Living a Champagne Lifestyle on a Beer Budget

Champagne

After reading Dan Ariely’s “Predictably Irrational“, it had me thinking a lot about the concept of people who don’t know anything about something that can be complex (ex. getting wine at dinner) buying the 2nd cheapest thing on the menu, because they don’t want to seem cheap (even though they are), to come off as knowing a little bit to the people observing them. I had a discussion this morning that involved the idea of college students coming fresh out of college, having no real idea (even with today’s technology and educational standards at private universities) how to handle their finances, and buying lavish objects to make it appear to their friends that they are living the ideal life (or at least for this age). However, since the finances to back such lavish items don’t actually exist, they are Living a Champagne Lifestyle on a Beer Budget. That puts things in the college perspective, doesn’t it.

A good majority of us, whether from private or public institutions nationwide, do not really understand the value of money, saving it, and spending it responsibly. Heck, I’d love to blame the government for the current financial crisis, but it is very much derived from the irresponsibility we manifested as a whole in handling our money over the past decade. Taking out excessive loans, getting in heaps of credit card debt, and compounding more and more interest onto the money we owe the companies at which we keep throwing our money. There is an apparent need for a more fundamental set of teachings in our public education system surrounding personal finance. Especially since our college education gives us the option to take whatever classes we want, we need something more mandated in our public schools. Sure, my mandatory classes in high school taught me how I can effectively create methamphetamine using simple medications I can pick up at Albertson’s, but I have no freakin’ clue as to what an IRA is.

Gas Pump

Another interesting observation can be made when looking at the price of gas in our current economy. Many times, when faced with the decision between the cheapest gas you could find (ex. $4.15/gal) and the second cheapest gas you could find (ex. $4.18/gal), we would go for the cheapest we could find in order to still fill our tank, but feel like we got the best bang for our buck. However, the circumstances change drastically when we have seen sudden gas prices tank (pun very intended). There are a few observations to be made. First, people start thinking, “Wow, $1.39/gal is so cheap for gas. I’m so happy!” Now that is with regards to the previous prices (ex. $4.15/gal) and also the anchor price we’ve been attached to for the past few years (~$2.75/gal-$3.75/gal). We think that $1.39 /gal is nearly dirt cheap, but that’s only in comparison to what we were most recently paying. It is cheaper than before, no doubt, but is it really what it is worth? When I started driving, it was $1.23/gal, which I still thought was a lot of money to pay for a gallon of gas. I never though by the time I was out of college, I’d be paying $4.15/gal. We are under the assumption that gas is just suddenly the price it should be, merely based on our recent purchasing price. The second observation is that, when gas is this cheap, we no longer necessarily go to get the cheapest gas (ex. $1.39/gal), but instead go for the 2nd cheapest (again, like the wine), because we can afford more than to skimp on the quality of the gas going into our car. Funny how that all works.

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~ by trentgillaspie on December 30, 2008.

One Response to “Living a Champagne Lifestyle on a Beer Budget”

  1. I think you’re right on the money (pun intended) regarding the huge effect of anchor prices on the psychology of purchasing. If you look globally though, gas is not only cheap in the States today, but was relatively cheap even at its highest price point. When we were balking at $4/gal, people across the Atlantic were paying up to $9/gal.

    As far as octane ratings ago, my bit of research suggests that you can put any grade of gas in a modern car and it will run fine. A number of sources suggest that as long as the gas is clean, there will be no noticeable difference in performance between regular and premium. Only a small percentage of cars on the road — namely sports cars — will derive any benefit from premium gas, and even then the difference is barely noticeable. Seems that “quality” may be an illusion here, since premium offers no perceivable benefits to the vast majority of drivers.

    A bit more subjective with wine, of course, but I’m willing to bet that most people cannot tell the difference between a $15 bottle and a $150 bottle in a blind taste test. And so, why pay more? Alas, the champagne lifestyle is for appearances only!

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