Wednesday, May 27, 2015

Good Value vs Bad Value

     Today at work, I found myself in a fascinating discussion with colleagues from across the organization debating what uses of money were good value compared to bad value. The discussion was prompted by a presenter who gave the example that for her, spending money on multiple pairs of shoes represented good value due to the high utility she derived from each purchase and subsequent wearing. She contrasted this with the bad value she felt applied to dinners out where she felt depressed when seeing the bill, equating the price of the meal to how many pairs of shoes she could have bought.  We were asked to discuss some examples of good value vs bad value at our tables, before reporting back our findings to the broader group.
     What interested me so much about the table discussion was how different individuals’ perceptions on value were. Yes, there were clear examples of good value (i.e. family trips, memorable experiences) and bad value (bank charges and cable/phone fees), but many of the examples provided were thought of differently depending on perspectives. For instance, I gave the example of my buying my 2003 Civic and the associated expenses with that car as a bad value. Cars are depreciating assets that turn into liabilities in terms of upkeep. Furthermore, not being a “car guy”, I derive no pleasure from driving a certain make or model of car. In contrast, a colleague indicated that he loved his motorcycle and derived high marginal utility from taking it out for a spin.
      During the broader group discussion, and after looking at numerous flip charts during lunch, I noted how many things could be thought of as both good and bad value. For instance, dinners out, quality clothes, handbags, jewelry, paying for skilled labor, cottages, and electronics appeared on both sides of flip charts. Even something as obvious to me as a trip with your spouse was debated by the group. Yes, the trip would create lasting memories, but what was the opportunity cost of taking the trip compared to savings? Part of the reason I found the discussion so engaging was that the people in the session all were generally from the same socio-economic level, yet opinions differed considerably.
     I’d be remiss not to mention that one soft spoken individual volunteered that the only example of good value was an income producing asset. Although I congratulated them in my head, I was reluctant to do so publicly given I keep my goals of financial independence far from the work space.
     Many may have read the recent article in which economists suggest that we spend money on experiences and not things. Although I’d consider myself non-materialistic, and more ready to shell out for a positive experience, I seemed to be in the quiet minority during today’s discussion. Perhaps the better question for seekers of financial independence would be how much are you able to sacrifice spending now, in order to enjoy a mix of experiences, goods, and freedoms in the future?  Food for thought…


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