WHAT EXPLAINS America’s miserably low savings rate? There’s no shortage of suspects. You could finger our lack of self-control, as well as our tendency to favor today’s spending and shortchange tomorrow’s goals. You can cite seven decades of post-war prosperity, which has made Americans confident they can weather financial storms, despite skimpy savings and hefty debts. You could blame rising aspirations amid increasing income inequality, which have left low-income families spending ever more as they seek to keep up with the Joneses.
To that list, here’s another potential culprit: We aren’t very good at figuring out what will make us happy. My 11-year-old stepdaughter is a regular reminder of this unfortunate fact: One day, she’s desperate to buy a particular piece of clothing or pair of shoes, confident that it’s the answer to all her fashion prayers—and the next day she’s on to something else. I can recall suffering from the same spending compulsion when I was a kid and, to a lesser degree, even in my 20s and 30s.
The good news: Our belief that happiness can be bought at the shopping mall seems to fade as we grow older. If we’re playing economist, we might argue that this is rational: The older we are, the less time we have to enjoy our new purchases, so it makes sense that possessions lose their luster.
But I’d argue it’s less to do with a rational economic thinking and more to do with wisdom acquired through repeated disappointment. By the time we reach our 40s and 50s, we’ve had many decades of eager spending and subsequent dissatisfaction—and the lesson has finally been hammered home. Instead, when we spend, we’re less focused on possessions and more on experiences—travel, concerts, dinner out with friends—which research suggests are far more likely to boost our happiness.