What the Cost of Convenience Really Costs

Everyone knows that lunch out, buying an ice cream cone, and purchasing a cup of morning coffee are more expensive than preparing those exact items in your home, but what about the other little conveniences in life that you pay extra for?

To continue with the food and drink examples, think about your trip to the grocery store. If you decided to purchase ingredients instead of relying on take-out, pat yourself on the back, but just be aware that you are still vulnerable to grossly overpriced items at the supermarket as well. For example, a bag of salad mix costs about $4, whereas a head of lettuce is $2 and the meager amount of carrots and radishes that are sometimes present in such mixes equate to less than $1, resulting in a 33% markup. Even Jell-O, quite possibly the simplest dessert to prepare carries a staggering convenience premium. A 6-pack of Jell-O snacks retails for $5 compared to the price of Jell-O to prepare it on your own, which is less than $2. Are you in that much of a hurry to eat Jell-O that you cannot wait for it to set and would rather spend a $3 premium?

Valet parking and overnight shipping are two other high-cost, yet often needless, expenses that are often incurred. Some valet parking is unavoidable, especially when parking at a hotel. However, many restaurants in downtown areas charge exorbitant fees to park a car, banking on the fact that hungry restaurant-goers would rather add the cost of parking to the night out than spending the extra time looking for low-cost (or free) street parking. Overnight shipping is often the result of poor planning. Neglecting to drive to the post office until the last minute or ordering last-minute gifts online are two common catalysts for overnighting a package with costs in excess of $10.

These are just a few examples of the plethora of traps that people fall into on a regular basis. Before spending the extra money for conveniences, it is important to evaluate the value of your time. Instead of just factoring in add-on costs to an overall price, look at charges as individual entities. Maybe you highly value the 5 minutes of time that it takes to make Jell-O, but everyone needs a break from work. Instead of cutting back on stress-relieving entertainment, try to economize on the unnecessary conveniences that do little to your overall disposition.  

Black Friday: Fact or Fiction? The Myth and Mayhem Revealed

After dozing off from the trytophan and that third piece of pumpkin pie on Thanksgiving, American consumers turn their attention to a pressing matter – holiday shopping. I love shopping, and I definitely love sales (I rarely ever buying something that is full-price), but I am not a fan of Black Friday. I definitely have spent many post-Thanksgiving days in the mall with the hordes of manic shoppers, but to what end? Are Black Friday deals really that great?

The little television that I watch has recently been flooded with commercials touting Black Friday sales, not just Friday, but from now until Christmas. Scanning through the fliers, there are “incredible” deals, but are they really that great?

A savvy shopper can spot bargains throughout the year and actually have a chance to buy the product, without camping out overnight at a mega store like Walmart or Best Buy. Yes, the sales are tempting – we are all lured by the fabulous deals and items that stores are nearly giving away. The prices seem almost too good to be true – how can they actually be making a profit?

Before I delve into the nuances of marketing and prices, think about the concept of Black Friday for a minute. What is Black Friday anyway? Is it a day set out every year by retailers nationwide to be especially altruistic and help out the American consumer, by offering unbelievable one-day-only sales??? Even I am not that idealistic. The sales figures that retailers garner are nearly completely based on hype. Black Friday is the day where the stores mock you for not having every gift bought, wrapped, and ready to distribute, even though Christmas is a month away. In my mind, a month is plenty of time to check off every item on your list; there is really no need to panic – the stores just want you to panic because the more you panic, the more you buy.

Just as companies like Gillette sell you a relatively cheap razor holder only to gouge you later on razor blades, and HP sells you the 3-in-1 printer for $70, but charges you around $20 for each ink cartridge, retailers lure you into stores in the same manner. Yes, there are some fabulous sales, but only for the lucky few that sacrifice sleep to be the first people in the store. The rest, once they are lured in, are crestfallen at the thought of missing out on their coveted item, but wait – the store is to the rescue! There so many other great sale items to choose from – how can you resist? So before you get the tent out of the attic and set up your coffee pot for your camp-out at the mall, examine your priorities. Is that one item really that important? You may see me at the mall tomorrow, coupons and list in hand, but before you max out your credit cards: stop, inhale, and really think about what you are about to do. If it is something that you actually want, go ahead, swipe your card, but just remember to keep the receipt. 

The Great Pumpkin Mystery

The first sign of cool evening breezes and sight of changing leaves not only toll the beginning of autumn, but of pumpkin season.

I am not sure how the tradition of eating pumpkin pie on Thanksgiving began, but if wikipedia doesn’t include it in their vast database, then essentially it is unimportant. What I do know is that pumpkin is delicious.

I love pumpkin – pumpkin muffins, pumpkin cookies, pumpkin flavored coffee, and yes, even pumpkin flavored pasta (try it with shitake mushrooms and gorgonzola – amazing). So you can understand the utter panic that I experienced when three grocery stores sold out of pumpkin in mid-October (this was after my first massive round of pumpkin baking, of course). Luckily, my roommate came to the rescue and lent me a can so that I could whip up a batch of scrumptious chocolate chip pumpkin cookies.

At first, I thought that this pumpkin scare was a fluke – maybe New Yorkers just had an usually high pumpkin appetite to satisfy this past October, but when I started poking around the Internet, I really went into panic mode when Nestlé (the supplier of 85% of canned pumpkin) reported an uncommonly bad crop this year and feared running out of pumpkin before Thanksgiving. With a scant crop, the only obvious solution is to increase the prices, so that the diehard pumpkin fans can satiate their cravings. However, I worry that the revered status of the pumpkin pie parallels hot dogs on the 4^th of July, and the tradition will elevate the canned pumpkin to a nearly-inelastic state, which would only just gauge the consumers instead of distributing it based on valuation.

Unfortunately, no one really thinks about running out of pumpkin. I purchase it year-round. Pumpkin seems to be in plentiful supply. I have always thought of pumpkin as a rather hearty crop. I know that there are alternatives like baking butternut squash, but that is just not time-effective for a pumpkin fiend like myself – it is a viable option for those Thanksgiving only pumpkin bakers. So the bottom line is, if you cannot live without that quintessential pumpkin pie on Thanksgiving – buy it, and don’t expect it to go on sale anytime soon.

 

* This blog was crafted while consuming a pumpkin muffin. The crumbs in my keyboard serve as evidence.

Roll the Dice

With high unemployment, slow job creation, and the future economic state uncertain, Americans are more price-conscious than ever. While no one tries to “throw away money,” wasteful spending is a typical occurrence whether it is paying for unnecessary conveniences or simply gambling away hard-earned money.

20% of lotteries have experienced a drop in revenue, 65% have remained stagnant from the previous fiscal year, but 15% have increased, despite the recession. Las Vegas has been hit hard by the recession. Since less people indulge in vacations, gambling trips have been less frequent and less lavish. However, the online lotteries have faired relatively well since gambling takes place from the comfort of one’s own home.

Though, gaming commissions would argue that the industry is failing, I cannot help but think that the lotteries and casinos are doing much better than I would have anticipated. Slot machines have up to 15.20% advantage, with their edge lessening as the minimum bet increases. Blackjack, for an experienced player, is potentially more lucrative with less than one percent advantage of the house over the player. One of the worst games to play is Keno with between 25% and 29% house advantage (so that scene in National Lampoon’s Vegas Vacation – completely unlikely). So why would people continue to gamble away their scare funds when the odds of winning are clearly against them?

Gambler’s conceit is one of most detrimental occurrences among gamblers. The rational gambler always contends, before laying a single chip on the table, that they will quit when they are ahead – the famous last words. If only a gambler set aside their initial investment after a big win and continued to play with their wins, the better could conceivable walk away even after an enjoyable evening of gambling. However, that simply does not occur when the stakes are high.

The gambler’s fallacy is the driving force behind dipper further into one’s pocket after a devastating loss. Also called the “Monte Carlo Fallacy,” it is a belief that a string of unfavorable outcomes will eventually end in order to even out the deviations. By attempting to change the string of bad luck, a gambler will continue to dig a hole despite their better judgment.

Superstition is a prevailing sentiment among gamblers. Whether it is wearing a pair of lucky underwear, shacking die in a certain way, or using a specific slot machine, many chronic gamblers adhere to the inverse gambler’s fallacy, assuming that the so-called “good luck charms” can defy the laws of math and boost their odds. 

Unfortunately, some of these principles carry over to investing in the stock market. Those same hedge fund managers that think of themselves as nearly infallible are the same people that will delve further and further into their gains to cover their losses. And as for knowing when to quit – so many people hold onto a stock, waiting for it to start rising again, only to lose everything in the end. I cannot claim to be an investing expert, but the advice that I can give you is: cut your losses because in the end, worrying about the small declines (and the sunk costs of investments) will only result in even higher investment pitfalls.  

Add This to Your "To Do" List

This week, I interviewed Michael Galpert, co-founder of Aviary, a website that offers free photo and audio software, and it got me thinking about the role of media in society.

The media has always played an integral role in society as a conveyor of information. Whether we watch the local news, read a blog, or pick up a tabloid while in line at the grocery store, we are influenced by the media around us. The advent of weblogs roughly 13 years ago served as an impetus of information circulation via the internet. The popularity of social media networks like Facebook and Twitter make dissemination of information infinitely easier. Media outlets like Foursquare serve as GPS-like systems to locate your friends. We are definitely embarking on a new direction and further delving into the possibilities of new media.

Everyday, new start-ups and online entities come to fruition and provide a plethora of new services. Part of the momentum for innovation is the move toward a DIY society – a welcome departure from the rampant consumerism that we have been facing in the past several years.

Instead of just “paying someone else to do it,” many consumers are taking on new endeavors. Perhaps, fear of economic future has skewed the consumer behavior, but unlike the possibly fleeting savings rates of Americans, I believe that the DIY shift is a result of the proliferation of new internet media, and it will be here to stay.

No longer is Ikea the sole provider of assembly-required furniture, but extensive assembly of small furniture pieces appears to be the norm. Home improvement stores, like Lowes, emphasize store assistance with building projects. Websites like Adafruit.com allow budding electricians to build a variety of home electronics, and NYC Resistor composes a group of forward-thinking hackers, pushing the limits of technology.

Whether your motives for creative and/or technological projects are sources of entertainment, catharsis, or simply part of cost-cutting efforts, the Internet has organized information on every subject imaginable, making your next project literally just a click away.

Keeping Up With the Joneses

In 1916, Arthur R. “Pop” Momand debuted the cartoon, “Keeping Up With the Jonseses” in the  New York World.  The comic strip features a suburban family and there are constant references to the illusive Joneses, their nextdoor neighbors, who are never actually pictured, but serve as a benchmark for success.

Data from September 2009 estimates that revolving credit (basically credit card purchases) dropped by 10% to $889 billion as opposed to the $975 billion peak in 2008. Bank credit card debt represented 85% ($710 billion) of that debt. The Federal Reserve estimates that 40% of households spend more money than they earn.

The average credit card APR is 13.71%, a number that has been steadily climbing over the past few months. However, the Fed approximates that 9.55% ($84.9 billion) of those loans will never be paid back, a striking rise considering that the estimate was only 7.85% during the last recession. Though only a small percentage difference, the actual increase is drastic when you are dealing with BILLIONS of dollars.

The good news is that consumers have been spending less – consumer spending only represents 70% of GDP, and monthly debt fell by $10 billion in September. The end of September brought the total U.S. mortgage debt to $2456 billion (excluding home mortgages).

So what does all of this have to do with the Joneses?

Achieving the “American dream” has a plethora of implications, but one aspect that can be agreed upon is the realization of success. Every American, whether a new immigrant or multiple-generation citizen, strives to achieve success. Of course, the degree to which the dream is attained varies greatly between people and their relative personal expectations – some hope to live in a suburban house with a white picket fence, others a penthouse in the Upper East Side.

Many people are not content in knowing their own personal achievements, but attempt to peacock their wealth and success, taking part in “conspicuous consumption.”

I am not saying that there is anything wrong with wanting to live in a big house, have a lucrative career, and go on nice vacations, but it is important to keep things in perspective. Not everyone is destined to live in a $2 million dollar home, regardless if a mortgage company gives to a loan to purchase one. Consumption has been driving the economy, resulting in wealth for many Americans, but consumption has been, in some respects, the downfall of the economy. Many factors led up to the recession and consumers are not the sole culprit, but let’s be honest, overextending credit and over-consumption definitely had an impact on the already delicate situation.

Personal savings may have increased, and as long as there are job cuts and unemployment hovers around 10%, the total consumption will fall, but how long will this conservative consumption persist? It is hard to say, but as far as I can tell, the Joneses aren’t going away anytime soon.  

eHarmony’s Thirtieth Dimension of Compatibility?

Many factors contribute to determining the “perfect” potential spouse. While some people may have a laundry list of detailed qualifications, others may only have a few key qualities that they look for in a boyfriend or girlfriend.

When speaking of relationships, it is often said that, “opposites attract.” While the narcissists may choose to differ, the allure of opposing qualities manifests more often than not. The cause of this disparity in ideals is that people seek mates who possess opposing qualities of aspects of their own character that they despise. 

In an attempt to capture spending habits, George Loewenstein introduced the Tightwad-Spendthrift scale. The TW-ST scale represents the polar spending habits of consumers, ranging from the most frugal to the most liberal in terms of consumption. In accordance with the premise that opposites attract, spendthrifts and tightwads are typically attracted toward each other since thrifty people envy the spendthrift’s ability to indulge in purchases and, suffering from nearly perpetual buyer’s remorse, the spendthrifts envy the self-control of the tightwads. 

While it may seem like an ideal situation that tightwads and spendthrifts are attracted to one another, their relationship does not form a meeting of the minds or anywhere near a balance of the extreme spending habits. In fact, disparity in spending habits is one of the leading causes of marital strife. Especially now, during a recession, finances are a concern for many couples/families. An already tense subject – finances – easily leads to more dispute in a marriage when coupled with future economic uncertainty and unemployment.

Most people’s habits lie closer to the mid ranges of the scale, but not every couple is so fortunate. Spending habits are not easily changed and are formed over time by a variety of contributing factors. When a family is very financially secure and/or during times of economic prosperity, the difference in spending habits is not quite as influential on a spousal happiness, but as financial concerns take the forefront of discussion friction arises. My advice: maybe after “for richer, for poorer” in the wedding vows, “for frugality, for squandering” should be added. Just a thought. 

If you want to buy less, take an economist with you

Living in a capitalist society, Americans are constantly being force-fed the notion of consumption. We are constantly inundated with advertisements of new products that we “have to have.” Not only do consumers mentally allocate different values to money depending on their source, but consumers find justification in their irrational actions.

Just as the dieter convinces herself that one more bite of chocolate cake won’t ruin her diet, and a teenager stays out an extra 10 minutes past his curfew when he is already running late, shoppers can always find a reasonable justification for a purchase. This symptom is called cognitive dissonance, and no matter how much one denies it, we all suffer from this burden. Ever splurge for the $200 pair of jeans because they were “on sale” (even if it is just 10%) or raid the clearance rack and buy a stack of unnecessary items because they were “such a good deal”? Sales are especially alluring – consumers tend to focus more on how much they are “saving” on the purchase than truly examine the money being spent on the purchase. The exhilaration of a great purchase, whether it be clothing, a new television, or a piece furniture, soon fades after the initial swipe of the card, leaving you with a sinking feeling in the pit of your stomach – “buyer’s remorse.”

Some fortunate people can experience the sensation of buyer’s remorse before throwing away the receipt or taking off the tag of that expensive purchase and return it. Others are not so fortunate and will perpetually be haunted by their overzealous purchase.

Personally, my worst cases of buyer’s remorse come from regret of not purchasing something, and of course, it is always the items that I cannot go back for that I yearn for afterward. Most days, I find myself holding an item in my hand or staring at an article of clothing in the dressing room mirror, listing pros and cons in my head (of course, I always look at the price before even looking to see if the store has my size). If I really like something, I can make a nearly instant decision to purchase, but if I begin to mentally debate for too long, I simply put back the item – rationalizing that if I really wanted/needed it, I would not need to take such a long time making a decision. That is not to say that I never regret putting something back, but it does save me a lot of money.

So next time that you go on a shopping trip try to remember that all money has the save value regardless of the source, and it is not how much you save, but what you spend that counts, and if all else fails, please just save the receipt. 

When $100 ≠ $100

What IS money? While the word, “money” has several connotations; the actual dollar bills and coins are a representation of value, which is used in everyday transactions. During times of economic slump, which we are now wading through, saving money is essential. Americans traditionally have one of the lowest savings rates worldwide – consistently zero percent and many even maintain debt due to excessive spending. As of May, the U.S. savings rate jumped to nearly 7% indicating that saving habits have shifted in wake of the recession. When then, do people continue to compartmentalize money based on origin?

All money is created equal. $100 equals $100 regardless of the origin. When you receive a paycheck after the daily grind, there is a sense of emotional attachment to that money. The money in a paycheck represents long hours, hard work, and the time that could’ve been spent at more enjoyable activities. The perception of income inherently has a high value since it derives from working. Conversely, when someone picks up a $20 bill from the sidewalk it is often perceived to be “free money.” Since no effort was exerted to “earn” the money, there is less hesitance to squander the money.

As irrational as it may seem, most people place different values on money depending on the source, placing virtual stickie notes on each bill to separate how much money is able to spent and on what. In reality, regardless of whether money is a gift or part of a salary or a rumpled bill found in a coat jacket, it equally contributes to a person’s wealth. When $150 is spent on a pair of designer jeans that were an impulse buy, the $150 is not just coming from gift money, regardless of how much someone wants to believe that it is, but the money is subtracted from a consumer’s overall balance.

Americans are heading in the right direction as far as saving is concerned. 6.9 percent is a drastic jump from the negative saving rates of the past, but until a consumer can view all money as holding the same value, wasteful spending will ensue.

“No one actually likes the Yankees…it’s just herd theory.”

To follow-up my earlier observations on baseball, I would like to examine loyalty. Why are people loyal?

Sports epitomize the sentiment of loyalty. In many instances, devotion to a specific team is ingrained from an early age. Most fans support their local team, feeling a sense of pride in the locality in which they live. In big cities, like New York and Chicago, where two teams reside, sports can cause a poignant rivalry and divide during the season with sports allegiance passed down along with the more conventional family traditions. Of course, there are always sports enthusiasts who support a specific team, outside of their immediate area, for a multitude of personal reasons,

In a sense, sports allegiances are built artificially – the love merely is passed down from generation to generation, without actual examination of merits. That is not to say that a fan’s desire to root for their favorite team is not out of genuine concern, but had someone been born in a different region to a different set of parents, they could potentially feel loyalty to a different team. Once a feeling of loyalty toward a certain entity is built, the foundations of the faithfulness are rarely scrutinized.

In many aspects of our lives, loyalty is established for a plethora of different reasons.

When you dip a salty french fry into ketchup, can you immediately tell if it is Heinz or Hunt’s? Does the organic butter taste any different than the cheapest store brand? If the answers to these questions, and many similar inquiries, are a resounding no, then brand loyalty has been built. Marketers attempt to build the same type of unwavering devotion that sports teams garner for the items that they are marketing. Even celebrities attempt to build a following so strong that the biggest movie flop or song recording will not cause their fans’ loss of support. If the brand is built solid enough, declines in quality and moments of corporate weakness will not tarnish their reputation and the customers will remain.

The aforementioned Phillies example of herd theory again applies to loyalty. When a spectator/customer lacks particular attachment to a brand, team, or other type of entity, they seek to feel a sense of inclusion by aligning themselves with a crowd. In many cases, the most popular group is the most attractive group. If a brand is able to build itself up sufficiently, the momentum can take over, causing exponential growth.

Whether you support the Phillies, the Yankees, or any other baseball team, remember that the true fans support their team not matter what. It is so easy to get caught up on the hype and jump on the bandwagon, but it is when a team is losing that you really can see who the true supporters are, regardless of the source of their devotion.