If you found an unexpected $20 bill in your coat pocket this afternoon, what do you think would be the best way to spend this money to maximize your happiness? Take a minute to think about your response. If you imagined spending this $20 on something for yourself — such as indulging in a foamy cappuccino and lunch at your favourite cafe — you might want to rethink your spending decision. In fact, you may even want to turn to entrepreneur Warren Buffet for expert financial advice.
Warren Buffett's advice has been followed by investors world-wide. And while most people are happy to rely on expert opinion when it comes to making money, people consider themselves experts when it comes to spending money, particularly when asked to think about how to spend to boost personal happiness. Believe it or not, often we're not our own best advocates when it comes to spending money to maximize personal happiness. Although intuition might indicate otherwise, material purchases often have little to no impact on our personal happiness.
This is where Warren Buffet’s valuable advice on spending money comes into play. Buffet recently wrote an article for CNN entitled, “My Philanthropic Pledge,” suggesting that we should give to charity as a way to enhance our emotional well-being. “Too often,” he wrote, “a vast collection of possessions ends up possessing its owner. The asset I most value…is interesting, diverse, and long-standing friends.” Of his decision to donate 99% of his wealth to charity, Buffett said that he “couldn’t be happier.”
Luckily for us, we don’t need to give away a fortune to reap the emotional rewards of prosocial spending. In a series of experiments conducted by Dr. Elizabeth Dunn and her colleagues at the University of British Columbia and Harvard Business School, people who spent as little as $5 on someone else over the course of a day were happier at the end of that day compared with people who were asked to spend $5 on themselves.
As a graduate student at UBC, my own research seeks to understand the factors that encourage individuals to use their financial resources to benefit others. In partnership with The Life You Can Save, I’ve conducted research suggesting that advertisements framing donations as a common goal are more effective at increasing interest in charitable giving among less wealthy individuals, while advertisements framing charitable giving as the pursuit of personal goals are more effective at increasing interest in charitable giving among wealthier individuals. This research helps to shed light on strategies that can encourage individuals to use their resources in more meaningful and purposeful ways.
This research is important given that prior research suggests that individuals with more money give proportionately less of their income to charity. According to a study conducted by the Chronicle of Philanthropy in 2012, households earning between $50,000 and $75,000 per year donated 7.6% of their discretionary income to charity – considerably more than their wealthier counterparts; households making over $100,000 annually donated an average of 4.2% of discretionary income. While informative, this research does not examine the incredible acts of generous spending undertaken by some high net-worth individuals. This gap in the literature underscores the need for research to investigate why certain high-income individuals do give substantially to charity.
The objective of my broader program of research is to understand the psychological factors that ‘flip the philanthropy switch,’ thus transforming the financially successful entrepreneurs of today into the Warren Buffetts of tomorrow. Given that prosocial behavior is related to meaning and purpose in life, uncovering the factors that encourage charitable giving may help wealthy individuals use their resources in more emotionally satisfying, meaningful, and personally fulfilling ways.
In conclusion, stepping on a path towards happiness can be as simple as spending your next $20. Thus, the next time you find a $20 bill in your coat pocket, take Warren’s advice: spend this money on others rather than on yourself. In donating to charities with proven effectiveness, you will help yourself and society in the process. If you are not feeling inspired to give to charity, explore your personal motivations for giving, or not giving—this simple reflection may nudge you in a more charitable direction.
Take a moment to ponder the following question: What makes you most interested in charitable giving—benefits for yourself, benefits for society, or both?
Ashley Whillans is a recent graduate of the Psychology Honours program and a current Master’s student in Social Psychology at the University of British Columbia in Vancouver, Canada.
Ashley is currently conducting research on motivations to engage in high-impact charitable giving. Her research is funded by the New Paths to Purpose Initiative at the Chicago Booth School of Business. You can find out more about her here: http://www.ashleyatubc.wordpress.com
The Life You Can Save is a movement of people fighting extreme poverty. We hold that an ethical life involves using some of our wealth and resources to save and improve the lives of those less fortunate than us.
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