Can Money Buy Happiness? Money and Need Satisfaction

Does money spent on life experiences satisfy psychological needs?

Posted Jan 27, 2013

Every day more and more people are trying to understand the relationship between money and happiness. Although everyone desires to be happy, the pathways people choose are varied (and not always successful). People frequently believe that making more money will increase their happiness. However, although the United States economy has grown steadily since the 1950’s, happiness levels of Americans have not increased (Diener & Seligman, 2004). Also, after a person’s basic needs have been met (food, shelter, etc.), the relationship between income and happiness is quite small (Howell & Howell, 2008). This leads to a simple, yet important question: if materialistic pursuits, those that are embodied by the American Dream, are not making people happier, then are the hours we spend pursuing better careers, nicer homes, and faster cars, in vain? The problem is that people are simply spending their money on the wrong things (literally). People can spend their money in ways which will make them, and others around them, happier—by focusing their expenditures on activities that satisfy their basic psychological needs. Recently, research has begun to support this recommendation.

Based on one of the most prominent theories of motivation and well-being, Self-Determination Theory (SDT; Ryan & Deci, 2000), researchers have begun exploring the types of consumer choices that will satisfy a person’s psychological needs. SDT predicts that a person will be happiest when three basic psychological needs are satisfied: autonomy, competence, and relatedness. A person feels autonomous when his or her actions are freely chosen, self-guided, and internally (as opposed to externally) motivated. A person feels competence when they use their talents and abilities to master a skill or learn a new task. A person feels relatedness and connected to other people when their activities develop supportive relationships and when a person feels understood by others.

Also, and very important, literally thousands of studies demonstrate the positive effect of psychological need satisfaction on happiness. In one recent study, we asked people to track their activities hour-by-hour for three days. Additionally, we asked them to report how much psychological need satisfaction and happiness they experienced during each activity. The amount of happiness people experienced each hour was directly related to the degree to which the activity was autonomous and increased their relatedness with others (Howell et al., 2011). 

Thus, because of the connection between activities that satisfy psychological needs and momentary happiness, we examined whether expenditures that satisfy higher level needs (as proposed by SDT) would make people happier. Specifically, we tested if money spent on life experiences (e.g. concerts, vacations, dining experiences), as opposed to material objects (e.g. clothing, jewelry, electronics), would better satisfy the psychological needs of autonomy, competence, and relatedness, and in turn increase happiness (Howell & Hill, 2009). To test our hypothesis, we asked people to write about a recent life experience or a material object they had purchased and report the degree to which the purchase made them happy and made others happy. They also rated the degree to which their purchase satisfied their psychological needs. As we expected, when compared to material items, life experiences were found to make the buyer and others happier. The reason for the increased happiness from life experiences was that these purchases, first, satisfied the need for relatedness and this increased relatedness resulted in people feeling more alive. Life experiences were also less likely to be socially compared (a tendency which can undermine happiness).

Beyond The Purchase is a website dedicated to understanding the psychology behind spending decisions and the relationship between money and happiness. We study how factors like your values and personality interact with spending decisions to affect your happiness. At Beyond The Purchase you can take quizzes that help you understand what motivates your spending decisions, and you’ll get personalized feedback and tips. For example:

How do you score on the five fundamental dimensions of personality? Take our Big Five personality test and find out.

How do you feel about your past, present, and future? Take the Time Attitudes Survey and learn about your relation with time.

How happy are your Facebook updates? We can analyze your last 25 Facebook status updates and determine how happy you have been.

How happy is your subconscious? Take our Happiness IAT and find out.

Finally, I am pretty excited about our gratitude intervention and some of the benefits you can experience if you take part. If you go to BeyondThePurchase.Org you can find our two-week gratitude intervention. Every night after you complete our brief gratitude journal, we will tell you how grateful you have felt today—we also have a graphic displaying how grateful you have felt each day of the intervention so you can see how much grateful you are. Also, after the intervention we will provide you personalized feedback about how much your gratitude has changed over the last two weeks.    

With these insights, you can better understand the ways in which your financial decisions affect your happiness. To read more about the connection between money and happiness, go to the Beyond the Purchase blog.

Diener, E., & Seligman, M.E.P. (2004). Beyond money. Toward an economy of well-being. Psychological Science in the Public Interest, 5(1), 1–31.

Howell, R.T., Chenot, D., Hill, G., & Howell, C.J. (2011). Momentary happiness: The role of psychological need satisfaction. Journal of Happiness Studies, 12(1), 1–15.

Howell, R.T., & Hill, G. (2009). The mediators of experiential purchases: Determining the impact of psychological needs satisfaction and social comparison. The Journal of Positive Psychology, 4, 511–522.

Howell, R.T., & Howell, C.J. (2008). The relation of economic status to subjective well-being in developing countries: A meta-analysis. Psychological Bulletin, 134, 536–560.

Ryan, R., & Deci, E.L. (2000). Self-determination theory and the facilitation of intrinsic motivation, social development, and well-being. American Psychologist, 55(1), 68–78.