Why the Best Way to Spend Money on Yourself is to Spend It on Someone Else

Happy Money Series Part 4 | How to Spend Well and Enjoy Your Money More

"First round's on me!" 

It is one of the most universal phrases in adult life. It represents a small celebration, a way of saying I am glad we are here. Often, it's a fight between friends to put a card down for a round. 

Typically, our brains flinch at an $80 charge. In this scenario however, it feels like the money is well spent. Why? 
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Because that bill carries much more weight than just the $80 paper value.

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The Happy Money Series So Far 

This is the fourth and final piece in the Happy Money Series. The first three were all about how to spend money on yourself in ways that make us feel happier. 

Turning life's little treasures into treats. Valuing travel and experiences over material purchases. Paying to get your time back. All very useful. All very true. But they are also all about spending on ourselves. 
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Part 4 is different; part 4 is about others. It's about why investing in other people and our relationships elicits positive feedback from our minds and is massively important for our social lives.

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The Body of Research

In 2008, Elizabeth Dunn, Lara Aknin, and Michael Norton ran one of the most cited experiments in happiness research.¹ They handed people on a university campus either $5 or $20, and told half of them to spend it on themselves by the end of the day and half of them to spend it on someone else. That evening, the people who had spent the money on someone else reported being noticeably happier than the people who had spent it on themselves.

The dollar amount didn't make a difference ($5 or $20) -- as long as the participants spent the money on others, it made them happier.

When they asked a separate group of people to predict which group would have ended up happier, most guessed it would be the people who spent the money on themselves. They were wrong.

In 2013, Aknin and her collaborators studied prosocial spending in 136 countries.² The pattern showed up almost everywhere: rich countries, poor countries, market economies, subsistence economies. People who recalled spending money on someone else reported greater happiness than people who recalled spending it on themselves. It applies just as much to the people of rural Uganda as much as it does to citizens of the United States.

The data on workplace bonuses tells a similar story. In a study of Canadian employees who received a profit-sharing windfall, the amount of the bonus did not predict their happiness six to eight weeks later. The percentage they spent on others did.³
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The amount you give does not seem to matter very much. Whether you give at all seems to matter quite a bit.

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Why Generosity Facilitates Happiness

The instinct to share shows up in toddlers before they can fully talk. Studies of children under the age of two find they smile more when handing a treat to someone else than when receiving one themselves.⁴ It shows up in cultures with no concept of discretionary income. It shows up in rural societies where there is no market economy to speak of.⁵

Generosity was a survival mechanism long before it was a virtue. Humans who shared got included, and humans who got included survived. The concept is much older than money; money just happens to be the latest thing we have figured out how to share.

Dan Ariely, author of Predictably Irrational, discusses this important distinction. His thesis: humans operate inside two parallel sets of rules. One is the world of market norms, where an exchange is transactional and value gets measured in dollars. The other is the world of social norms, where the exchange is relational and value gets measured in connection, trust, and reciprocity over time.⁶

Generosity only produces a strong happiness response when the act stays on the social side of that line. Interestingly, Ariely's experiments found that the mere mention of money is enough to shift people out of the social frame and into the market frame, at which point they become more self-reliant and less inclined to help others.⁷

What does this mean for the purpose of this article and our daily lives? It means the dollars being spent on buying a round of drinks isn't really about the money at all. It's about investing in friendship through a form of social currency, and the brain rewards us most when we stop thinking about the dollars and stay in the moment.

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An Irreplaceable Asset Class

Let me explain why this isn't just a behavioral curiosity and instead serves as a financial planning question.

The Harvard Study of Adult Development has been running since 1938. It is the longest study of adult happiness ever conducted. It has tracked the same set of men, and later their families, for more than eighty years, across multiple generations of researchers.

What does it keep finding? The single strongest predictor of late-life happiness and physical health is not wealth. It is not exercise. It is not career success. It is the quality of your relationships.⁸
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Robert Waldinger, the study's current director, put it ever-so bluntly: people who are more connected to family, friends, and community are happier, physically healthier, and live longer than people who are less connected.

If a single variable predicts how the rest of your life is going to feel, you'd think we'd put more emphasis on it.
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Spending on other people is one of the most direct ways to do that. It is a deposit into the relationship-based asset class that evidence points to mattering the most.

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How to Reframe Your Mind Based on This Knowledge

When spending money on others, we need to think of money in terms of social norms, not market norms.

Okay, so what do I mean by that…

Think of it this way: let's say you're hosting a big Sunday barbecue for your family. Do you charge a $30 entry fee to each family member as a cost of doing business? Of course not! That would be wildly inappropriate, and no one would ever show up at your house again.

The barbecue is a social transaction, not a market transaction. The money spent on food and supplies for that Sunday dinner is an investment in our relationships. Sure, it shows up as a negative value on our bank statements, but the return on the investment represents a deposit into our social ledger.

Another example: when you give to a cause you actually care about, the research consistently shows the giving that produces the biggest happiness lift is the giving where you can feel the impact.
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Recurring donations to an organization you have visited. A check written for a friend going through medical bills. A scholarship for a kid you know by name. Giving to causes important to us is where the brain lights up the most.⁹

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Where to Draw the Line

There is one thing the research is very clear about. The happiness lift comes from genuine connection to the recipient, not from the act of giving itself.

Performative acts of "generosity" don't work. Our brains know the difference, and the research bears it out.¹⁰ When the motivation is being seen as generous rather than being actually generous, the happiness response shrinks or disappears entirely.

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Tying It All Together

The Happy Money Series has been about one question. How do spend our money well to enjoy it more?

Three of the four answers turned out to be about you. The fourth one turned out to be about others -- and it may be the one that matters the most.

Taking care of ourselves financially is already a concept many of us struggle to fully grasp. The harder move, and the one most people do not make until it is too late, is realizing that money pointed at the people you care about does more for your happiness than the same money pointed at yourself.
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The data makes this very clear. "First Round's on me!" was never about the money. It never is.


​More Reading:
Buying Back Time: The High-ROI Purchase We Don’t Usually Make
Why Travel and Experiences are a Triple-Threat Investment
Want to Enjoy Your Coffee More? Don’t Buy It Every Day
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​References
¹ Dunn, E. W., Aknin, L. B., & Norton, M. I. (2008). Spending Money on Others Promotes Happiness. Science, 319(5870), 1687–1688.
² Aknin, L. B., Barrington-Leigh, C. P., Dunn, E. W., Helliwell, J. F., Burns, J., Biswas-Diener, R., et al. (2013). Prosocial spending and well-being: Cross-cultural evidence for a psychological universal. Journal of Personality and Social Psychology, 104(4), 635–652.
³ Aknin, L. B., Norton, M. I., & Dunn, E. W. (2009). From wealth to well-being? Money matters, but less than people think. Journal of Positive Psychology, 4(6), 523–527.
⁴ Aknin, L. B., Hamlin, J. K., & Dunn, E. W. (2012). Giving leads to happiness in young children. PLOS ONE, 7(6), e39211.
⁵ Aknin, L. B., Broesch, T., Hamlin, J. K., & Van de Vondervoort, J. W. (2015). Prosocial behavior leads to happiness in a small-scale rural society. Journal of Experimental Psychology: General, 144(4), 788–795.
⁶ Ariely, D. (2008). Predictably Irrational: The Hidden Forces That Shape Our Decisions. HarperCollins. Chapter 4: The Cost of Social Norms.
⁷ Vohs, K. D., Mead, N. L., & Goode, M. R. (2006). The psychological consequences of money. Science, 314(5802), 1154–1156. Discussed at length in Ariely (2008).
⁸ Harvard Study of Adult Development. Findings summarized in Waldinger, R., & Schulz, M. (2023). The Good Life: Lessons from the World's Longest Scientific Study of Happiness. Simon & Schuster.
⁹ Aknin, L. B., Dunn, E. W., Whillans, A. V., Grant, A. M., & Norton, M. I. (2013). Making a difference matters: Impact unlocks the emotional benefits of charitable giving. Journal of Economic Behavior & Organization, 88, 90–95.
¹⁰ Aknin, L. B., Dunn, E. W., Sandstrom, G. M., & Norton, M. I. (2013). Does social connection turn good deeds into good feelings? On the value of putting the "social" into prosocial spending. International Journal of Happiness and Development, 1(2), 155–171.