Should you go to Italy or buy a car?

Picture yourself on a two-week vacation in Italy: you’re sitting on a patio looking over the Mediterranean, sipping the best red wine you’ve ever tasted with a hot, fresh Neapolitan pizza in front of you.

Now flash forward to back home: you're waiting for the bus in the dead of winter, watching your neighbours drive past you in the warmth and comfort of their cars.

Should you have taken the money you spent in Italy and put a down payment on a reliable automobile? Or was your pizza and red wine worth it?

It’s a question that’s plagued humankind for millennia: experiences or stuff? The ancient philosopher Aristotle grappled the question. There’s a verse in the Bible that deals with it. The German psychologist Erich Fromm examined the difference between “being” and “having.”

In the end, it’s all the same question. Will you be happier spending money on experiences or on material things?

Happiness comes from experience, sometimes

It’s different for everyone, but for many people, experience is the clear winner. You may not remember your television set you bought when you were 19, but you sure remember backpacking through South America, right?

There is some scientific study behind the choice.

A paper titled To Do or to Have? That Is the Question, published in the Journal of Personality and Social Psychology, concludes the best course of action is often to take the trip.

As the business blog Signal V. Noise pointed out, 57% of the participants in that study reported experiences made them happier. These are people that held off on buying the headphones and instead splurged on the road trip.

Only 34% reported that material purchases made them happier - those who presumably own more but have done less.

You can dive even deeper into the survey. Looking at demographics is a key to understanding the experiences versus stuff debate. Keep Thrifty, a personal finance site, listed a few key stats:

• Women prefer experiences. In the survey, female respondents got a whole lot more out of experiences than buying things. 62% reported happiness from an experience versus 30% in material item. (For men, that breakdown was 51% experience versus 38% material.)
• People who live in cities prefer the experiential life as well. According to the survey, 56% of city dwellers reported happiness from experience with 35% preferring buying something tangible. (Rural people were 49% experience versus 40% stuff).
• Wealthier people like less stuff. As income increased, the percent reporting experiential purchases went up (roughly 45% vs 40% for the lowest income range and 70% vs 20% for the highest income range).

So what does this mean for you?

Do you go to Italy, or not?

Of course: what about that trip to Italy. Are you booking your flight to Italy or budgeting for car payments? What would make you happiest?

To figure that out, use this completely non-scientific, non-serious formula for settling the timeless debate between far-flung experiences or buying nice stuff.

It works for big-ticket items like deciding between trips to warm weather resorts and buying flat-screen televisions. It uses your life stage and preferences to tell you how happy you will be with your decision - but not necessarily whether or not you can afford it.

The formula can be written out like this:

Happiness = (E/a) - (i/e^mo)
E = the cost of the big-ticket experience you are contemplating
a = your current age
i = your monthly income
e^mo = how much you spend on experiences each month

Take the cost of the upcoming trip and divide it by your age, then subtract the percentage (as a number) of your income that you spend on experiences like vacations or dining out. If the answer is under 100, go for the trip. If it is over 100, stay home!

Send us a postcard from wherever you end up, or not.