A New Car or Ten Thousand Lattes?

At Big Think, Dan Ariely discusses ways to think about money so you splurge less — like equating expensive wine with gallons of milk and making paying hurt a little more. Ariely’s advice could have been useful to some people in the Congo, who lament they didn’t see their Prada suits as houses for their families. (HT: Marginal Revolution) [%comments]

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COMMENTS: 24


  1. Erin says:

    I find it’s useful to think of items in terms of how many hours I’d have to work to purchase them.

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  2. Katie Cunningham says:

    Groceries.

    Groceries are my ruler, when it comes to purchases and measuring wastefulness. After enduring years when grocery money was earned by pinching pennies, searching couches, and waiting for deals, the idea of blowing what could pay for a week’s worth of groceries kills me.

    Daily latte? A month of that is a week’s worth of food. Eat out for lunch every day? Two weeks, if you go the fast food route, is one load of groceries. If you like to sit down and be served, it’s one week.

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  3. Earl says:

    I’ve been using a system I’ve called “The Currency of Pad Thai” in order to control my spending. As my main interest is travel, I now weigh every potential purchase against how many plates of my favorite pad thai in Bangkok that I could receive for the same amount of money. It’s completely changed my perspective and has allowed me to continue my nomadic lifestyle.

    http://www.WanderingEarl.com

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  4. Eric M. Jones says:

    For a long time I have used the currency of “fighter aircraft” to understand government spending. One F-22 Raptor is $300 million dollars. A cheapo F-16 is only $50 million–almost FREE!

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  5. Kenny MacCarthy says:

    He makes some interesting points, particularly re the “pain of paying”. We all seem to like putting it off as long as possible. Too bad we’ve developed such warped senses of value. Wonder how THAT all came about?

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  6. Charlie says:

    I hope he factors in the law of diminishing returns. When faced with a rainy commute to work, which would you rather have, a car or another 10,000 lattes?

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  7. Sam says:

    After four years of frugal spending in college, I’m now weening myself off of the habit of equating purchases to how many beers it would mean giving up.

    Unlike some of the situations above, this actually had more of an encouraging effect on my purchases–do I really care less about item x than I do about two beers on a Tuesday night? It’s obviously much easier to justify the sacrifice of a few drinks than it is for a load of groceries.

    I’d be pretty surprised if this doesn’t ring a bell across American campuses.

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  8. Matt says:

    I have a good friend who instead of saying something cost $20, says it costs 4 footlongs from Subway – her favorite lunch.

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  9. Martin says:

    I like to rationalize my purchases by estimating the price per hour of usage.

    That way my $500 suit, which felt enormously expensive, comes in at about a quarter. My $500 sitar, on the other hand, which I never learned to play, land closer to $100, and probably wasn’t a very rational purpose.

    The missing factor is of course how much you enjoy those hours of usage. This variable can be adjusted to whatever lets you motivate buying what you want.

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  10. Al says:

    Where does the person live? If they live in new york city they would not need a car and it would probably cost more money to store it. Not even taking into acount the wasted time spent on traffic. At that point they might make out better having the latte for the subway commute.

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  11. Sara says:

    LOL. Well, I do that all the time since I was very young. This is probably contributed by the fact that I have very low dependency on others as I would consider my own self-worth before anything as in I would rather depend on my own strength in accomplishing something. Making purchase included. However, I find that it somehow inculcates thriftiness over time. It took me some time to discover that I was actually confining myself to a certain choices. Yes, reality bites. But being a scrooge would hurt the GDP, I supposed. One is hold accountable for his expenditure and it all swivels about the pivot of discipline. I find it useful to have 2 bank accounts: first, for savings; second, for the cash-flow. This way I control my spending better as I can monitor my limit. It is all rather elusive as limit is only an illusion. Sticking to the plan, well, that’s discipline, too.

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  12. Thom says:

    I resist buying lattes by reminding myself that one latte costs three really good beers. That’s good budgeting, and fun too.

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  13. James says:

    I measure things based on how many rockstars or chipotle burritos they would cost.

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  14. Lee says:

    Sometimes, I ignore the decimal point in prices or mentally convert them into yen, pesos or other currencies which make you think twice before buying.

    Also, it started thinking about politicians and other public figures caught in sex scandals. They miscalculate the trade-offs with one hour of pleasure costing them years of work going down the drain and ruined reputations. Are these the people you could trust to make sound economic decisions?

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  15. Kieran says:

    Unfortunately, I’ve often used this reasoning in reverse, as in: “Aw, what’s six bucks? That’s the price of a beer at the Meeting House”….

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  16. Jeff #3 says:

    When I was in college frozen waffles were 10 for a dollar. From that point on everything became priced in waffles. Getting takeout? I’ll pass, that’s 74 waffles.

    I called it eggonomics.

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  17. Isaiah says:

    I frequently denominate big-ticket purchases in “neons”.

    My first car was a 1995 plymouth neon, and cost me $1000. It had no cruise control, AC, power windows or locks, or radio. About half of the paint had flaked off of the body, and it was ugly as sin. But it did take me 300 miles across Iowa to visit my girlfriend every weekend for a summer, to Florida and back to visit my grandma, to colorado and back for hiking trips, and to southern california and back twice for summer jobs, in addition to empowering me to get around town without relying on the charity of friends. in short, it gave me freedom.

    Now I have to think hard about if a new car is really worth 15 neons, or if that new laptop or TV is really worth 1.2 neons.

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  18. patrick says:

    You still can’t race or sleep in a latte.

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  19. Sendhil says:

    Our poor brains aren’t adapted to this world of a little plastic card symbolizing wealth. Making one’s expenditures more concrete is a great idea. (Following the lead of the Quantified Self folks may help with this too.)

    It seems like this point of view is gaining some traction in this age of “recession chic” and “frugalistas” (even on TV commercials, of all places).

    I’d humbly offer another perspective as well: It’s not just lattes you’re trading for the new car, it’s also lives. This essay remains relevant and well-written, ten years later: http://www.nytimes.com/library/magazine/home/19990905mag-poverty-singer.html

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  20. Joe Jubb says:

    It’s all about value to me… I’m not above spending the $$, but it absolutely drives me nuts that one night (in Canada) in a pub could usually buy me a good power tool. Paying $7 for breakfast, no matter how nice the restaurant, is just not worth it to me. Now, if I can only factor that value thing into justification for a(nother) new fishing rod.

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  21. Efftrain says:

    To Eric M. Jones and the rest of you who prefer to routinely back-stab our national defense, brush up on your Freakonomics. It’s a well-known fact that the marginal flyaway cost of an F-22 is around $140 million, but since the production line is shutting down as we type, we’ll use your number.

    From Air Force Magazine, February 2007:
    “To confront the F-22-led “Blue Air” collection, the joint force mustered its best “Red Air” threat—front-line F-15s, F-16s, and Navy F/A-18 Super Hornets. The F-22′s team blitzed the opposition with a favorable 241-to-two kill ratio. What’s more, the two lost aircraft were F-15Cs, not F-22s. The Raptors came through the engagements untouched.”

    (1 X $300mil) < < (241 X $50mil)? TRUE.

    http://www.airforce-magazine.com/MagazineArchive/Pages/2007/February%202007/0207raptor.aspx

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  22. C Mountford says:

    Surely this depends on how much cash the person has to spent at once – give a person $10,000 in one go and i’m pretty sure they’d go for the car. However, tell them that they’d have to save up maybe $500 per month for almost 2 years and i’m betting most would succumb to the daily latte…it’s not in our nature to think long term when it comes to spending and don’t stores love capitalising on this!

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  23. Anonymous says:

    I like the currency of barrels of pennies. A barrel (42 US gal like oil) of pennies is $2,500 or $60/gallon. A million dollars is 400 barrels of pennies. That’s a pile of drums 10 long, 10 wide, stacked 4 high. (before it smashes through the floor)

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  24. Bill Ford says:

    I measured the costs of my fly fishing gear at a per pound for trout cost. In the beginning (for the first season, before I knew what I was doing) my $500 investment in gear worked out to be about $200 per pound. Years later, with additional gear and supplies purchased I’m probably still at about $25 per pound.

    On a simliar note, I used to get really upset about how horribly i play golf on the one or two corporate tournaments I play in per year. Now i look at it from another angle-I’m getting two shots for the same price everyone else is paying for one shot……..

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