Raise your hands if you think your kids have way more Stuff – toys, clothes, books, trinkets, gadgets – than they need…

I bet most of you mentally raised your hands, right?

It seems to be the case in most households these days!

We try not to indulge our daughter with too much Stuff, but honestly, she has way more things than what a child really needs.

And I am not alone. I see the same thing in most of my friend’s families. While most of us agree that we don’t want to spoil our kids (or ourselves for that matter!) with too much Stuff, it seems like somehow Stuff finds its way into our houses. After all, we all work hard to earn some money, what’s the harm once in a while in spending a little to buy something that makes us or our kids happy, right? And before we know it, there’s Stuff everywhere.

Well, intentionally or not, we are going about this all wrong. Behavioral scientists and researchers have shown time and again that while the old adage “Money can’t buy happiness” is not necessarily true, buying more and more Stuff is definitely not the way to go. If you do want your money to buy happiness, then the key is to spend it correctly.

And what is that correct way? And why? How do we incorporate this into our families?

As it turn out, you can get the best bang for your buck if you…

Spend Your Money to Buy Experiences Instead of Possessions

Just think about it – what were the top 5 items of Stuff that you bought (for yourself or your kids) in the past year (eg., clothes, electronics, toys etc.) that brought you happiness?

How many of them bring you the same joy now as they did when you purchased them first? That new iPad, the new pair of shoes or the latest toy you were so thrilled to have just a year or two ago are now just old and outdated, and nowhere near as thrilling as they used to be.

Now, think back on the last vacation you took, or the last time you got together with family for the holidays. Imagine you are looking at the pictures. Probably, brought a smile back to your face even if it was years ago, right?

Researchers who studied this phenomenon indicate that surveys consistently show spending your money to buy experiences gives you the best ROI in terms of buying long-term happiness. They hypothesize that experiences trump possessions because –

1. Perceptions of experiences improve with time, whereas most possessions deteriorate over time.

This was what we looked at in the little example above. Your vacation might not have been a perfect one or you may have had some friction/irritation with the family during the holiday get-together. However, chances are, as time passes, you will forget the downside of the experience, and remember mostly the fun times you had. Since an experience resides in memory, as time passes, it morphs into whatever you want it to be – most often something fun that brings back a feeling of joy.

Possessions on the other hand are physical object that tend to degrade with time. The latest fashionable jacket that you splurged a fortune on is now in the clearance racks costing less than half of what you paid, and every Tom, Dick and Harry has one. The latest gadget/gizmo you bought last year is oh-so-last year… there are so many newer, flashier models on the market now. Consequently, the joy they bring you over time diminishes dramatically, to the point that you have to “upgrade” to the new latest, or it will be a source of pain instead of joy!

2. Experiences are less subject to comparative evaluation.

Let’s try another simple experiment. Which of these scenarios would you prefer?

Scenario 1: Everyone you know earns $25,000 per year, but you earn twice as much as them, ie, $50,000/year.

Scenario 2: Everyone you know earns $200,000 per year, but you earn half as much as them, ie, $100,000/year.

When researchers asked this question to survey participants, about half of them preferred scenario 1, even though in absolute terms, the annual salary of scenario 1 is far less than that of scenario 2!

As humans, we have a tendency to compare ourselves to others, and we don’t necessarily care about what we have, as long as it is better than those around us.

With material possessions, such comparisons are easy. You are thrilled with the purchase of your new state-of-the-art, shiny new sedan with leather trim and alloy wheels until an SUV pulls by sporting everything you have, plus a sunroof, a v8 engine, a heck of a lot more cabin space, far more towing capacity and a fancier emblem. And just like that, the value of your prized possession goes pfffff…tttt.

Experiences on the other hand tend to be unique. No one else quite has the same experience on the vacation as you do, so they tend to be harder to compare. No matter what the cost of the vacation, you can always think of something you did on that vacation that trumps the experience of someone with a more expensive vacation, keeping the value of your experience high in your own mind.

3. Experiences are more “social” by nature, which in turn has been linked to happiness.

Think of it – whether you are meeting new people on an exotic vacation, family for the holidays, having a dinner out with friends, watching a wonderful show or whatever it is, a lot of experiences tend to be inherently social by nature and as social beings, this helps our happiness thrive.

There is another distinct advantage to spending money on experiences – talking about your experiences is socially far more acceptable than talking about possessions. You could brag about your large screen TV and your Mc Mansion all you want, but chances are you will soon notice the number of “true” friends is shrinking at a dramatic pace. On the other hand, if you were to share the stories of ziplining in the rainforest of Costa Rica, chances are you will have a lot more genuinely interested listeners who are thrilled to by your outlandish stories.

And as humans, it’s not just what we have, but talking about what we have that makes us happier.

4. We adapt slower to experiences than possessions

This is another interesting explanation pointed out by this study and I have to agree! I remember my first few years in the United States. My husband (then boyfriend) and I had come here as students and we got by rather well on our meagre salaries that added up to less than $25K a year. After 2 years, my husband graduated and got a job, and our household income saw a huge jump. A few more years after that, I graduated and got a job, and our household income saw another huge boost.

Of course, we loved the increase in salary and our new lifestyle, but soon the hedonic adaptation — the human tendency to adjust the expectations quickly to improved circumstances, resulting in no permanent gain in happiness — kicked in. Sure enough, I have no lasting happiness from the things purchased due to our increased prosperity (and boy, did we buy a lot of Stuff at that time!).

We get used to things, and start to take them for granted very soon. Experiences on the other hand are rather unique and don’t lend themselves to being taken for granted. And we all know taking things for granted is one of the biggest enemies of long-term happiness.

So, How Can You Incorporate All This to Buy Happiness for Your Family?

I’ve been fortunate (though I didn’t realize it for the longest time :)) to be married to a man who is anti-Stuff. He can’t stand me filling the house up with useless trinkets. I’ve never really been into shopping myself, but I have a nasty weakness — I can’t seem to resist a good deal. And boy, do the marketers here in US know how to use that to make me gladly part with my hard earned money!

Thanks, to being with my husband for 15 years, I’m getting a whole lot better at managing my weakness, and we now try to make sure whatever we spend on offers us something of good value in the long run. More and more, our spending is turning towards the purchase of experiences. Here are some of the ways we try to make buying experiences a part of our spending habits. If you have additional tips, I would love to hear – please do share in the comments!

(Note: If you don’t have a spouse to whip your financial thinking into shape, I highly recommend checking out Mr. Money Mustache. It’s a personal finance blog, but very different from the other ones around, and boy, if there’s someone who can get anyone to think straight about money (and otherwise), that’s him!)

OK, here we go –

1. Consciously cultivate an “experience gift” culture in your family.

For our daughter’s 5th birthday, we gave her an option – you can either have a birthday party for all your friends (translated to lots of gifts) or we can have a small dinner at home with our close friends and go on a Disney Cruise instead.

And then, we did all we can to hype up that Cruise. It helped that my daughter is really into “princess” stuff and remembers the Disneyland visit her aunt had treated her to last year! We made a conscious effort to highlight the memories of that trip, compared to some of the gifts that she’s received over the years that haven’t quite lived up to their initial promise. Sure enough the Disney Cruise won 🙂

It was the first time any of us went cruising, and spending a few days completely disconnected with outside world (I don’t think we went without Internet or cell phone access for an entire week in at least the past 8-10 years!) was incredible. And the port visits were amazing with several truly rare, once in a lifetime moments! And here’s the best part — while the week of the vacation itself was awesome, the planning and anticipation of the vacation brought us so much joy for several months before we actually set sail, and the photographs and memories will be here for us for years more to come!

2. Tailor the choice of your experience to match the family’s interests

This is our first cruise. Disney cruises are a bit more expensive than other cruises (we got a decent deal though!) but we specifically chose this because (a) we knew it would make our daughter very happy and (b) watching our daughter happy makes us happy 🙂 And then we signed up for port excursions that catered to some of our interests — a nice way to make sure some of our interests are addressed, and also introduce our daughter to some new experiences that we like.

Would the Disney Cruise have been a good choice before we had our daughter or if our daughter was too young? I’m pretty sure the answer is no – nice as it was, if it was just my husband and I, we would have probably sailed on a ship catering more to an adult crowd.

Therein lies the key – while choosing your experience, match it to your family’s current situation and interests so you can get the most positive experience possible.

As a matter of fact, in this study mentioned earlier, the researchers warn that while in general, purchasing experiences is definitely a better investment than purchasing possessions there is a downside – the nature of the outcome of your experience amplifies the impact on your happiness. In other words, if your experience had a positive outcome, you will see amplified increase in happiness. On the other hand, if your experience had a negative outcome, you will see amplified increase in unhappiness. So choose carefully.

3. Pace it out

Remember the “hedonic adaptation” we talked about earlier where we have a tendency to adjust the expectations quickly to improved circumstances, resulting in no permanent gain in happiness? That applies to experiences as well.

In general, experiences are so much worth it specifically because they are unique and rare. Just because you can afford it, if you just pile on one experience after the other, you will eventually adapt to it, and it will no longer provide you the same happiness as well-paced, well-planned experiences.

4. Tie it to a life event to make it “pop” more

We could have easily let this cruise be just another family vacation. However, by tying it to our daughter’s birthday, we’ve attached an elevated level of meaning for that cruise all through the planning and anticipation, the experience itself, and the memories that come out of it.

So there, now you know how you can “buy” some happiness for your family the right way 🙂

The 2-Minute Action Plan for Fine Parents

Here are some quick questions to help you inspect some of these findings from the perspective of your family. The answers are not meant to prove any one person is better than the other, but rather they are a means to bring to the forefront the areas where you are already doing good, and the ones that needs improvement. OK, here we go –

Think back to Christmas or the most recent birthday you celebrated in your family –

How many of the gifts were “possessions” and how many were “experiences”? How open are you/spouse to the idea of “experience gifts”? How would your children respond if you offered them “experience gifts” instead of toys and trinkets? If you are already into “experience gifts” how well tailored are your experiences to your family’s interests?

The Ongoing Action Plan for Fine Parents

Over the course of this week start focusing on how you can slowly shift (or reinforce) your family’s buying habits more and more towards experience purchases instead of possessions. Obviously, it won’t happen overnight, but even small shifts in mindset can provide huge dividends in the long run!

Note: If you are interested in further reading on this matter, and the science of happiness in general, here are some excellent articles that I came across while researching this post that I highly recommend –