Randy Fox interviews Mike Norton, Harvard Business School professor and author

by Randy A. Fox

I was motivated to reach out to Mike Norton after listening to the book he recently co-authored with Elizabeth Dunn, Happy Money: The Science of Smarter Spending. He was kind enough to grant me a phone interview wherein I was able to dig a little deeper into the book’s background and findings. Mike, who doesn’t utilize the Ph.D. (in psychology) after his name was ebullient, friendly and forthcoming during our time together. His background in social psychology and his certification in positive psychology greatly inform this work. He claims that it was Elizabeth Dunn’s hypothesis that it’s not how much money we have that creates happiness but how we choose to use it. My interest evolved as I heard the section on how important the act of giving money away was to happiness. And that means philanthropy.

Everyone deals with money in some way: earning, saving, spending, and giving. It is the subject of interest on nightly newscasts, countless books and articles, dinner table discussions; it causes marital discord, bliss, stress and competition. Obviously, whether we like it or not, money is important in our lives. While it is merely a tool, it is a powerful one and using it to serve us in the best way is important to everyone. How can we use money to make us happy? How do we even know what happiness is?

Randy: How did you conduct your original research about money and happiness?

Mike: We started by conducting a large survey of individuals to determine both household income and spending habits. We looked at the percentage of spending on various things including the category of “spending on self” and “spending on others.” Others include both individuals and non-profits, by the way. We also asked the same people how satisfied they were with their lives. As it turned out, those who spent more money, as a percentage of their income, on others, were generally happier.

Randy: Happiness seems so subjective. How do you know if someone can gauge their happiness accurately?

Mike: There is a methodology that measures smiling that’s actually very accurate as an indicator of happiness. However for this study we used another methodology. It turns out that if you ask someone on how happy they are on a scale of 1 to 10, they can pretty much tell you they’re a 6 or a 7 or a 3. A year later, that same person will give you very much the same answer. While we have no idea what “7” really means, it is relatively consistent for an individual. If they’re happier, they might move to 8, if something bad happens, they’ll go to 6. As we measured, we found great consistency that spending on others, which is essentially the same as giving money away created much more happiness than spending on oneself.

Randy: Was there a difference between giving to others and giving to charity?

Mike: Yes, but only a slight difference. Giving or spending on friends or family created slightly greater happiness than giving to a non-profit. However both of these actions were far more satisfying than spending on oneself.

Randy: Does the amount given matter? Is giving $10 less satisfying than $1,000?

Mike: Unfortunately, that’s still somewhat unknown. Our study budget didn’t allow us to have people give away $1,000. However, it seems that the most important metric is the percent of income that’s spent on others. Once again, we don’t know the “best” percent to give. No one in this country gives much more than 10% of income and the average giving in America is around 2.7%.

Randy: Is this an American pattern or is it true elsewhere?

Mike: One of the things we were very curious about was whether or not this held true in other cultures, especially less affluent countries. So, we conducted a study in Uganda and got very much the same results. It’s interesting that even in countries where people are very much struggling just to survive, giving to others still makes them happier than spending on themselves.

Randy: How do you get this message out? This seems really important for people to know.

Mike: We are doing our best. One way is by going to large organizations and working with them so that employees might utilize their time doing things like volunteering to become more satisfied in their work environment. Also, maybe making it so that a portion of company sales are given away to charity so that even their customers feel more satisfied with their purchases or their experience with the company.

Randy: Speaking of volunteering, did you study the effect of volunteering on happiness? Did it rank right up there with giving money?

Mike: Volunteering does seem to correlate with a higher degree of happiness but it’s still more difficult to get people to actually give up their time to travel somewhere and actually do something that it is to get them to give away their hard earned cash.

Randy: Now we know that giving money away makes people happy. What else will help increase satisfaction when it comes to money?

Mike: There are a few critical things. First is having some savings so that there is less pressure if a major expense comes up or if income decreases. Second is, though we found that buying “things” for oneself doesn’t increase happiness, buying “experiences” does. So, taking a vacation or attending the cooking class you always wanted to take is much more happiness inducing than buying a bigger house or a new dress. Third, is buying “time.” Using your money to hire people to mow the lawn for instance (if you hate mowing the lawn) frees up your time to do something pleasurable.

Randy: Any final words of wisdom?

Mike: Next time you’re in a store or online and getting ready to make a purchase, ask yourself, “Will this really make me happier?” before you buy. Just pause a minute and reflect. Be more aware.

Randy: You’re suggesting, then, that we become more conscious and ask ourselves provocative questions.

As we concluded Mike also told me that their next avenue of research was in the area of rituals: personal rituals, family rituals, rituals with team members that often prove to increase happiness. While this is outside of the subject of philanthropy, the research should prove interesting.