You bought it. Are you happy? Money can make you happier – to a point – but not in the way you think.

By Husna Haq, Correspondent / December 20, 2010
(Originally published in the Christian Science Monitor)

By the time the last shred of wrapping paper is recycled and the final crumb of fruitcake devoured, Americans will have spent 12.9 billion hours and $447 billion shopping, wrapping, and returning gifts this holiday season. That's about 42 hours and $688.87 per person, according to Consumer Reports and the National Retail Federation, respectively. At the end of it all, Americans will have a lot more stuff – but will it make us happier?

It's a perennial question: Can money make us happy?

Generations of Americans were raised to believe it couldn't. The nation's Puritan roots bequeathed a philosophy of frugality upon its people. Henry David Thoreau, the Amish, and the Shakers all pursued austere lives. "Money doesn't buy happiness," our mothers taught us.

But contrary to kitchen table wisdom, research suggests it can – though not in the ways we traditionally think. And it could change the way Americans spend money and buy gifts.

"If you think money can't buy happiness, you just don't know where to go shopping," says Dan Ariely, a behavioral economist at Duke University in Durham, N.C., and author of "Predictably Irrational." "Most people just don't know how to use money to buy happiness."

Money, and to a lesser degree, stuff, can make us happy if it promotes the experiences that make us happy, like personal growth and social connectedness, says Sonja Lyubomirsky, a psychology professor at the University of California, Riverside. "Money can buy happiness if you spend it right."

Here's how spending can maximize happiness:

Maximizer No. 1: "Spend on experiences, not possessions," says Professor Lyubomirsky. Research shows that spending money on experiences like a dinner out, travel, or a massage make people happier than "stuff" like a TV or a handbag. There's an initial thrill to owning something, then we adapt and want more, says Lyubomirsky. "In contrast, we're much less likely to adapt to experiences. And we're much less likely to compare to others – we might compare a car with our neighbor's, not so much with vacations."

Maximizer No. 2: Spend on personal growth and social connections. French lessons, for example, give people a sense of growth and accomplishment, an experience key to human happiness. And they may help us build friendships and social networks, another key to well-being. The same goes for a gym membership, salsa lessons, or joining a professional society. "When you buy an experience – like climbing a mountain, sailing the ocean, or achieving a goal – those experiences give people an amazing amount of happiness," says Professor Ariely.

Maximizer No. 3: Spread it out. For example, research shows people tend to get more happiness from several small vacations (say, three regional road trips) rather than one big one (a two-week Caribbean cruise) because variety ensures we won't adapt and get bored by Day 9 of the cruise. Also, anticipation and recall of an experience or purchase – think planning and mapping out a road trip, then reliving it through photos and stories – can be more positive than the experience itself.

Maximizer No. 4: Give your money away. "When you give money away, you become happier," says Ariely. "There's something incredibly satisfying about helping others that makes you happy." Lyubomirsky conducted a study in which students were asked to do five acts of charity or kindness a week for six weeks. By Week 6, the students reported a significant rise in happiness. Giving time or money, and more important, getting involved in an outreach activity, gives people a sense of purpose as well as fostering interdependence and cooperation – all major happiness boosters. It's worked for Bill Gates, says Ariely. "He's never seemed more happy, eloquent, charming, and relaxed as when he stopped working at Microsoft and started philanthropy."

But if some money is good, more money isn't necessarily better. A new study by Princeton economist Angus Deaton and psychologist Daniel Kahneman put a figure on happiness: $75,000 per year. As people earn more, their day-to-day happiness rises until they hit $75,000, after which, more money has no measurable impact on daily contentment.

But for those struggling with money, more money equals happiness. "It's very stressful to always be thinking about every last nickel," says Gretchen Rubin, author of "The Happiness Project." "One of the greatest luxuries that money buys is not having to worry about money."