The Money Decisions That Actually Make You Happier ft Elizabeth Dunn (EP.265)

0:02We all need to make smart decisions with our money. The Long Term Investor podcast shows you how by distilling complex financial matters into easily digestible lessons.

0:12The Long Term Investor Host:And now, here's your host, Chief Investment Officer at PlanCorp and the author of Making Money Simple, Peter Lazaroff. Welcome back to The Long-Term Investor. In this episode, I am so excited to be joined by Dr. Elizabeth Dunn, a professor at the University of British Columbia and one of the world's leading researchers on happiness. Liz's earlier book, Happy Money, has had an outsized influence on how I think about personal finance, and her work really is the one that sort of helped me recognize that mathematically optimal decisions are not always the happiness optimal decisions and that good financial planning should account for both.

0:54The Long Term Investor Host:Her new book, Leave the Lights On, applies that same lens to spending, commuting, work, travel, investing, and some of life's biggest decisions. So I think you're really gonna enjoy the conversation that we have here. As always, there are detailed show notes at thelongtermanvestor.com where you can also sign up for my newsletter that comes out every other week and has access to exclusive content and downloads that you can't get anywhere else. And now here is my conversation with Liz Dunn. Welcome back to The Long-Term Investor. I'm very excited to have with me Dr. Elizabeth Dunn. Liz, thanks so much for joining the show.

1:37Oh, thank you for having me.

1:38The Long Term Investor Host:I have wanted to have you on for a very long time. Your prior book, Happy Money, is one of my favorite. It's something that I gift all the time. And you have a new book out called Leave the Lights On. We're going to get into both of those. But maybe you can just start by giving the audience a little background on who you are. So I'm a professor at the University of British Columbia in Vancouver, and I am a happiness researcher. So I have a pretty fun job, which is to figure out what makes people happy. And I've applied this lens to thinking about resources like money, time, carbon emissions, technology.

2:16And my students and I conduct experiments to find the answers that we're curious to know.

2:21The Long Term Investor Host:You know, I was really excited to have you on. Your work actually influenced a lot of what was in my first book, Making Money Simple. it influences the way that I think through client discussions, friends and family, even the decisions that my wife and I make around our kids and our family. Happiness is so wide-spanding. I guess when we think about how it reacts to things that can maybe make the planet better, make our lives better, what I don't want to do is lose the audience on, hey, this is all about environmentalism. This is a really wide-ranging topic. So I thought it might be kind of fun to start with.

2:54The Long Term Investor Host:Maybe you can just dispel some myths for those people who are always making you feel guilty about doing X, Y, or Z because it's bad for the environment. Maybe you could point to some of the myths that exist, and maybe we could make people a little happier if they choose to ignore some of those myths. Yeah, so I have definitely experienced those myths firsthand. So actually, when I first moved to Vancouver, I moved here with my boyfriend. He was a passionate advocate for climate change, which I really appreciated. But if I happened to wander out of a room without turning all the lights off, he would shoot me this withering look like, you know, why do you hate the earth?

3:31And so, you know, that kind of feeling of like guilt and shame actually made me want to keep my distance from the climate movement. But since working on this topic, I've actually learned that I could leave all the lights on in my two bedroom condo for the rest of my life. and the carbon emissions would actually be equivalent to eating 13 hamburgers. So many of the things that we feel guilty about doing or that we scold other people just don't matter that much. And so our goal was really to figure out what actions truly have an impact. And just as importantly, which of those actions would actually make our lives better, make us happier?

4:11The Long Term Investor Host:I love that. There's an example in the book I also really liked about people who carry around cotton reusable bags. And I actually use reusable grocery bags. And I do it thinking, okay, I'm doing something a little helpful. But I also just like that I can fit more groceries in a reusable bag than I can. But I think you said something like you had to use the reusable organically grown cotton bag like 150 times before you've actually made a difference. And there's so many things. Maybe some of it's virtual signaling. Maybe some of it really is with good intent. But that was what was so fun about the book is there is a lot of these things that if you've ever felt guilty about the way that you are impacting the environment, there was a lot of good visuals and comparisons there.

4:54The Long Term Investor Host:And you mentioned also, okay, this topic took some interest moving to Vancouver with your boyfriend. But I mean, to transition from happy money where it's very financially focused to this, you know, like what was that bridge? Was it as simple as, hey, I'm living with a environmentally conscious partner here? Yeah, so I really cared about climate change. But as a happiness researcher, I honestly thought I did not have anything valuable to say about it. But I was biking to work one day and, you know, thinking about climate change. And it occurred to me that I actually ride my bike to work because I arrive in a better mood.

5:29So I'm nicer to my colleagues. I'm happier having just gotten some fresh air and exercise than if I battle traffic in my car. Of course, biking is also one of the most sustainable forms of transportation. And then it dawned on me that, in fact, so many of the things that we need to do to tackle climate change are actually good for our happiness. And I'm lucky enough that one of my colleagues at UBC is one of the world's leading experts on the behavioral side of climate change. So I shared this idea with her and she says she had a real light bulb moment where she realized that happiness was actually missing in the conversation about climate change.

6:02There's so much doom and gloom and shame and fear and anxiety. And negative emotions have their place, but actually positive emotions are really important too. So that's when we teamed up and started thinking about this project and thinking, okay, how can we help people get happier and get lower carbon footprints at the same time?

6:22The Long Term Investor Host:I love that. And I hear echoes of both of the books that you've now published. I think of those kind of trade-offs the same way with money where like, hey, this answer in a spreadsheet matters, but the real goal that you're trying to get to is a better, more fulfilling life. I want to dig into a couple of the concepts and probably a lot of what I'm going to ask you is more on the money related side than the environmental side. However, I just bring on the climate stuff because I think people are going to really find it enlightening. Again, one of my favorite parts of the book is the distinction between buying status and buying comfort.

6:57The Long Term Investor Host:And you use the language type A and type B purchases. So can you explain to me a little of why that distinction matters and what it does for happiness. Yeah. So there's this idea that some purchases, which you could call type A purchases or comfort purchases, are sort of fundamental to us as humans. So the sort of prototypical example might be like an air conditioner. An air conditioner is going to make you more comfortable in your home. And, you know, you don't need to do a whole lot of social comparison to know that it feels better to be in a room that's, you know, 70 degrees than a room that's 95 degrees.

7:34In contrast, though, there's many there are many other purchases that we make, which we might call type B or status purchases that we value and we might even enjoy. But they're very different. We really need some social comparison information in order to appreciate them. So you might think of a, you know, fancy designer bag or, you know, some extra nice cars, things where, you know, we really have to know what other people have. A diamond is a prototypical example where like, you know, how awesome your diamond is kind of depends on is it bigger than other people's? In contrast, you know, being in a room that's 70 degrees is inherently pleasant relative to being in a room that's 95 degrees.

8:21You don't need to be looking over your shoulder to see what somebody else has in order to value it. And I think this is a really interesting distinction because if we focus on these type A purchases, things like, you know, having an air conditioner, having the right temperature in our home, that's something that can potentially make us happier. And if we sort of increase the access to these kinds of purchases for everybody, that can raise everybody's happiness. In contrast, you give everybody bigger diamonds. Well, now my diamond isn't so good. I need an even bigger diamond. It's sort of an eternal rat race.

8:58And so I think these type A purchases are really interesting and they're potentially relevant when we think about climate change. And we might want to think about consuming some of those type B purchases a little bit less, because in essence, they're not sort of fundamental to who we are as humans. So they're sort of a great opportunity to cut back on some of our consumption. In contrast, though, and this is maybe a little bit of a break with what some folks in the climate movement would say, we would suggest, you know, don't sacrifice those type A purchases. So, you know, temperature matters.

9:37Your home should be a comfortable temperature, but maybe you can live without the extra large diamond. And so if we're trying to maximize our happiness while living more sustainable lives, I think this distinction between type A versus type B purchases can help us decide what sorts of things to prioritize and what to let go. Yeah.

9:58The Long Term Investor Host:And a lot of what I noticed there, both in your response and in the book itself, is that the goal is not necessarily just spend less everywhere, but just stop overspending in those low happiness categories, something that's really been pervasive in all of your work. Another thing that you kind of talk about is the buy fewer, but buy better argument. As somebody who has a closet full of clothes that doesn't really know what to do with them, I'll tell you, I was reading through the chapter. I'm like, I really should do this. Maybe share some of the thoughts that you have on that space. Yeah. So first off, just from a climate perspective, just to sort of frame why I got interested in this here is fast fashion has an outsized impact on climate change.

10:46In fact, I was pretty stunned to learn that a single pair of jeans basically ends up emitting more carbon than a new iPhone. So the clothing decisions that we make are really consequential. Again, though, I'm a happiness researcher. I want people to enjoy the things that they buy. But there's a really great opportunity here to buy less but buy better by buying high quality things, but not too much of them. So really thinking carefully about the wardrobe that you want to have, you know, having those some people call it a capsule wardrobe, like some key pieces that go well with other things. then you don't need a closet stuffed full of a million different pairs of jeans.

11:24You have a few nice pairs, maybe in a few colors, that go well with the other things that you own. And again, this is really a different sort of approach to spending that I think is maybe the default in our culture where, you know, fast fashion kind of pushes us to want to buy things all the time, just buy the latest thing, stuff into our closet, whatever. And instead, this is about saying, maybe I'll put actually a little bit more money, like even be willing to spend and more than I otherwise would, to get something that's really, really high quality, really classic, that's going to last and isn't going to be out of fashion in three months.

11:58The Long Term Investor Host:You know, when I was reading the manuscript, I was in the midst of like a three-city, seven-day trip that was mixing work and personal. And those are tough trips. If you're like a business traveler or work traveler of any kind, those are like tough trips to pack for. Because the difference between like, I was in New York, I was in San Diego, goes in the Midwest. Those are all very different needs. And I'm thinking about what you're talking about. How can we have these things that are simpler and just dress up the same thing a little bit differently each and every place really hit me in the moment.

12:30The Long Term Investor Host:So side point entirely, but felt like I should just share that in the moment as I was reading. A big thing in the book, I think maybe one of my favorite studies that I came across within it centered on generosity, which was a huge part of what I gleaned from your book, Happy Money, you know, that when you're being generous with your money, that's something that shows prolonged happiness versus spending it on yourself. You know, not always, but in many cases, can you talk a little bit about the TED mystery experiment that you discussed within the book, though? Yeah. So in some of our earlier work, we had shown that when people are given a small amount of money, like$5,$20 to spend on others, they end up happier than when they're given that same amount of money and told to spend it on themselves.

13:16But of course, we were always working with these, you know, pretty trivial amounts of money, like 20 bucks. And so we wondered, would generosity produce so much happiness if people were spending really consequential amounts of money? And we just figured this was something we were never going to be able to test because of the limits of research grants. And then one day, I got a call from Chris Anderson, who's the head of TED. And he said, Liz, you know, we've got this opportunity where there's a wealthy couple in the TED community that wants to give away $10 ,000 to each of 200 people across a bunch of countries.

13:50Is this something you would be interested in studying? And I was like, oh, yeah, count me in for sure. And thus began what we called the TED mystery experiment. So we called it the mystery experiment because we didn't want people to know that they might get a huge bundle of cash if they signed up. But, you know, those who signed up and qualified did receive. In fact, it was not a scam. They really did receive$10 ,000 all at once. And the cool thing about this study, too, is that we were able to recruit people from around the world, including people in places like Kenya and Indonesia, where$10 ,000 was really a life-changing amount of money for some of our participants.

14:30Now, in this study, partly because of the donors' wishes, we didn't tell people how they had to spend the money. Instead, we let them make their own choices. But every time they spent any of the money, they had to tell us what they bought and how it made them feel. So basically, what we discovered was that just like in our earlier research, people seem to get the biggest happiness boost from using money in generous ways. Specifically, the number one biggest happiness boost actually came from donating to charity. And this was particularly striking to me because people did all kinds of great things with the money.

15:04They, you know, took a family trip to Disney World. They bought a new iPhone, invested in education, bought a car, like all kinds of great stuff. And yet, even in this, you know, very high consequence spending situation, we saw generous spending rising to the top.

15:22The Long Term Investor Host:Now, was that surprising to you or did that like going in, you're doling out the money. You probably had some expectations or hypotheses of what you thought would happen. How different was that from what you were expecting to see? I mean, I really, as a scientist, I really hoped that we would replicate what we had seen earlier, but I honestly didn't know because, again, I can totally see the argument that like, oh, sure, it feels great to give away 20 bucks, but would it really feel good to give away thousands of dollars? And yet that is indeed what we found. The other part that was definitely surprising to me was just how much of the money people chose to spend on others.

16:00So people spent over$1 ,000 of the money just on charitable donations on average and over$6 ,000 in all kinds of different generous pro-social forms of spending. So things like buying gifts for other people. So that was actually quite remarkable to me and a much more dramatic show of generosity than I honestly expected to observe, even as somebody who has studied generosity for over a decade.

16:27The Long Term Investor Host:Yeah, very cool stuff. I really enjoyed reading about that. Another kind of realm of happiness research that you've done that I've enjoyed following over the years and is also addressed within the newest book is things around housing and commutes. And when I talk about how your work has influenced the way that I coach clients or just have conversations with friends and family, commute is one of the bigger things that I've been like, look, they're going through this where me and my wife live. We are right next to our kids' school. like we're about equidistant from each other's works. Mine's a little closer.

17:03The Long Term Investor Host:The only thing that's actually inconvenient is what we do with our dog. But you know, we have the biggest dog you could possibly have. So that's inconvenient enough. Tell me a little bit about the commute piece, like what the tradeoffs people are experienced and what your research has shown there. Yeah. So the minutes that people spend commuting each day tend to be among the least enjoyable moments of their day. So anything we can do to cut back on commuting is likely to be a boon for happiness. And interestingly, commuting is also responsible for a huge portion of the typical American's carbon emissions.

17:43So commuting is a problem for climate change. Commuting is a problem for happiness. So this is a real sweet spot, an opportunity to make a change that's going to make us happier and make us live more sustainable lives. And so, you know, when it comes to cutting back on commuting, one thing is just, as you said, to kind of think about where you live, like be really strategic in terms of where you live. And I think often people focus on really salient features like, oh, that house had such beautiful marble countertops or high ceilings or, oh, there's an extra guest bedroom. That's so nice. But they lose sight of the sort of more abstract feature of like, how much time am I going to spend in my car if I buy or rent this house?

18:24And I think that should be the number one question people ask themselves. No, not everybody has the luxury to move closer to work. And so if that's the case, then you can think about, all right, you're stuck commuting. Can you do anything to make this commute more enjoyable and more environmentally sustainable? And there, you know, if you have the option to bike, so I feel very fortunate in Vancouver, we have great bike lanes. It's very safe and, you know, feasible to bike. And so biking seems to be a real sweet spot. For example, some research shows that Americans who bike regularly have fewer days of poor mental health per month.

19:05So biking is a really nice intervention for our well-being and also incredibly low carbon. Even e-biking is great. So e-biking, very low carbon. And it turns out, interestingly, people who own electronic bikes get just as much exercise on average as those who own regular bikes. And the reason is that they just end up biking more. You can get so many places so easily. In fact, most places, most distances that people drive on a typical day can be easily covered on e-bike. So I think this is a really exciting time where this, you know, technological innovation is making it so much easier and more accessible to bike.

19:42So biking's great. If you can't bike, like let's say you're stuck driving, then I would say, you know, the good old fashioned carpool, I believe, is very underrated. So we know commuting tends to be this unhappy time of day, but socializing tends to be one of the most enjoyable activities in most people's day. So if you can actually find a way to carpool, maybe with, you know, a friend or family member who you're not getting enough time with or just somebody like you can get matched with through an app, you know, who might live in your area and have a similar kind of commute. And then you kind of get to know this person.

20:17And suddenly your time spent alone in the car is time that you get to catch up with somebody and have an interesting conversation. them.

20:26The Long Term Investor Host:Well, Liz, if our CFO is listening to this conversation, he is my neighbor and we have only carpooled maybe once or twice in the 12 years I've been at Plain Corp. So we are not following along with the research. What I am following along with the research is that I work from home a lot. And, you know, pre-pandemic, working remotely was not an option for everybody, not necessarily an option for everybody today, but certainly more prevalent. And nothing as I'd have to think it's much better to work from home than commuting, but it seemed like the research was a little bit more nuanced. Can you talk about that some?

21:00Yeah, I find the work from home research super interesting. I mean, so first off, just to sort of set the stage, if you could work remotely 100 % of the time, that would dramatically cut your carbon emissions relative to driving to work every day. So that's a huge potential opportunity. and ideally it gives you so much time back that it can increase your feelings of time affluence of feeling like you have enough time to do the things that are important to you which should lift happiness so remote work has this sort of really strong potential to increase both happiness and increase sustainability but there's it does seem to be a problem which is that there's some evidence and many people may have experienced this firsthand there's some evidence that when people remote work remotely all the time, they end up feeling a bit lonely and isolated, particularly if they, you know, maybe live alone, they're spending all day alone, perhaps interacting with their colleagues, you know, over Zoom, but it isn't the same.

22:05And so interestingly, what the conclusion we're seeing kind of emerge from various studies is that perhaps there's a kind of sweet spot of working from home kind of two or three days a week and going into the office on those other days. So you're still gonna really cut your carbon by not going into work every single day. You're gonna lift your time affluence, but you're still getting that feeling of connection that comes from actually being with our colleagues in person. Now, when people, especially leaders, are thinking about applying this advice, I think it's so important to think carefully about the goals you're trying to achieve.