Last week we looked at one of the best ways to spend money to help make the world a better place. Now that the world is taken care of, let’s see what your money can do for the person you care about the most.
There are almost 8 million Google hits for “money can’t buy happiness”. The popularity of this sentiment is really only exceeded by everyone’s determination to ignore it: “how to get rich” has 22 million. Alarmingly, “how to steal money” has 150 million hits, suggesting that 6 out of 7 people turning to theft aren’t even trying to get rich but just doing it for the lulz. My only advice regarding the question of getting rich is that blogging definitely isn’t the way to do it. On the other hand, converting money into happiness seems perfectly straightforward: maximize the ratio of money-equivalent resources spent, divided by the integral over time of hedons experienced relative to a neutral hour. There, we’re done!
A Review of Limited Literature
As we’ve seen, very poor people have no trouble at all spending money productively. Rich westerners are not so lucky, in our floundering we find ourselves spending money on books about spending money. I only bought one: Dunn and Norton’s Happy Money: The Science of Happier Spending. (You can also go one meta-level up and buy books about buying self-help books).
Happy Money is an OK read: it’s concise but not free of boring detail, full of quirky stories but not quite an engrossing page-turner, written in the style of lifelong academics trying their hardest to be good writers (aka Putanumonit-style). Anyway, I read it so you don’t have to. Happy Money lists five principles of happy spending:
- Buy experiences
- Make it a treat
- Buy time
- Pay now, consume later
- Invest in others
Five principles are four too many for a lazy reductionist, let’s see if we can identify some common themes and combine these ideas into a single framework that would lose all nuance and intricacy but be expressible as an equation. (Spoiler: of course we can, duh).
Happy Money recounts a lot of examples of delightful experiences (a $200,000 space trip on Virgin Galactic or a $100 spa day) and research that shows that possessions that cost the same (a bigger house, a shirt) fail to achieve an equal increase in satisfaction. This happens for several reasons.
Experiences are unique, making them resistant to buyer’s remorse and comparison anxiety. A smartphone you just purchased will seem inadequate next to the better model that comes out next month, but your trip to a monkey sanctuary is one of a kind. Experiences are also personal and form people’s sense of who they are more. They do so much more than possessions, although in this case smartphones have actually become an exception.
Another reason is that experiences are, well, fully experienced, while material possessions often lie unused and unenjoyed. This brings us to a crucial point that the authors also address: “things” and “experiences” are points on a continuum, not exclusive categories. My copy of Happy Money is a thing, but it’s also the 6 hours I spent reading it, the 10 hours I spend writing about it, the 2 minutes each year I’ll notice it on my shelf and fondly reminisce about cuddling with it on a rainy night.
We can start with a simple formula for evaluating things and experiences on the same scale: the cost of the purchase divided by the duration of time it is used or attended to. Before we add details and complications to the formula let’s see if it’s already useful enough to compare, for example, a good car to a good dinner. All the actual numbers below are guesstimated for educational purposes, in keeping with the stated credo of Putanumonit.
Both a meal and a car have functional needs that they meet (sustenance, transportation) in addition to any joy they provide. We should compare the cost of each relative to the cheapest alternative that would satisfy the functional needs without providing any joy. For example, a good dinner in NYC costs me $30 but I would have to spend at least $5 simply to avoid being hungry, so $25 of the cost are spent on actual enjoyment. The entire meal could take an hour, but I experience joy for maybe half of it with the rest of the time spent checking my phone until the food arrives. So, dinner costs $25 for half an hour of enjoyment, or a spending rate of $50/hr.
A really nice car costs $40,000, but the more relevant number is the extra annual cost of ownership over a 2006 Toyota Corolla, say $2,000 for a single year. In that year I drive the car 10,000 miles at 40 mph on average, which comes out to 250 hours behind the wheel. However, very few of these 250 hours are actually spent enjoying the car, the vast majority are spent getting annoyed at traffic, focusing on the music or just commuting on autopilot. A fancy-car owner is lucky to get 20 hours combined of both joy riding and of noticing jealous looks from friends, the two main sources of car-happiness. $2,000 for 20 hours is a rate of $100/hr, costlier than dinner but not by much.
Of course, we care not only about the duration of having fun but also about the intensity. The problem of measuring pleasure was tackled head on by an economist head don. He donned his cap on his head on a bright morning, and the idea had dawned on him: he coined the hedon – a unit of pleasure. We can measure the enjoyment intensity of different activities in hedons per hour, notated 😊/hr.
The hedon is an arbitrary and subjective unit, you can define how much fun a single hedon is for yourself in any way you like as long as you’re consistent with more fun things earning more 😊. Let’s say that you prefer a minute of joy-riding a Mercedes to a minute of eating sushi, but just by a bit. Perhaps the former brings you 25 hedons per hour of joy and the latter 20 😊/hr. We can plug these numbers into the cost per hour of cars and dinners to calculate how much each hedon of pleasure actually costs you in money:
Cost of Happiness = cost / (duration * intensity)
CoH nice dinner = $25 / (0.5 hr * 20 😊/hr) = $2.5 / 😊.
CoH fancy car = $2000 / (20 hr * 25 😊/hr) = $4 / 😊.
Remember, this is expressed as a cost, so the lower number (dinner) is a better spend.
We can apply this easy calculation to compare metaphorical apples and oranges:
CoH goat soap = $10 / (30 showers * 4 min/shower * 1/60 hr/min * 10 😊/hr) = $0.5 / 😊.
CoH bowling = $45 / (2 hr * 15 😊/hr) = $1.5 / 😊 + eternal political tranquility.
We can also compare literal apples and oranges:
CoH apple = CoH orange = $0.5 / (0.1 hr of eating * 10 😊/hr) = $0.5 / 😊.
Since you don’t actually have a hedonometer installed in your brain, the goal isn’t to calculate anything with precision, but rather to optimize the best and worst spends. For example, it would make no sense for me to buy a Porsche until I’m rich enough to be saturated with nice dinners and bowling. On the flip side, failing to have fresh fruit in my house is costing me the opportunity to acquire cheap happiness.
Finally, if you take nothing else from this post, take this tip: buy great soap. I think that people strongly undervalue the happiness to be had from excellent products in cheap categories. A Chanel bag costs $5,000 not because it’s 1oo times better at being a bag than a $50 bag, but because it’s a signaling-positional-keeping-up-with-Joneses-luxury good. On the flip side, in every category that’s not consumed conspicuously the highest quality things will not be overpriced. I drive a cheap ass-car and wear $30 jeans but I buy the best soap, underwear, toilet paper, tea, socks, shaving cream and bbq sauce I can find.
Make it a treat
The next step in making the formula correspond with our own happiness better is internalizing the law of diminishing returns: almost every pleasurable activity will become less fun as you get used to it. Remarkably, this happens both on very short and very long timescales. On short timescales, you experience diminishing 😊 returns for everything from driving cars to drinking beer to receiving massages within a few minutes as your mind begins to wander. From the other end, if you take a vacation to the same beach resort every year it will feel less exciting and refreshing the 8th time around.
This is a big reason why purchases that deliver happiness in short bursts are more effective. I’m using the soap for only 4 minutes each day, so I spend the entire 4 minutes thinking how great the soap smells and feels. On the other hand, you can wear a designer dress for a few hours but only spend a few minutes “noticing” it.
Happy Money suggests using scarcity and novelty to keep experiences fresh and enjoyable:
- Indulging in seasonal treats like candy corn on Halloween and eggnog on Christmas.
- Renting luxury cars for a few days on a trip instead of buying.
- Interrupting pleasant experiences like massages (with a break) and TV shows (with commercials) to “reset the happiness thermometer”. Yes, it means you should stop binge watching that show.
- Eating popcorn with your non-dominant hand: apparently research has demonstrated that simply changing the method of enjoying things makes them feel novel to the brain and keeps the enjoyment from slipping.
Remember to discount the 😊/hr rate of long-lasting things and experiences: the twenty second day of a vacation will not be as good as the second, the hoverboard will not be as fun three years in as it was on the test ride. The 27th pound of giant gummy bears will, however, be exactly as delicious as the first 26.
Happy Money returns to idea of happiness happening over a time period by asking you to consider how each purchase will change the way your time is spent. For example, buying a dog might make you replace an hour of TV watching with an hour of walking every day. Installing a pool, may replace that hour of TV with an hour of fishing dead leaves out of your pool’s clogged drain. Training your dog to clean the pool will finally allow you to enjoy the TV in peace.
To incorporate time into the equation you need to figure out how much an hour of your time is worth; unsurprisingly this is very difficult. Your average hourly wage (whether you’re paid hourly or yearly) is a first approximation, but then you need to figure out how much you’ll charge for an extra hour of work on the margin. Of course, that depends on how fun that work is and how much it costs/pays you in other currencies like energy and personal fulfillment. That in turns depends on the free time you’ll have left over and onwards to second and third order effects. This paper is a decent place to start figuring out how much your time is worth to you.
Since we can’t measure our time-value with precision we should
give up and cry make something up anyway. For example, I used to take a cab whenever I would fly out of JFK, substituting a 45 minute car ride ($55) for an hour on the subway ($5). Paying $50 extra to save 15 minutes implies a $200/hr value on my time which certainly seems too high. Once I figured that out, I stopped taking JFK cabs but started Ubering around Manhattan late at night when the streets are clear and the subways are sporadic.
Not every hour is equal, and Happy Money encourages you to buy replacements for the worst hours of your life first. The value of a Roomba depends on how much you hate vacuuming, not just on how long it takes you. I iron my own shirts instead of paying $15 to have them dry cleaned because I do it while watching Game of Thrones. The downgrade from an hour of GoT to an hour of “ironing while Cersei is babbling and glancing up at the screen whenever there’s a fight/sexposition scene” is barely noticeable.
Here’s a link to time-buying tips from 80,000 Hours mostly to get you clicking around 80000hours.org and doing good things with your time. #nudge
Pay now consume later
Yes, you should do it because it replaces the time spent dreading the payment (sucks) with time spent savoring the anticipation (rocks). Yes, I love backing books on Kickstarter because I forget all about them and then when they arrive it’s like a Christmas gift only something I actually like and not a scarf.
I want to mention a theme that comes up in Happy Money again and again and ties all the sections together: buying memories. The book keeps coming again and again to examples of experiences that aren’t only fun in the moment (in fact, some of them aren’t fun at all) but that also create memories that last for a long time: a flight to space, a stay at a Swedish ice hotel, dinner at elBulli, a Tough Mudder race, hitchhiking across Canada.
Memories are great and we should add them to equation by estimating the time we’ll spend savoring them. I can take a trip to Vegas and only spend two days there, but I’ll tell the story of how I stole Mike Tyson’s tiger and got married to a prostitute at least 50 times over my life. Let’s say it takes me 5 minutes to tell the story, that’s a total of 250 minutes of reminiscing. These are four hours which should definitely be added to the denominator of the $/😊 calculation, along with the two days actually being there.
However, 4 hours are still less than two days – most of the fun is in the experience and not in the reminiscing. We don’t actually spend most of our days enjoying memories. How many minutes yesterday did you spend thinking about that trip you took last year?
We feel great whenever we reminisce / retell stories / review photo albums because we’re in “paid earlier consuming now” mode: the cost is paid and only the memories remain. This biases us to overvalue the experiences we’ve had that produced the memories, which is a problem when the memories are fond but the experiences themselves were everything but.
Some of my fondest memories are from infantry boot camp, the one my army unit went through before we settled in and invented the Bummer Economy. I made friends, overcame obstacles, learned new skills, pushed myself to the limit and beyond it – all of this created the best memories. Maybe I reminisce about boot camp for 5 minutes every week for the rest of my life, that comes out to 9 solid days of reminiscing. But boot camp itself took 4 months, most of which I spent hungry, tired and sleep deprived. I’m sure we spent 9 whole days just doing push ups, and another 9 learning how to crawl.
Now that boot camp is behind me, it’s quite rational for me to be happy I went through the ordeal and also quite rational to never want to do anything like that ever again no matter how great the memories will be. “Think of the memories you’ll make!” is a good reason to do something, but remember to also “think of the suffering you’ll endure!” and multiply each one by the appropriate number of hours.
Invest in others
Studies show that spending money on others makes you happy, especially when the giving is voluntary and when it creates a personal connection. The happiness boost doesn’t increase when giving more than a small amount. An effective way to buy happiness is inviting a friend for a coffee. A very ineffective way is giving $1,000 to strangers across the globe.
So why did we do it? Not for the fuzzy 😊 feeling, but because it’s the right thing to do. Hedons (satisfying our emotional desires) and utilons (achieving our cerebral values) are completely distinct things, come from different sources and must be purchased separately – very few opportunities offer a good price on both.
Whether you identify as utilitarian or not, if you care about other people and belive that pleasure is good and pain is bad you get utilons from other people’s hedons. $1,000 for a few hours of feeling pleased is a bad trade, but for somebody in Kenya $1,000 are three years of basic income. That’s maybe 10,000 hours of being healthy, dry and fed instead of lying sick under a leaky hut roof with no dinner. That’s a very good deal.
So, how to buy happiness? Buy experiences, which include things that are cheap and you use for a long time in short increments. Make it a treat because the joy declines as you get used to anything, inject novelty where you can to refresh the source of delight. Calculating the value of your time, even very roughly, will let you make good trade-offs whether you’re buying time or paying with time. Pay now (cash) and consume later (memories) just make sure not to overestimate the time you’ll spend reminiscing and the amount of suffering you’ll have to pay. Invest in others, but don’t confuse the warm feeling of treating a friend with the ethical imperative to make the world a better place.
Finally: when in doubt, do the math. Add up the costs, calculate the time and multiply by the 😊/hr for yourself or for others. Here’s one last example:
Cost of WordPress premium subscription: $89/year.
Putanumonit readers: 80,000 views/year.
Seconds of annoyance at seeing ads on Putanumonit: 10 sec/view.
Level of annoyance at dumb ads: -5 😊/hr.
Utility of WordPress premium: $89 / (80000*10*5/3600) = 0.08 $/😊.