Because they’re now the largest age demographic, I spend a lot of time researching and discussing millennials. What I’ve found most interesting about this demographic is how they prefer to spend their money on experiences over stuff.
Millennials "aren't spending our money on cars, TVs and watches," Taylor Smith, CEO and co-founder of Blueboard, told CNBC. "We're renting scooters and touring Vietnam, rocking out at music festivals, or hiking Machu Picchu."
This statement was backed-up by a study conducted by the Harris Group that found out that 72 percent of millennials prefer to spend more money on experiences than on material things.
The thing is, this isn’t exactly limited to millennials.
Researchers have been studying how people could allocate their money to make themselves happier. The assumption had been that spending money on material possessions would increase happiness because possessions last longer than an experience. A 20-year study by Dr. Thomas Gilovich, a psychology professor at Cornell University, found the opposite is true.
Dr. Gilovich is just one of several researchers who believe in the the Easterlin Paradox. This phenomenon simply states that after our basic needs have been met, money will only increase happiness to a certain point for the following reasons:
1. Happiness over material items quickly fades.
“One of the enemies of happiness is adaptation,” says Dr. Gilovich. “We buy things to make us happy, and we succeed. But only for a while. New things are exciting to us at first, but then we adapt to them.”
Psychologists call this "hedonic adaptation." In other words, the excitement of that new car, iPhone or furniture set will quickly fade into the background as they become a part of our daily lives. Experiences, like traveling, attending an art exhibit or trying a new restaurant become a part of our identity, which brings us greater satisfaction.
“Our experiences are a bigger part of ourselves than our material goods,” says Gilovich. “You can really like your material stuff. You can even think that part of your identity is connected to those things, but nonetheless they remain separate from you. In contrast, your experiences really are part of you. We are the sum total of our experiences.”
2. Experiences define your purpose and passions.
Your daily activities should be guided and influenced by your purpose and your passions, not material possessions.
Think of it this way. Let’s say that your favorite musician of all-time is Bruce Springsteen. Even though you have all of his albums, and some other items like shirts or posters, do all of those possessions top seeing The Boss in concert? Probably not. In fact, if someone offered you a front-row ticket in exchange for all of your Bruce memorabilia, you would probably take them up on that offer in a heartbeat.
3. Possessions don’t contribute to social relationships.
“We consume experiences directly with other people,” says Gilovich. “And after they’re gone, they’re part of the stories that we tell to one another.”
Do you bond more with other people when discussing material possessions or experiences? Think of Bruce again. When you run into a fellow fan, you have a certain bond and connection. You can talk about his music, the concerts you’ve attended and how much his music has positively impacted your life. That seems like a more in-depth and interesting conversation that discussing your cars, gadgets, wardrobe or even your Boss souveniers, right?
Social relationship expert John Hall, author of the book Top of Mind, recently told me "Relationships are like ketchup -- only you can figure out if you need to have it on your burger or not." We can all relate to wanting or not wanting this.
Related: 10 Reasons You're Still Not Happy
4. Moments are more memorable.
While experiences are designed to be fleeting, they provide high level of arousal and memorability thanks to anticipation. Again, let’s revisit The Boss.
You hear he’s coming to town, so you mark your calendar not only for the date of the show, but also when tickets go on sale. You’re anticipating purchasing tickets and then attending a show after you’ve secured your tickets. Going to this show is an entire experience, not just a singular moment.
5. Experiences introduce you to a whole new world.
Unlike stuff, experiences introduce you to new perspectives, life lessons and the importance of gratitude. Take traveling, for example. If you live in New York City and travel to West Virginia, you may realize the pros and cons of living in the Big Apple. Even though there’s culture, public transportation and plenty to do, that weekend trip south made you appreciate nature, the quiet and the beauty of clear, starry nights.
You may realize and come to understand cultural differences. Even if you don’t agree with these points-of-view, at least you’ve walked away learning how to be more thoughtful, compassionate, humble, or grateful.
Do you have a garage full of stuff? That build-up of junk that you’ll never use can actually do harm to your mental health. This is because when our homes are filled with junk and clutter it increases our levels of stress.
7. It’s no fun keeping up with Joneses.
“The tendency of keeping up with the Joneses tends to be more pronounced for material goods than for experiential purchases,” says Gilovich. This is because, according to research from Ryan Howell and Graham Hill, it’s easier to feature-compare material goods than experiences.
“It certainly bothers us if we’re on a vacation and see people staying in a better hotel or flying first class. But it doesn’t produce as much envy as when we’re outgunned on material goods.”
In other words, spending money on experiences can decrease this envious behavior, which means that we’ll be healthier and happier in the end.
What makes you more happy? Money or experiences?