Americans are still struggling with price hikes and high interest rates. In this economic climate, learning how to avoid overspending is not only the key to money management but also apparently to one's overall well-being and happiness. Elizabeth Dunn, chief science officer of Happy Money, joins Cheddar to explain.

Cheddar's News Wrap

How Money Shapes Human Happiness

welcome back everyone people everywhere are still struggling with price hikes and high interest rates in this economic climate, learning how to avoid overspending. It's not only the key to money management, but also apparently to one's overall well being and happiness according to our next guest. The way you choose to spend your money matters much more than the amount you have joining me. Now to discuss is Elizabeth Dunn Chief science officer of Happy Money Elizabeth welcome to the show. So how does money shape human happiness? How are we seeing this play out in the face of the inflation that all of us have seen lately from the gas pump to the grocery store. So first off we know that having more money tends to provide more happiness, but it isn't everything and in fact how we use money can make a big difference in shaping our well being, which I think is really important to focus on when we're faced with this situation where many of us have less spending money than we once did um due to the challenging economic situation, you point out that often money can get in the way of happiness and this is contrary to a lot of people thinking only money brings you happiness. So how does money fail us and how do we avoid this? Well, money can be a pretty emotional topic, It can definitely create a lot of feelings of anxiety for some people. Again, particularly as individuals prepare for a recession, we know inflation is driven up the cost and so many different products that we like to buy. Um and so this can create a fair bit of stress for people who are faced with maybe not having some of the things that they that they would like, what spending strategies are best for promoting happiness and of course reducing financial stress. Yeah, so um we've studied a number of different happiness strategies or spending strategies that can promote happiness. So um I have identified five key principles that can help people get more happiness out of their money whether they have a little or a lot of it. Um And so these principles in brief are by experiences, so think about investing in trips, special meals as opposed to buying more material things. Another key principle is to make it a treat. So think about questioning some of those habitual purchases. Another principle is to buy time. So think about buying yourself out of the tasks that you most dread in a typical day. We also encourage people to pay now and consume later, so it can be really helpful to actually pay upfront and delay our consumption. And finally, it's worth investing in others. Thinking about how we can use our money to actually help other people rather than ourselves Elizabeth, how does this differ from the ways in which americans tend to spend their money now? Well, in particular, one thing that we found in our work is that people seem a little bit reluctant to use their money to buy themselves time and I think especially when we are faced with a difficult economic climate like we are right now, you can be like oh we need to cut back in every possible way. And so maybe it's indulgent to um buy some of the help that I might need on a on a typical day In order to have a little bit of free time for myself. But in fact what we see in our research including some recent research with over 15,000 Americans is that even people who are living from paycheck to paycheck are actually happier if they use money to buy themselves time. That is interesting. So what are the most effective ways to monitor one's income and of course avoid overspending it. Well, so one good approach is to really pay a lot of attention to how money affects your mood, how you're spending choices are affecting your happiness. And to try to identify the purchases that you might have been making all along that aren't necessarily giving you all that much of a happiness boost. Um So by tracking what you spend and paying attention to how it makes you feel, you can potentially reevaluate some of those habitual purchases you've been making and cut out the ones that perhaps used to give you happiness but are no longer providing you with much of a boost. And that can be kind of the low hanging fruit and cutting back on our spending. See when you say that I'm thinking coffee at Starbucks, but I am curious what's a common pitfall that people make when deciding what expenditures to cut? Well, I think the most obvious pitfall, um and the most obvious sort of expenditure that we might cut is to think about getting rid of our charitable giving right if we're faced with tough economic times, it seems like okay, that donation that I usually make to a charity that's important to me. That's an easy thing to cut. And yet, ironically, in our new research, again, with over 15,000 americans, we have happy money have found that people who use their money to make donations to charity to help others are actually happier than those who don't. And once again, this holds up even for people living paycheck to paycheck. We see in our new research just published that in fact this is true across demographic categories for old and young, for men and women. And so actually think about whether you can find a way to keep that charitable giving that you're doing in your budget. Great advice, Elizabeth Dunn, Chief Science Officer of Happy money. We appreciate your advice and time. Thank you so much Elizabeth