Some time ago I listed to a radio presentation by an economist regarding “Relativity” in spending and saving habits. It stuck with me and I frequently call it to mind in making certain money decisions.
Imagine that you have entered a store to buy a $20.00 pen as a gift for a friend. You have selected the pen and as you approach checkout you learn that a few blocks away that very same model pen is on sale for $10.00. Research suggests that the great majority of shoppers would leave the first store in favor of saving $10.00 by purchasing the pen at the sale price elsewhere.
Here’s the kicker: Imagine instead that you are at a store preparing to purchase a $1,500.00 flat screen TV. Before checkout you learn that the same model is on sale down the street for $1,490.00. Research suggests that the majority of shoppers would not leave the first store in favor of saving $10.00 by purchasing the TV at the sale price elsewhere.
Same $10.00, but opposite behavior. The economist theorized that for most people, financial decisions are made in a relativistic fashion. However, the most successful managers of money (their own and others) see the $10.00 as a stand-alone quantity without regard to the value of the underlying purchase. They would evaluate whether to buy or not at the first store solely on the basis of whether the $10.00 saving was justified by the cost and inconvenience of proceeding to the second store.
Just some food for thought.
Peace Everyone. Pete