Money Buys Happiness When Spending Fits Our Personality
Psychological Science (2016)
In contrast to decades of research reporting surprisingly weak relationships between consumption and happiness, recent studies suggest that money can indeed increase happiness if it is spent the “right way” (e.g. on experiences or on others). Drawing on the concept of psychological fit, we extend this research by arguing that individual differences play a central role in determining the “right” type of spending to increase wellbeing. In a field study with over 76,000 bank transaction records we find that individuals spend more on products which match their personality and that those whose purchases match their personality report higher levels of life satisfaction. This effect of psychological fit on happiness was stronger than the effect of individual’s total income or their total spending. A follow-up experiment showed a causal effect: Personality-matched spending increases positive affect. In summary, when spending matches personality, it appears that money can indeed buy happiness.
How Your Bank Balance Buys Happiness:
The Importance of “Cash on Hand” to Life Satisfaction
Could liquid wealth, or “cash on hand”—the balance of one’s checking and savings accounts—be a better predictor of life satisfaction than income? In a field study using 585 UK bank customers, we paired individual Satisfaction With Life Scale responses with anonymized account data held by the bank, including the full account balances for each respondent. Individuals with higher liquid wealth were found to have more positive perceptions of their financial security, which in turn predicted higher life satisfaction, suggesting that liquid wealth is indirectly associated with life satisfaction. This effect persisted after accounting for multiple controls, including investments and indebtedness (which predicted financial well-being) and demographics (which predicted life satisfaction). Our results suggest that money is a predictor of happiness, but not as previously thought. We find that immediate access to money, rather than raw earnings or investments, is of primary importance to life satisfaction. Therefore, to improve consumer well-being, policymakers should focus not on boosting incomes but on increasing people’s immediate access to money.