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Spending Less and Keeping Less Makes You Happier

Amid weak job and housing markets, consumers are saving more and spending less than they have in decades, and industry professionals expect that trend to continue.While the current round of stinginess may simply be a response to the economic downturn, some analysts say consumers may also be permanently adjusting their spending based on what they’ve discovered about what truly makes them happy or fulfilled.

On the bright side, the practices that consumers have adopted in response to the economic crisis ultimately could — as a raft of new research suggests — make them happier. New studies of consumption and happiness show, for instance, that people are happier when they spend money on experiences instead of material objects, when they relish what they plan to buy long before they buy it, and when they stop trying to outdo the Joneses.

“This actually is a topic that hasn’t been researched very much until recently,” says Elizabeth W. Dunn, an associate professor in the psychology department at the University of British Columbia, who is at the forefront of research on consumption and happiness. “There’s massive literature on income and happiness. It’s amazing how little there is on how to spend your money.”

So just where does happiness reside for consumers? Scholars and researchers haven’t determined whether Armani will put a bigger smile on your face than Dolce & Gabbana. But they have found that our types of purchases, their size and frequency, and even the timing of the spending all affect long-term happiness.

One major finding is that spending money for an experience — concert tickets, French lessons, sushi-rolling classes, a hotel room in Monaco — produces longer-lasting satisfaction than spending money on plain old stuff.

Thomas DeLeire, an associate professor of public affairs, population, health and economics at the University of Wisconsin in Madison, recently published research examining nine major categories of consumption. He discovered that the only category to be positively related to happiness was leisure: vacations, entertainment, sports and equipment like golf clubs and fishing poles.

Using data from a study by the National Institute on Aging, Professor DeLeire compared the happiness derived from different levels of spending to the happiness people get from being married. (Studies have shown that marriage increases happiness.)

“A $20,000 increase in spending on leisure was roughly equivalent to the happiness boost one gets from marriage,” he said, adding that spending on leisure activities appeared to make people less lonely and increased their interactions with others.

According to retailers and analysts, consumers have gravitated more toward experiences than possessions over the last couple of years, opting to use their extra cash for nights at home with family, watching movies and playing games — or for “staycations” in the backyard. Many retailing professionals think this is not a fad, but rather “the new normal.”

“I think many of these changes are permanent changes,” says Jennifer Black, president of the retailing research company Jennifer Black & Associates and a member of the Governor’s Council of Economic Advisors in Oregon. “I think people are realizing they don’t need what they had. They’re more interested in creating memories.”

She largely attributes this to baby boomers’ continuing concerns about the job market and their ability to send their children to college. While they will still spend, they will spend less, she said, having reset their priorities.

Many have been happily surprised by the pleasures of living a little more simply. The Boston Consulting Group said in a June report that recession anxiety had prompted a “back-to-basics movement,” with things like home and family increasing in importance over the last two years, while things like luxury and status have declined.

Current research suggests that, unlike consumption of material goods, spending on leisure and services typically strengthens social bonds, which in turn helps amplify happiness. (Academics are already in broad agreement that there is a strong correlation between the quality of people’s relationships and their happiness; hence, anything that promotes stronger social bonds has a good chance of making us feel all warm and fuzzy.)

And the creation of complex, sophisticated relationships is a rare thing in the world. As Professor Dunn and her colleagues Daniel T. Gilbert and Timothy D. Wilson point out in their forthcoming paper, only termites, naked mole rats and certain insects like ants and bees construct social networks as complex as those of human beings. In that elite little club, humans are the only ones who shop.

Professor Lyubomirsky has a grant from the National Institute of Mental Health to conduct research on the possibility of permanently increasing happiness. “Trips aren’t all perfect,” she notes, “but we remember them as perfect.”

Another reason that scholars contend that experiences provide a bigger pop than things is that they can’t be absorbed in one gulp — it takes more time to adapt to them and engage with them than it does to put on a new leather jacket or turn on that shiny flat-screen TV.

“We buy a new house, we get accustomed to it,” says Professor Lyubomirsky, who studies what psychologists call “hedonic adaptation,” a phenomenon in which people quickly become used to changes, great or terrible, in order to maintain a stable level of happiness.

Over time, that means the buzz from a new purchase is pushed toward the emotional norm.

“We stop getting pleasure from it,” she says.

And then, of course, we buy new things.


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