Can money buy happiness? It depends on who you are and how you spend

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WATCH: We’ve always heard the conventional wisdom: money doesn’t buy happiness. But a new study published in the journal Psychological Science is turning that notion on its head – Jun 27, 2017

Money doesn’t buy happiness. It’s not just the conventional wisdom. It’s also what decades of research shows: After a minimum level of income that allows people to satisfy their basic needs, the relationship between financial and emotional well-being is weak.

But what if people’s degree of life satisfaction depended not so much on how much money they have but on how they spend it?

That’s what a recent study published in the journal Psychological Science suggests. When researchers at the University of Cambridge analyzed the financial records of hundreds of bank customers, they found a significant link between spending patterns and levels of happiness.

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Using big data analytics, they parsed 76,000 transactions from 625 participants over a period of six months.

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The numbers showed that the more people used their money to buy goods and experiences that fit their personality, the more likely they were to report higher levels of satisfaction.

Matching spending to personality was a more important factor in driving happiness “than the effect of individuals’ total income or their total spending,” the authors write.

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Extroverts, for example, would get a kick out of being able to spend on entertainment and travel. Introverts, on the other hand, drew great pleasure from paying home insurance and accountants’ fees.

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The researchers asked participants to take a personality test and matched their purchases to a widely used spectrum of “Big Five” personality types: openness to experience (artistic vs traditional), conscientiousness (efficient/organized and vs easygoing/careless,), extraversion (outgoing vs introverted characters), agreeableness (compassionate vs competitive), and neuroticism (sensitive/nervous vs confident/calm).

The data showed that people generally spent according to their natural inclination. For example, a highly organized and self-disciplined individual (i.e. high on the conscientiousness scale) spent £124 ($209) more per year on “health and fitness” than an easygoing/careless type.

But happiness levels increased the more closely spending patterns paired up with personality traits.

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To prove that purchases caused higher self-reported happiness, the researchers conducted a second study, in which they gave a group of extroverted and introverted individuals a voucher for either a bookshop or a bar. The experiment confirmed the author’s expectation: Extroverts who received the bar voucher were happier than introverts who were forced to spend their voucher there. The opposite was true at the bookshop.

The results show that “spending money on things that match a person’s personality can cause an increase in happiness,” the study concludes.

What does this mean for you?

The research notes that personalized online product recommendations (i.e., Amazon’s “People who bought X also bought Y”) might actually help make you happier.

Beyond that, though, the authors are cautious about drawing conclusions.

“While the fit between consumers’ personalities and that of their shopping baskets significantly predicts their life satisfaction overall, it seems unlikely that introverts would experience the greatest increase in life satisfaction by intentionally spending more on accountant fees or home insurance,” they note.

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Also, the study doesn’t delve into whether purchases that boost happiness in the short term also lead to overall lower levels of life satisfaction in the long term. Gambling, for example, ranks high on the happiness scale for self-confident individuals, but for many people, it spells trouble in the long run.

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There’s also the question of giving in to impulse buys vs. spending (or saving) on what’s important. Extroverts should probably buy home insurance even if they’d rather put all their money into nightly entertainment and travel.

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In general, though, the research does seem to suggest that having some discretionary income to spend on what makes you happy — well, it makes you happy. It’s interesting to note that this may mean giving to charity if you’re the compassionate type.

Perhaps the most important takeaway, though, is that what makes other people happy won’t necessarily do the same for you.

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