Be Happier by Investing in Others

Today we continue sharing from the book Happy Money: The Science of Happier Spending.

In case you’ve missed any of our posts in this series, the best way to catch up is to begin with the first post, Be Happier by Buying Experiences Over Things, and then click through to the other posts in sequential order.

In this post I’ll highlight principle 5 as well as give you my thoughts on it.

Let’s get started…

Principle 5: Invest in Others

Here’s how the book describes principle 5:

On a March day in 2010, two bespectacled white men sat in a corner booth of a diner in Carter Lake, Iowa. Bill Gates and Warren Buffett — two of the richest people in the world — had an idea. They would ask America’s billionaires to pledge the majority of their wealth to charity. Buffett decided to donate 99 percent of his wealth, saying “I couldn’t be happier with that decision.” While dozens of books dissect Buffett’s investing habits, this chapter shows how the rest of us might learn from his investments in others.

New research demonstrates that spending money on others provides a bigger happiness boost than spending money on yourself. And this principle holds in an extraordinary range of circumstances, from a Canadian college student purchasing a scarf for her mother to a Ugandan woman buying lifesaving malaria medication for a friend.

Hahaha. Now they are speaking my language!

I’ll comment more on the book’s thoughts in a moment (I’m sure you’re aware I have a lot to say on this topic), but for now let’s get into their thoughts a bit more:

New research shows that spending even small amounts of money on others can make a difference for our own happiness.

Spending money on others can increase your happiness even more than spending your cash on yourself, but you have to be willing to make yourself a little poorer to reap these benefits.

A couple quick thoughts before we move on:

  • “Even small amounts.” I have been working on good ways to do “random acts of kindness” for others to brighten their day. I have experimented with everything from dropping change on the ground as I walk around (you know how excited you get when you find money, right?) to giving gift cards to the barista at Starbucks and asking her to pay for the next people who want to buy something to giving surprise gifts to people who mention something (like buying books on financial independence for those who say they want to retire). I have not perfected any one system and don’t feel I’m great at any of them (it still feels awkward at times), but I’m trying. If anyone has ideas for doing something like this, I’m all ears!
  • “Spending money on others can increase your happiness even more than spending your cash on yourself.” Yep. It took me some time to come to this conclusion, but for us it’s certainly true.

Make Giving a Choice

Let’s move on with this:

Even leaving aside such individual differences, research shows that the nature of the giving situation matters. Investing in others can take a seemingly limitless variety of forms, from donating to a charity that helps strangers in a faraway country to buying lunch for a friend. When does giving promote the most happiness? Understanding the answer to this complex question can help us get the biggest happiness bang for our prosocial buck — and can help us create positive giving experiences for our children, clients, customers, and employees. Below, we describe three strategies designed to boost the impact of investing in others: Make It a Choice, Make a Connection, and Make an Impact.

We’ll cover the three strategies one at a time starting with “Make It A Choice”:

Sometimes people could choose whether to give money, but sometimes the donations were mandatory, more like taxation. Even when donations were mandatory, giving to this worthwhile charity provoked activation in reward areas of the brain. But activation in these reward areas (along with self-reported satisfaction) was considerably greater when people chose to donate than when their prosocial spending was obligatory.

Of course.

From time to time I have people tell me they “give” to others by paying their taxes. No, they do not (if this is you, do not try and convince me otherwise as you can’t do it).

Sure, they may be helping others by paying their taxes. There are many benefits to others from paying your taxes. But they are not “giving” any more than I “give” to my utility company or my grocery store. No, I “pay” those places because I get something from them, just like someone paying their taxes gets something from the government. And while others benefit as well, taxes are paid, not given. If you want to test this theory out, tell Uncle Sam that you have decided you don’t want to “give” your taxes any longer and see what happens. Hahahaha.

No, giving is an act of freewill to help others. Paying is an obligation you owe someone or something. And taxes are clearly paid and not given.

Now if someone simply doesn’t want to give, that’s fine by me. That’s their choice. But don’t try to convince me you are generous by “giving” your taxes. You are not IMO.

That said, even this obligatory form of helping others has some happiness benefits as noted above. However, happiness is “considerably greater when people chose to donate”, so giving out of your own freewill is much better. That’s why making giving a choice (rather than an obligation) is a great strategy for making the most of your giving dollars.

Make a Connection When Giving

Now let’s move on to “Make a Connection”:

People derive more happiness from spending money on “strong ties” (such as significant others, but also close friends and immediate family members) than on “weak ties” (think a friend of a friend or a step-uncle).

Who was happiest by the end of the day? The people who used the gift card to benefit someone else and who spent time with that person at Starbucks. Investing and connecting provided the most happiness. Think of your own prosocial spending budget in terms of levels of connection. You’re likely to get the biggest happiness bang for your prosocial buck if you invest in others in ways that help you connect with people, especially people you care about. But it’s possible to create a sense of connection even with total strangers.

A couple thoughts here:

  • Some people “give” by supporting close relatives and friends, which to me is 100% cool. And according to this, helping those you know is better than helping those you do not know. But…
  • …personally, I’m not looking for a connection in my giving. Sure, I need to believe in the cause, but I’m not looking for a lifelong buddy out of the deal. I want the most impact for my dollar within my given interest areas. If I can help the most people possible, that’s what I want to do. I’ll find my friends through a different avenue. Hahahaha.

Make an Impact When Giving

Which now brings us to strategy #3 — “Make an Impact”:

All of us want our donations to have the kind of impact that Mulago assesses, but it can be difficult to see how our donation of $10 or $20 will make a difference. A donation to UNICEF (the United Nations Children’s Fund) helps children around the world. There is no denying the importance of this cause, but it can be hard to see how a small donation to such a large, nebulous organization will make a concrete difference in a child’s life.

Contrast that with Spread the Net, which allows donors to contribute $10 to send one malaria net to sub-Saharan Africa. Their slogan? “A child dies needlessly from malaria every minute. One bed net can protect up to five children for five years. 1 net. 10 bucks. Saves lives.”

Both UNICEF and Spread the Net are worthy organizations devoted to children’s well-being, and the two are partners. But it’s a lot easier to see how your donation to Spread the Net will make an impact. And when donors give money to Spread the Net, they get a bigger happiness bang for each buck than when they give money to UNICEF.

But it isn’t always easy to see how organizations make a difference. Kevin points to Kickstart, which “makes and markets manual irrigation pumps that allow people to shift into higher-yield, higher-value crops.” According to Kevin, “they have real impact,” enabling poor farmers to increase their income tenfold. Marketing such products is expensive, and “it costs Kickstart about $250 to get a pump into the hands of a family that will use it well.” That may seem like a lot of money to help just one family, but Kevin explains that “it looks quite different when posed as you give us $250, and we’ll get a family out of poverty forever.”

Enabling donors to see the specific impact of charitable initiatives carries a huge potential payoff. By maximizing the emotional benefits of giving, the strategy can make people more willing to behave generously in the future.

I’ll share specific details of our giving thoughts and plans in an upcoming post, but for now just let me say that getting a charity to say something like “1 net. 10 bucks. Saves lives.” or “You give us $250, and we’ll get a family out of poverty forever.” looks simple on paper, but when you really press them, few charities really know the cost per impact they have.

They will try to get you to give with an emotional appeal, which works on many (most?) donors.

But if you are insistent on a “cost per result”, then they will usually quote you a number that’s not really a result.

For example, we talked to a local homeless shelter and they gave us the number of $1 per meal for one person. That’s not really a final result IMO. What is a final result is getting the person from homelessness to living on their own, with a job, and self-supporting. That’s what I want to do. But putting a number on that is tantamount to moving Mt. Everest to North America — just not possible (or so it seems).

I have been around the block a few times with different charities on this issue and it’s the case with most of them — they don’t know the cost per impact of the dollars they get. So you have to really sort through the weeds with many of them to find ones you like and you think are effective (even then, they may not be, but at least you’ve done the best you can do.)

I’ll save the gory details of what we’ve been doing for the future post, but suffice to say here that I do like to make an impact when I give but getting a charity to help detail what that impact is is a very difficult job in and of itself.

The Benefits of Giving

Next the book summarizes the three strategies and this principle in general with the following:

When prosocial spending is done right — when it feels like a choice, when it connects us with others, and when it makes a clear impact — even small gifts can increase happiness, potentially spurring a domino effect of generosity.

The benefits of investing in others don’t stop at just making you feel happier. Giving your money away can make you physically healthier, and even make you feel financially wealthier.

In a study of more than a thousand older adults, individuals who provided money and other forms of support to both relatives and nonrelatives reported better overall health. This relationship held after taking into account income, mobility, and other variables. Although the health benefits of helping others likely compound over time, even a single instance of prosocial spending can have downstream consequences.

In one experiment, people were paid $10 and told they could share as much or as little of their payment with another person (who hadn’t received any money) as they wished. Think about how much you would give, knowing that the other person has to accept what you give them and that there is no penalty for keeping the whole $10. In this experiment, people decided to give a little less than half of the $10 away — $4.48, to be exact. The more dollars people gave away, the happier they felt. People who gave more money also reported feeling less ashamed, presumably because hoarding a windfall comes with some social stigma.

Remember the research that showed that giving time away can make you feel like you have more time? Giving money away has a parallel effect. People who report donating money to charity feel wealthier than those who do not, even controlling for how much money they make. And giving as little as $1 away can cause you to feel wealthier.

Investing in others brings a host of benefits to the giver, affecting not only happiness but also health and feelings of wealth.

If you want to see all the benefits of giving, simply Google it and you’ll be overwhelmed.

Here’s one of the top results you’d receive if you did that. I’m sharing it because it’s from the Cleveland Clinic, a source many would trust. So if you don’t like the findings, don’t blame me, contact the Cleveland Clinic.

Anyway, here’s what they say:

From volunteering at a soup kitchen to committing to raise money for a specific charity – health benefits associated with giving can include:

  • Lower blood pressure.
  • Increased self-esteem.
  • Less depression.
  • Lower stress levels.
  • Longer life.
  • Greater happiness and satisfaction.

The article goes on to cite study after study that backs up these claims, so I suggest you read that article if you are interested in specifics.

I’m going to end with this, though the book has a lot more to say on the subject.

In summary, not only does the research back up the fact that giving to others promotes happiness, but the experience of givers backs it up. Ask anyone you know who gives a decent amount away and you’ll hear some version of how grateful THEY are for being able to give and how much of a positive impact it has on THEM.

Thoughts or comments on this? I’d love to hear from those who give a substantial portion of their annual income or assets — why do you give and how does it make you feel?

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