, or B, it’s a better use of your time to make money elsewhere and not to be doing that. So, for some people that’s doing laundry or taking out the trash or cleaning their house. For some people, it’s walking the dog. I actually really love walking our dog so that wouldn’t be one for me. Some people, it’s cooking, whatever it may be, certainly commuting.

But an example I love to talk about, that when you free up your time… There’s a question a student asked Warren Buffett’s protégé, Todd Combs, they said, “What advice would you give a young investor that’s, you know, looking to become the next Warren Buffett.” And he said, “Read 500 pages a day.” And for a lot of people, they say, “Oh, my god. That’s ridiculous. How could I possibly find the time?” In many ways, it’s really about what your priorities are.

Liz: Well, I also think it’s really interesting too that, you know, if you look at sort of people’s checkbook and their calendars, it should provide insight into what they actually care about. But sometimes it doesn’t, right? Sometimes we just get in these habits of like, “Yeah, I’m now making a million dollars a year, but I’m still spending like three hours on Saturday mowing the lawn, even though I don’t like doing it,” right? And sometimes we’re just not stopping to like get out of our habits, right? Maybe you grew up doing that and you feel like you still need to do it. So, reevaluating and I think looking at, where is, you know, your calendar and your checkbook actually not aligning with what you care about and can you shift out of those habits?

Meb: Yeah. And there’s a great chart in the book, which we’ll include in the show notes if I can get a screenshot of it, which is about, you know, what the average family spends their money on. And, you know, the top two or three things are in it. And a lot of this, like you said, isn’t necessarily choice, but it can be, particularly for someone who lives in LA and looks around the craziness of the housing. But the top two, three things are housing, transportation, and then insurance and pension. That isn’t…but one and two are essentially things rather than experiences.

And so, everyone should…you know, listening is…think about building a budget and looking at what you’ve spent over the last year. A lot of people do that but not specifically. And maybe think about, “Hey, look, is this something that really brings me happiness or is this something I’m just spending on because I think it’s the American dream to own a home? Or maybe it’s I just have always wanted this car, etc.?

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Meb: Next one, which is a big one, and I think Americans, in general, know this one too, but again, it kinda is hard to put into on a daily basis and that’s investing in others. Oh no, I skipped one. Just getting, pay…We’re gonna get to that one a second. Pay now, consume later first. Sorry. I gave away a hint at the last one. All right. Pay now, consume later. Let’s talk about that one first.

Liz: All right. So, the idea here is that pretty much everything about modern society pushes us to consume right away and often pay for it much later. And in fact, happiness research suggests you should do the complete opposite in order to get the most happiness from your money. So, basically whenever you can, you should pay for something right up front, and then delay consumption.

Meb: And so, the classic example, of course, is something like a vacation. So, you know, paying for it at a time, paying for the flights, paying for the hotel. The example I always give with friends, as I say…is that exact thing, but thinking about the challenge I had when I was reading the book as it’s…you know, as Americans, what about credit cards? You know, is that something that throws a wrench into this concept or is it not really? Does it make it too easy for us to pay now, consume what…Like, what are your thoughts on credit cards? And is it taking it to extreme the other way or am I thinking about that totally wrong?

Liz: Yeah, no. You’re thinking of it the right way in that, I mean, I think credit cards are a real barrier to happiness because they do make it so easy to pay for things right away. And actually, you know, part of the problem there is that when we pay for stuff on our credit cards, it’s sort of like a weird anesthetic where it takes away the pain of paying that we typically feel. So, usually when we spend money, there’s like a little bit of, little twinge of pain associated with it. And actually, if you stick people in a brain scanner, the twinge of pain that they’re experiencing when they face, you know, high prices for something that they want is actually not so different from the twinge of pain one experiences, you know, upon stubbing their toe.

Credit cards actually seemed to kind of take away that pain and in a way, that’s nice, right? It feels nice in the moment not to experience any sort of pain or hesitation as a result of paying for something. But the problem with is that that pain, you know, physical pain keeps us from hurting our bodies and that pain of paying can actually help keep us from overspending. So, because credit cards get in the way of that sort of, you know, helpful pain system, we actually end up often forgetting how much we’ve spent.

So, one small study that I really like, people were asked to guess the amount of their credit card bill before they opened it. And in that study, every single person substantially underestimated how much they had actually spent on their credit cards. And so, you know, it’s one thing when one or two people get it wrong or people off by a few bucks. But when you see this really consistent pattern where people don’t recognize how much they’re actually spending, that tells you, “Oh wait, you know, credit cards are actually creating a problem, a kind of wrench in the system where they make it too easy for us to overspend.”

And then we can end up with this debt, and debt is really like just huge bad news for happiness. So, debt seems to take a kind of outsize toll on our well-being. And it’s really easy, even if we’re good conscientious, disciplined people, it’s really easy to rack up debt when we’ve got this like, you know, pain-free way of paying with credit.

Meb: Yeah, there’s two comments there. And one is kind of with some friends, I’m always saying that, you know, “Look, one of us should pay for dinner. We should almost never split it because then the pain only goes to one person.” I was already moving on to the next one again earlier which is one of my favorites, which was investing in other people. You wanna talk about that for a little bit?

Liz: Sure. This idea of investing in others is actually the first thing we started looking at when we…my co-author, Michael Norton, and I began doing work on money and happiness. So, we thought, you know, how can people use their money in order to get greater happiness. And in thinking about that, we reflected on some other findings that suggest that helping others is actually really good for our own well-being. So, we thought, “Okay, well, what if we just got people to spend money on other people.” And, you know, it seems kind of obvious, like, I’ve had lots of people write to me and say, you know, “My grandmother said this” or, you know, “It’s in the Bible.” And like, fair enough, you know, this isn’t a, you know, something that nobody has ever thought of. But surprisingly, nobody had ever actually tested it to see whether people would get more happiness from using money to benefit others rather than themselves. So, we decided to do that. And we literally walked up to people in the morning and handed them either a 5 or $20 bill which we asked them to spend by the end of the day, but with a little catch. So, we told some people you have to spend this money on yourself and we told some people you have to use this money to benefit others.

And people didn’t know that there was, you know, they didn’t know what we were telling the other participants in the study. So, they only knew what they’d been asked to do. They didn’t know what any of the other comparisons we might be making were. And then we called people back at the end of that day, just asked them some questions about how their day had gone. And what we found was that people who’d been assigned to spend that little bit of money, 5 or 20 bucks on somebody else actually felt happier at the end of the day compared to people who’d been asked to spend that money on themselves.

Meb: And I think that makes a lot of sense. And you talk a lot in the book that it’s not necessarily how much it is, you know, it doesn’t matter if it’s 5 or $100 and it kind of goes along with the old saying, “It’s the thought that counts.” But you also mentioned that there’s three strategies to really boost the impact. You said, “Make it a choice. Make it a connection and make it with an impact.” What do you mean by that? And maybe you could explain that a little bit.

Liz: Sure, yeah. So, I mean, we’ve demonstrated this basic effect that spending money on others promotes happiness in countries around the world. And so, people sometimes look at our work and go, “Okay, so like, light [SP] my wallet and I’ll automatically be happier.” And that’s not actually the case. So, it really does depend on how you do the giving.

And so, one thing is, you’re much more likely to see…to experience joy from giving others if you can really see the impact that your generosity is having on them. And if you think about it, sort of back in our ancestral past, if you did something to help somebody else in your group, you would have really had a clear window into how your assistance made a difference for that person. Similarly, if you, you know, for somebody really close to you, it’s often quite easy to see how your generosity has helped them out.

Often, though, with charitable giving, it can be a little bit difficult to understand how your generosity is really making a difference. So, for example, if you donate money to, you know, some big charity, like the United Way, you kind of have like this vague sense that your, you know, donation will help somebody out there somehow, but you really don’t know how it’s actually making a difference. And so, what we see is that people get more of a kind of bang for their buck, in terms of happiness, when they give to charities where they really have clear insight into how their donation is making a difference. So making an impact really matters.

Meb: And so, what’s some practical advice? So, say a listener’s on here is like, “Okay, I get that. I wanna invest in others and maybe make it as delight[SP] or on a kind of consistent basis.” What’s your advice to them? Is it to, you know, go through these various websites, say, “Look, find a charity that you really believe in?” Is it, like…how does someone put this into practice? What’s the best way to kind of…? Because a lot of people listen to this on their two-hour commute home and then say, “I’m gonna do that,” and then they’ll kind of forget about it maybe. What’s the best way to keep this going in your life, on an ongoing basis?

Liz: Yeah, I mean, I think monthly donations can be a good way to do that. Although, I sometimes wonder, with monthly donations, if people don’t maybe…they kind of make them and forget them, which is great from a charitable giving perspective, if all we care about is just making sure that charities get as much money as possible, that’s really good and really important. At the same time, though, I mean, I think there’s something to be said for getting to savor the happiness from giving. I mean, it’s a really nice form of happiness to get to experience joy from helping others.

For me, the way that, you know…and each person is gonna have their own way, I think, of putting this into practice depending on their own personal values. All I can say is, for me, what I’ve done is, because I live in Canada, it’s possible for people here to…any five Canadians can sponsor a family of Syrian refugees to come to Canada. And so, I got together with my friends and we raised enough money that we’re able to bring over a family. And we will literally get to pick these people up at the airport. And we will like see these individuals whose lives have completely changed as a result of what we’ve done.

And so, you know, that’s just…has already been…even though the family’s not here yet, like already it’s been a really rewarding experience. And actually, when I pitched this idea to many friends of mine and asked them to donate, like they loved it, you know. They were stoked for this opportunity. And so, I think keeping your eye out kind of for these opportunities, where you cannot just like give a pile of money, but where you’ll actually get to see what a difference your dollars are making and, you know, jump on those opportunities.

And I gave more to that cause than I’d ever given to anything else because it really did provide this opportunity to do something, not only that I think really actually matters, I think it’s a good use of money on a kind of rational sense, but also, where I think the emotional rewards are so great. And so, you know, just being on the lookout for those kinds of opportunities that could be worthwhile.

Meb: You recently had a new white paper that was published in the Journal of Experimental Social Psychology, that is a mouthful, about wealth and charitable giving and the topic we’re talking about. You wanna give us an overview of what was in there?

Liz: Yeah. So the idea with this new work is, you know, after having seen the emotional benefits of giving, we also see that there can be health benefits of giving. We thought “Well, why don’t people do this” right? And in particular, there’s some evidence, although it’s controversial, that wealthier individuals actually give proportionally less of their income to charity compared to people at lower ends of the income spectrum. So, I mean, just to be clear, wealthier individuals are more likely to engage in charitable donations than people who don’t have much money. But if you look at the amount, the proportion of their income they’re giving, that’s where you see that, like, hey, people actually maybe aren’t giving as much as they could be.

So, the individuals in society with the greatest capacity to give maybe aren’t doing quite as much as they could in order to promote these social causes. And so, we thought, “Okay, well, you know, is there a way that we could fix that?” We thought about perhaps, that there may be a kind of mismatch between the mindset associated with wealth and the mindset that is often invoked when it comes to charitable giving. So when you have a lot of money, you can often satisfy your own needs without having to depend on others.

So if you’re moving across town, for example, you can just hire a moving company, whereas if you don’t have much money, you’ve gotta kind of beg your friends to like come over and help you. And so, over time, what we see, and this has been found by many researchers, is that people with a lot of money tend to focus on things like personal achievement, personal control, whereas people with less money tend to be more focused on kind of satisfying the group, meeting the needs of the group. And charitable giving is typically framed as an activity that is about, you know, let’s all get together and achieve this broader goal or, like, let’s work together to make things better for others.

And so, what we thought is that there might be a bit of a mismatch between this typical messaging associated with charitable giving that kind of incorporates these communal ideas, with this mindset typically associated with wealth that is centered around personal achievement. And so, we thought, “What if we could get rid of that mismatch?” Like, maybe instead of, you know, just [inaudible 00:41:07] on wealthy people for not giving enough, what we should be doing is changing the messaging strategy.

And so, what we find in a whole series of experiments is that, when you reframe charitable giving as an opportunity for the individual to sort of stand out and be a hero and help, then we see that wealthy people do in fact give more. And wealthy people are very willing to give so it’s not that wealthy people are inherently selfish. It’s just that there tends to be this mismatch between that mindset associated with wealth and the messaging around charitable giving. And so, when we get rid of that mismatch, then we see wealthy people being much more likely to give.

Meb: I could read books on behavioral messaging for going on for years. It’s one of the most fascinating topics, in my mind. How these, just the different ways in which you phrase something, the psychology of watching people behave. And most people think they’re totally rational, they’re like, “I would never behave differently.” And of course, everyone does. It’s endlessly fascinating to me. What are you thinking about, going forward in your world? Any cool concepts or ideas that you think are particularly interesting thinking about in this space going forward?

Liz: Well, the new thing that I’m really getting interested in is actually unemployment because we’re heading into an era where the rapid automation of so many things, like even just driverless cars is gonna eliminate, you know, just a ton of jobs potentially very quickly. And we know, from previous research, that becoming unemployed is just a disaster for happiness. So, it’s like up there with widowhood, in terms of things that are really, really bad for people’s life satisfaction. Given that we’re potentially facing a kind of epidemic of unemployment, I wanna think about, how can we mitigate that?

So one thing my students and I are working on now is in trying to design interventions that might make unemployment easier to deal with. Because there is a sense in which unemployment could actually be kind of cool for happiness because unemployment potentially means that you have a lot more choice about how to spend your time. There is potential for unemployment to be okay for happiness, particularly if people’s basic needs are met. And so, we’re trying to think about, how do you maybe replace some of the psychological benefits that employment provides, and can we provide those, you know, in a large scale, where we might be able to mitigate some of the very detrimental effects for happiness that previous research has documented of unemployment?

Meb: You know, it’s funny. I see this with a lot of friends over the years where the big different, of course, in my mind is that, is it sort…like, do you see it coming? So the example is, a company announces layoffs and people get laid off, and I’m like, “Hey, that’s awesome. You have six months. You can do whatever you want.” But the problem is most of these people say, “Well, yeah, but I don’t know…I don’t have something in place next.” Like, I haven’t thought about my future. So, that six months, instead of being backpacking around Europe is now this huge anxiety-filled period of, what am I to do with the rest of my life? How am I gonna meet my bills?

And so, I wonder if kind of preparing people in the fields that the writing is just probably on the wall. So, truck drivers or something, for example, where it’s not a question of when, just a question… I mean, it’s not a question of if, it’s question more of when. If preparing those people and saying, “Look, your job is probably gonna be gone. It may not be one year and it may not be two, but probably 5, 10, or 20.” If that somehow would kind of bridge the gap better…because it’s the same thing with lay offs people that say, “Okay, I know I’m getting laid off in a year and I got something I can put in place.” It makes it a totally different sort of experience. But I don’t know how you deal with that in a lot of cases for the careers where someone has spent their whole life, you know, in one area. Interesting, interesting work. Well, keep us abreast when you start to publish next.

Liz: I sure will.

Meb: One or two more questions. You gotta go. If I were to put you on the spot and said you had to pick just one piece of advice…people who’ve been listening to this today, for our listeners, that would make the biggest difference in their happiness, what do you think it would be?

Liz: I would say, before you make a purchase, think about how it will affect the way you use your time. So, especially if you are buying a major thing that will…they’re spending a lot of money on some kind of purchase that you expect to make you happy. Just stop for a second and ask yourself, will this purchase change the way I spend my time next Tuesday? And if it won’t, maybe think about using that money in some other way.

Meb: Oh my god, I have a blue 1967 Land Cruiser in my garage that has that written all over it. It is currently on eBay. I’ve spent a lot of time under the hood with that guy. By the way, what… I’m gonna give once, have you ever been… So you’re a mountain biker. Have you ever been mountain biking in Colorado or Utah?

Liz: I have not. I actually just took up mountain biking a few years ago so I haven’t. I’ve done a lot of travel for surfing, but I haven’t done any travel for mountain biking yet. So, maybe I should check it out.

Meb: Well, I have more scars on my body probably from mountain biking than anything, other than skiing. But look, I know British Columbia is one of the best places in the world to mountain bike, but one of the best experiences of my life was actually doing a mountain bike trip. It’s kind of a hut to hut trip. You can do it over the course, I think, it’s like five days but it goes from Telluride, Colorado to Moab, Utah. And each night you get to stay in a hut and then just mountain bike during the day, and they stock it with food and beer. And it’s one of the coolest experiences of my life. So, passing it along. Put it on the to-do list if you ever find yourself in that part of the world.

Liz, it’s been awesome. We didn’t even get the chance to talk about your surfing. And I wanna hear about the sharks, at some point, in Hawaii. But if people wanna find you, follow your work, where is…where is the best place?

Liz: Well, they can follow me on Twitter @DunnHappyLab, or if they google my name, my website has all my publications. And, of course, I would recommend checking out my book “Happy Money” which is available from Amazon and other booksellers.

Meb: Awesome, Liz. It’s been a blast. Thanks so much. We’ll put links for all these in the show notes. Listeners, thanks for taking the time today. We always welcome feedback and questions from the mailbag at feedback@themebfabershow.com. As a reminder, you can always find the show notes and other episodes at mebfaber.com/podcast. Please subscribe to show on iTunes. And if you’re enjoying the podcast, please leave a review. Thanks for listening, friends, and good investing.

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