Generational or personal? – Attitudes about how you spend money

The wise use of money is the only advantage to having it.   ~Ben Franklin

In an earlier time, under the influence of the traditional Christian ethic, virtue assumed a divine quality. Being thrifty was honorable. I recall a popular tale about the wife of a man of extremely modest means whose food shopping consisted of selecting the lowest priced items from numerous markets. Naturally she walked – or perhaps trudged – from store to store, to add a touch of pathos. In any event, the story served its purpose. It illustrated a frugality next to godliness, with no limit to the exaltation experienced in such behavior.

Modern times are very different. A recent report revealed over half of a surveyed group refused to pick up a penny on the ground. Speaking for myself, I’ll never pass one by. Perhaps it relates to my recollections of being a teenager and earning a dime for each line where I set bowling alley pins. A penny represents resetting ten wooden pins and returning two 16-pound balls. Are my experiences unique? It’s hard to say whether this attitude is generational or personal.

In first year economics classes, students learn about marginal utility of money. The principle is easily illustrated. Consider the case of Bea Reft who has an annual salary of $30,000 and receives a $5,000 increase. Her life is measurably improved. She can now eat out a little more often, join the neighborhood health club, and buy that pair of unaffordable black Amalfi pumps. Contrast this with Greta Gotrocks, earning $180,000 per year, who likewise receives a $5,000 pay increase. Compared with her standard of living before, that relatively small additional amount is meaningless. It’s likely that Greta will never notice the difference.

The more prosperous a person becomes, the less meaningful the benefit from a cost-conscious economic decision. If the 9-month old car radio of Elizabeth F. Rugle – a housekeeper earning $500 per week – malfunctions, she should invoke her warranty despite the fact she must do without for the four weeks it will take for the radio to be repaired and re-installed. However, if the same misfortune befalls Edward P. Rosperous, a title company executive who earns $210,000 per year, he may ignore the warranty, buy a new car radio for $200, and install it at once. The pleasure of listening to the radio for those four weeks provides a greater marginal benefit to him than the price he pays.

Finally, consider the principle of diminishing returns. As an illustration, a pair of stereo speakers faithfully reproducing sound over the frequency range 30 to 16,000 hertz (cycles per second) costs $250. By employing the ultimate in design and manufacturing techniques, this expands to the range of the human ear, 20 to 20,000 hertz, but the sales price increases to $2,500. As the difference in listening quality is slight at best, the extra price paid for the more expensive pair is clearly an example of diminishing returns.

In short, your conduct as a consumer relates to what you find important in life. With limited resources, but aspirations for the future, base your choices on thrift and discipline. As the years pass and net worth increases, modify your conduct accordingly, but keep in mind that these must be deliberate choices. Don’t let advertising pressures or market manipulators preempt these decisions.

Al Jacobs

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