A thought on “Saving”

If I had a dollar for every time I’ve heard someone say they’d like to save more money, I’d be a rich man. In all my years of teaching, I have never met anyone who wouldn’t like to have more money tucked away in savings.  So why don’t we save?  My students tell me it’s because they can’t save.  They don’t have enough money to save.  There’s never any money left over to save after they have paid all of their bills.  When encouraged to examine these responses more closely however, nearly everyone recognizes that he or she has saved for something at some point in his or her life, and, no matter what his or her income level, has at least one penny left over at the end each week that he or she could potentially be saving.  So, if it’s not that we can’t or we don’t have enough, then why don’t we save?

One of the barriers that often prevents people from saving has to do with a pervasive belief that saving is only worth doing if the amount being saved is a large number.  All humans, whether they are aware of it or not, have in their heads a dollar amount below which money holds no value for them.   A penny, a nickel, a dime, a quarter, even a dollar, although it could be saved isn’t hardly worth it in most people’s minds.  This is especially true of people who feel they must save a lot of money in a relatively short period of time.  Consider retirement, for example.  People who feel inclined to save for retirement typically believe they need to save a large amount of money in a relatively short period of time.  Even as much as a dollar per week in savings, in this particular example, seems to most people insignificant and hardly worth it.  So instead of saving a dollar per week, what do they do? They save nothing, because they don’t see the value in it.

When you are able to see that saving is more about implementing a behavior than it is about any particular dollar amount saved, you can perhaps begin to see value in doing it.  So pick an amount that you believe you can comfortably save over the next day, week, month, or whatever.  A penny, a dollar, ten dollars, twenty-five dollars, it doesn’t matter.  Pick an amount.  Start small.  Work it into your budget as a line item.  Start saving.  Start now.  And keep going.

 

Opportunity Cost

Opportunity Cost is a fancy schmancy term that is usually used in economics classes and it usually is applied to how people use their money.  But I have found that the concept applies equally as well to how we utilize our time, and in fact many people actually grasp the concept better by applying it to time.

The opportunity costs of a particular action are the benefits you could have received by taking an alternative action.  As I mentioned, opportunity cost is usually discussed in terms of money, so here’s what it might look like in an econ book. Imagine that you invest in a stock yielding 3% over the year.  By investing money in the stock, you give up the opportunity to invest in something else like, for instance, a risk-free government bond with a 7% return.  In this example, the opportunity costs are 4% (7% – 3%), the difference in return between the forgone investment and the chosen investment.  Blah, blah, blah – insert lots of additional economics jargon.  What does that mean to you?  Well it means that every time you make a decision to use your time or money one way, you can no longer use it for something else.  The cost is what you spent on the item; the opportunity cost is what you could no longer purchase with those funds. And I know you might be thinking, “Duh! That’s so obvious.” But believe me when I tell you that people often don’t really think about it this way – especially in their day-to-day decision-making.

Now, as I said, opportunity costs are usually discussed in terms of money, but I think the concept can be applied to our time and energy as well.  For example, if I work an 8-hour workday, take 30 minutes for lunch, and commute 30 minutes each way, that adds up to a total time cost of 9.5 hours.  Since that window of time is devoted to and taken up by work, the opportunity cost of working therefore includes everything else I am unable to do during those 9.5 hours.  Spending time with my children, preparing and eating a meal with my family, exercising or recreating with my friends, and watching a favorite television show with a loved one are all examples of the opportunity costs of working.  In order to work, I must give up the time that might otherwise be spent doing and benefitting from something else.  In either case, a choice between two options must be made and the benefits I could have achieved by choosing the alternative option, whether monetary or otherwise, are the opportunity costs.

For some people, this concept has a huge impact on how they see their resources flowing out of their possession. But even if this isn’t a big “Aha” moment, this little concept of opportunity cost, the fact that we have to give up one thing for another can cause us to squirm a little.  Let’s say that I really want that pizza, but I know I’m going to need that $15 for childcare in two days.  But I really want that pizza!  But I know I’m going to need to pay the childcare!  There is conflict, and that conflict leads to some squirming.  And in that squirming we find ourselves dealing with a little problem we discussed earlier.  This is where you might notice that we have Internal Inconsistencies with our time as well as our money.  I might justify what I have to give up by rationalizing my choice, like, “I’m just too tired to cook tonight.” Or maybe some mental bookkeeping, like “I’ll just pay a little less on my credit card bill this month.”

Opportunity Cost is something that is happening every time you make a choice.  It is not something to be eliminated, but rather to be aware  of to help you in your decision-making process.

 

Creating Perceptions Through Marketing – Part 3 – Data Mining

Now let’s take a moment to consider all of the ways in which marketers and advertisers are able to access information about the individual consumer’s spending habits and personal shopping needs.  Google is a marketer/advertiser gold mine.  Spend a few minutes surfing your favorite Internet sites and they know a lot more about you than you probably would like for them to know.

Target, who has been credited with being able to find out if a customer is pregnant, even if she doesn’t want them to know, has been collecting vast amounts of data on every person who walks into its stores for decades.  Each Target shopper is assigned a unique Guest ID number that not only keeps tabs on everything you buy but is also linked to demographic information such as your age, marital status, number of kids you have, which part of town you live in, your estimated household income, how long it takes you to drive to the store, whether you’ve recently moved, what websites you visit, and what credit cards you carry in your wallet.

Acxiom, the leader in the multi-billion dollar database marketing industry, was featured in a June 2012 New York Times article by Natasha Singer and was said to have databases containing “information on about 500 million active consumers worldwide, with about 1,500 data points per person…and knows things like your age, race, sex, weight, height, marital status, education level, politics, buying habits, household health worries, vacation dreams – and on and on.”

Wait a minute – did they say “multi-billion dollar database marketing industry?” When I first read it, I just kind of read on by, and then about a paragraph later, did a double take.  Database marketing Industry – in the words of my three-year old daughter – “What does that even mean?”  It means, folks, that there is a whole industry dedicated to gathering as much information about you and your behaviors as possible and selling it to others who then use it as a tool to try to manipulate what, where, and how you consume goods and services.  Now I promise I’m not going to go all 1984 on you.  I’m not a conspiracy theorist.  All I am saying is, if you ask me, that is kind of creepy.

So, what is the purpose of all of this marketing anyway?  In layman’s terms, marketing is an effort to get consumers to behave, i.e. spend their money, their time, and/or their energy, in ways the marketer would like for them to behave.  Retailers want you to spend your money, time and energy consuming their products and services.  The Humane Society wants you to spend your money, time and energy supporting their philanthropic efforts.  Politicians want you to spend your time and energy voting for them.  Anti-drug campaigns want you spend your time and energy not doing something – “just say no.” Even awareness campaigns and health campaigns want you to spend, or refrain from spending, your money, time and energy in a particular way.  They all want you to do something, to behave a specific way.

Successful marketers know that one of the most effective ways to get customers to spend money, time and energy consuming their products and services is to convince the customers that they need a particular product or service.  Most often they accomplish that by either creating a need where one did not exist before, or by turning a want into a need. That is to say, by changing our perceptions.