To maximize happiness, what should you spend money on?

They say that money can't buy happiness, but it can definitely contribute to your well-being. So what exactly should you spend your money on to maximize your happiness? Stuff? Experiences? Marshall Brain investigates in this episode.

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Episode Transcript

Speaker 1 (00:00):
Welcome to Brainstuff from house Stuff Works dot com where
smart happens. Hi Marshall Brain with today's question, to maximize
your happiness, should you spend your money on stuff, on
experiences or on assets? In America, many people tend to

(00:26):
spend their money on stuff. This is why the savings
rate in America is now negative. Forty years ago, people
saved an average of eleven percent. Think about that. The
average American used to put eleven percent of their income
in the bank. Today we save nothing and instead spend
everything we make, usually on stuff nice apartments or houses,

(00:47):
nice cars, nice furniture, nice clothes, nice electronics, nice restaurants,
and so on. My daughter, Arena and I are having
an ongoing discussion about this over the iPhone four. She
has an iPod Touch, but she wants an iPhone so
she can do cool stuff like make movies, make video calls,
and do whatever else you can do with the iPhone.

(01:08):
For I've been trying to help her understand that over
the course of two years, the iPhone four costs two
thousand plus dollars, and as much as I love her,
she's not getting one. I'm not getting one, and for
the exact same reason, two thousand bucks is a lot
of money. After you own an iPod for two years
and spend your two thousand dollars, what have you got? Nothing?

(01:30):
Absolutely nothing. If you want to make movies, you can
buy a flip for a hundred dollars. Does anyone need
video calling? If so? Irena has access to a laptop
that came with a free camera, and Skype is free
to But the iPhone looks cool, she says, sort of
smoking to some, and it costs even more after a
year of smoking. What have you got? Lung cancer? Most

(01:53):
of the stuff we buy is like this. You buy it,
use it, and then throw it away. At the end,
you have no thing. Really. The New York Times is
proposing a different path in an article entitled but will
it make you happy? You can find this On the
bright side, the practices that consumers have adopted in response
to the economic crisis ultimately could, as a raft of

(02:17):
new research suggests, make them happier. New studies of consumption
and happiness show, for instance, that people are happier when
they spend money on experiences instead of material objects, when
they relish what they plan to buy long before they
buy it, and when they stop trying to outdo the Joneses.

(02:37):
It's a long and fascinating article well worth reading, but
the article largely neglects a third option for spending money,
and that option is assets. Let's say you have two
thousand dollars that you might spend on an iPhone. You
could buy a nice experience with it instead, like a trip,
But the third option is to either put it in

(02:58):
the bank or buy an asset it With two thousand dollars,
you could buy stock in a company you admire, or
you could buy gold, coins or whatever. These kinds of
things tend to retain their value. Not always. Stocks can
go down and gold can fall in value, but they
have that tendency to retain value two years from now.

(03:18):
Unlike an iPhone, you can sell them and get your
money back out of them. Money in the bank you
can always access, and it tends to keep its value
throughout time. After you buy some assets or put money
in the bank, several times, you would accumulate enough money
for a down payment on, say a small rental house.
The advantage of stocks and rental houses is that you

(03:40):
can cash flow them and make money every month from them.
With the money you make, you can buy more assets,
and pretty soon you first have a lot more experience
collecting assets, so you get better at it, and second
you have enough assets to be a lot more financially secure.
Let's say that you save up a hundred thousand dollars
in assets. If you were to then lose your job,

(04:03):
you would feel a lot better about it. You would
be happier than you might otherwise. So there are three
options to consider, the normal path of buying stuff, the
New York Times path of spending less on stuff and
buying experiences and trips instead, and then finally, the asset
buying path. Consider all three the next time you have

(04:25):
spare cash. For more illness and thousands of other topics,
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