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Unusual
Ways Newsletter
(Subscriber Access Only)
(Subscriber Access Only)
It is sometimes funny to look at the ways we think about money. Consider the following story, which has probably happened in real life more than once.
A businessman from the city was waiting to meet his friend for a boat ride at a small-town harbor. He noticed a poorly-dressed man sitting at the end of the dock fishing, and wandered over to see if he had caught anything. The fisherman said hello and the businessman struck up a polite conversation. He learned that the man lived in a shack nearby, and though he had what he needed, he was truly poor financially.
"I hope you don't mind if I ask," he said, "but why don't you go to the city to find a job."
The fisherman looked up at the impatient businessman and asked, "Now why would I want to do that?"
"Because you could make more money!"
"What for?"
"Well, if you made enough over the years, and you set aside some of it - investing it carefully, of course - you would be more financially secure and comfortable."
"And then?"
The businessman seemed confused. "Well, then you could finally retire, and have the time to relax and do what you want."
The old man smiled. "But I'm relaxing and doing what I want right now."
We do sometimes think about money in strange ways. Sometimes that results in pursuing it in ways that prevent the very things we think it will buy us. Let's look at some other ideas people have about money.
Playing Businessman
My wife and I were considering buying a business at one time, and as we looked around, we realized that there are two types (okay, there are many types, but two are relevant here). There are real ones, and what I refer to as "vanity businesses." Real businesses make profits, even if they are financed. Vanity businesses are those owned or bought by wealthy people who want to "play" business person.
An example of the latter would be a coffee shop that makes just $30,000 per year and sells for $600,000 because it is in some beautiful resort town. Of course, if you borrowed to buy such a business, you would be losing money from day one. But if you can pay cash, you get to "play" business, even though you could make more money putting your cash in bank CDs, and with no risk or work involved.
Now, I understand the "dreams" that people have. It might be nice to have a fishing resort on a lake, for example, or a bed-and-breakfast in Taos. But the prices for some of these vanity businesses make no sense. You could live in Taos or on that lake and still make more money in a bank account. You could hang out all day in a cool coffee shop if you like, without throwing away the interest on all that cash just to be the "owner."
You might agree, but keep the idea in mind when you look for a business. Does it really make enough money to justify the price, or is part of the price for "dream values" or "vanity values" which you might satisfy more cheaply in other ways?
The Comparison Factor
It may seem strange, and you might deny this feeling, but most people would rather be richer than the people around them than have more money. Let me explain: Would you rather have an income of $50,000 per year while everyone around you made $25,000 per year, or an annual income of $100,000, with everyone around you making $250,000 per year? In either case the prices of products and services are assumed to be the same.
Believe it or not, when researchers in behavioral economics ask this question of people, most prefer the first option. Objectively, it may seem totally irrational, but it is apparently very human. Scientists speculate that it is a matter of evolutionary forces - we seek to have more than others because (at least in our ancient history) gave us more power and ability to survive. Hmm...
The Fairness Principle
We seem to be genetically programmed to desire "fairness," according to the research. Consider the "ultimatum game," which is used in experiments by scientists in the field of "evolutionary economics." The rules are simple. Two subjects are given $100 to split, but only one gets to decide how to split it. Whatever he proposes, if the other accepts the proposal, the money is theirs. If he declines the proposal, both go home with nothing. This is clearly explained, and they do not get to play again ever.
Now, with those rules, rationally, you should accept any division proposed, even if it means you get $5 and the other player gets $95. After all, $5 is better than nothing, and there is nothing (financially) to be gained by saying no just to prevent the other from getting his $95. Interestingly, though, if the split is worse than about $70/$30, most players say no.
Again, this is assumed to be a part of our genetic predisposition to "fairness," which has resulted from evolutionary forces. Similar experiments with monkeys show the same tendencies to go against their immediate self interest if a proposal is "unfair." Of course, we have many things in our psychology that have resulted from evolution, and probably were useful at one time. However, what was good in the past does not necessarily serve us well in out modern environment. If we recognize that the ways we think about money are affected by these non-rational forces, we might start to think and act differently.
Note: This is part of the "Unusual Ways"
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