TED Radio Hour
9:28 am
Fri April 4, 2014

Can Money Buy You Happiness?

Part 5 of the TED Radio Hour episode The Money Paradox.

About Michael Norton's TEDTalk

Social scientist Michael Norton researches how money can buy happiness — when you don't spend it on yourself. The key is social spending that benefits not just you, but other people.

About Michael Norton

Michael Norton is an Associate Professor of Business Administration at the Harvard Business School. Prior to joining HBS, Professor Norton was a Fellow at the MIT Media Lab and MIT's Sloan School of Management.

His work has been published in a number of academic journals, including Science, The Journal of Personality and Social Psychology. His article "The IKEA Effect: When Labor Leads to Love" was featured in Harvard Business Review's Breakthrough Ideas for 2009.

Copyright 2014 NPR. To see more, visit http://www.npr.org/.

Transcript

GUY RAZ, HOST:

What is the one thing that money cannot buy?

MICHAEL NORTON: Despite the best efforts of social scientists and humans throughout history, I think the one thing money really has not been able to buy us is love.

RAZ: Can't buy us love. All right, so the Beatles were right.

NORTON: Right.

RAZ: And it can't buy happiness, obviously, right?

NORTON: It can, oddly enough. It's just the way we usually use our money doesn't seem to do much for our happiness.

RAZ: So this is Michael Norton. He's a professor at the Harvard Business School. And how could money buy happiness? Here's how Michael explains it in his TED talk.

(SOUNDBITE OF TED TALK)

NORTON: So I want to talk, today, about money and happiness, which are two things that a lot of us spend a lot of our time thinking about, either trying to earn them or trying to increase them. And a lot of us resonate with this phrase so we see it in religions and self-help books, that money can't buy happiness. And I want to suggest, today, that, in fact, that's wrong. And that...

(LAUGHTER)

NORTON: I'm at a business school so that's what we do. So that that's wrong. And, in fact, if you think that, you're actually just not spending it right. So that instead of spending it the way you usually spend it, maybe if you spent it differently, that might work a little bit better. And before I tell you the ways that you can spend it that will make you happier, let's think about the ways we usually spend it that don't, in fact, make us happier.

We had a little natural experiment. So CNN, a little while ago, wrote this interesting article on what happens to people when they win the lottery. Turns out people think when they win the lottery, their lives are going to be amazing. This article is about how their lives get ruined. So what happens when people win the lottery is, number one, they spend all the money and go into debt. And number two, all of their friends and everyone they've ever met find them and bug them for money.

And it ruins their social relationships, in fact. So they have more debt and worse friendships than they had before they won the lottery. What was interesting about the article was people started commenting on the article - readers of the thing. And instead of talking about how it had made him realize that money doesn't lead to happiness, everyone instantly started saying, you know what I would do if I won lottery?

(LAUGHTER)

NORTON: If you're lucky enough to win $5 million and you get that huge, giant check, which would be amazing...

RAZ: Sounds great.

NORTON: We, as social scientists, would treat everyone who won $5 million the same. We would say imagine that you won $5 million, and one person bought a hot air balloon one, person used the money and gave it all to charity, one person put in a pile and burned it. Now there's no way at the end of the year, that those three people would've had the same year.

And yet, on their income tax return, it would say they had the same year if all we looked at was the amount of money they had. And the very simple intuition we had was I bet what they did with the money probably matters in terms of how much happiness they got out of it. Let's look at what people do with their money and see if it makes a difference.

(SOUNDBITE OF TED TALK_

NORTON: So the first way that we did this on one Vancouver morning - we went out on the campus at University of British Columbia. And we approached people and said do you want to be in an experiment. If they said yes, we asked them how happy they were. And then we gave them an envelope.

And one of the envelopes had things in it that said, by 5 p.m. today, spend this money on yourself. So - and we gave some examples on what you could spend it on. Other people in the morning got a slip of paper that said, by 5 p.m. today, spend this money on somebody else.

RAZ: So what did they do with the money?

NORTON: So imagine you got $5 or $20 for yourself, today, in an envelope from a stranger, and they said spend it on yourself.

RAZ: OK.

NORTON: You might think you'd do something interesting and unusual with it, but what we found is, you know, if you got $5 or $20, the first thing you'd do is you kind of put it in your wallet, and it just becomes business as usual. And that's exactly what people did. They bought stuff like make-up and they bought things like a coffee for themselves. They just used it on things they would usually buy.

RAZ: And what about the other people?

NORTON: People who we told to spend on other people did different, interesting things. So, for example, one woman bought a stuffed animal for her niece. Many people gave money to homeless people, they gave money to street performers.

And we think that part of what happens is it makes you think about your money differently than you usually do. It's as though it's a totally separate account of money, and you make sure you follow through on that.

RAZ: So at the end of the day, you called them up and you - what did you ask them?

NORTON: We said, on a scale from 1 to 10, how happy are you right now? Simplest question we could think of. If I asked you how happy are you on a scale from 1 to 10, most people in America and in Canada, where we did the study, will say something like 7, 8 or 9. What we find is that people who spent money on themselves, they're the same as they were in the morning. In other words, there's no real impact of spending money on yourself. It's not bad.

RAZ: They were seven in the morning, and in the evening, after they spent the money on themselves, were a seven.

NORTON: That's exactly right. But it turns out that people who we gave money to spend on somebody else, those people, if they were a seven in the morning, they're kind of like an eight now. It doesn't make them the happiest person in the world, but it does have consistently, in experiment after experiment, a positive effect on your happiness to spend on somebody else.

RAZ: How do we know that, like, this wasn't some weird, like, Canadian anomaly? Like, Canadians are nicer than Americans.

NORTON: First you called Canadians weird, but then you saved it by calling them nice.

RAZ: No, no, no. They're not weird...

NORTON: So we're neutral now on Canadians.

RAZ: No, no. Just a weird Canadian phenomenon is what I mean.

NORTON: Got it. Great question. So these were college students who were, you know, enrolled in a university. They live in North America. Their lives are pretty good in terms of the distribution of human outcomes. And we really wondered, you know, could it be the same if you were actually struggling to meet your basic needs.

We did a study in Uganda. Among other countries, we went to Uganda and did a very similar experiment. We asked people to think about spending on themselves or spending on somebody else. And we asked them, what did you do?

And then we asked them how happy they are. And even though Uganda, on average, is an incredibly much poorer country than Canada, we still see that spending money on yourself doesn't do much for you. And spending on other people seems to have an impact on how happy you are.

RAZ: So this is a quantifiable fact. Like, if people spend it on other people or on charity, it will make them happier. Like, that's true, that's an absolute truth?

NORTON: We see it in so many countries in the world now. And we see it in so many contexts from people's private lives, to consumers buying products that have some sort of charitable component, to employees spending on each other rather than spending money on themselves.

We've seen it in so many domains and across so many contexts, it really does seem like, on average, spending on yourself doesn't do much, and spending on others does something for you just because it disrupts your business as usual. Buying the same things, every single day for the rest of your life, it makes you think differently about money, and it makes you think, maybe I could do something for somebody else.

(SOUNDBITE OF TED TALK)

NORTON: What we see again, though, is that the specific way that you spend on other people isn't nearly as important as the fact that you spend on other people in order to make yourself happy, which is really quite important. So you don't have to do amazing things with your money to make yourself happy. You can do small, trivial things, and you'll still get these benefits from doing this. Start yourself on the process of thinking, again, less about how can I spend money on myself and more about if I've $5 or $15, what can I do to benefit other people because, ultimately, when you do that, you'll find out you'll benefit yourself much more. Thank you.

(APPLAUSE)

RAZ: Michael Norton. He teaches at Harvard Business School. His book, cowritten with Elizabeth Dunn, is called "Happy Money." Check out his talk at TED.NPR.org.

(SOUNDBITE OF SONG, "WE WON'T EVER BE RICH")

THE CANDLE THIEVES: (Singing) We won't ever be rich, but we could be happy. We won't ever be rich, but we could be happy. We won't be living in a whole in the ground, and until then I'm living on the edge of the town. We won't ever be rich, but we could be happy.

RAZ: Hey. Thanks for listening to our show on the many paradox this week. If you missed any of it or you want to hear more or you want to find out more about who was on it, you can visit TED.NPR.org. You can also find many, many more TED talks at TED.com. And you can download this program through iTunes or through the NPR smartphone app. I'm Guy Raz. You've been listening to ideas worth spreading here on the TED Radio Hour from NPR. Transcript provided by NPR, Copyright NPR.