The income and consumption illusion – Part 2: What to buy

A boat might be worth its money if it’s becoming your daily working vehicle or if it allows you to live your life differently on a frequent basis (If you love sailing, the exercise and then nature and have the time to use it). But not if you buy it only to impress your friends and it stays in the harbour 350 days a year.

As indicated I would like to continue the discussion from this post on the optimal level of spending and consumption.

We saw in the last post that the effect of adaptation will in general nullify any gain in happiness that you get from buying something or from increasing your income after a certain amount of time passed.

However we have seen that the effect of adaptation regarding income applies only beyond a certain threshold of income. This is in line with common sense:

Even if I’d advocate that most people could be equally happy with less money than they actually spend, it is obvious that no money at all makes it quite difficult to achieve happiness. Unless of course you are one of the really bad-ass Cynicists like Diogenes.

But now I would like to look at the consumption side:

If you take the principle of adaptation to it’s extreme, we should own nothing and live in a barrel like Diogenes who threw his last possession (a cup) away when he saw somebody who was drinking out of his hands.

So  should we throw away everything we own, or abstain from buying anything for ever from now on? And if not, what is it now with the effect of adaptation?

After thinking a bit about this puzzle, I would propose the following:

  • Like with income, a certain given threshold has to be passed before the effect of adaptation applies. I.e. you should obviously own a couple of BASIC things, that make your life easier on a very simple level and on a daily basis.
    That would start with a roof over your head, a toilet, heating, food, cloths  and so on, all things that truly add to your physical well-being constantly.
    Probably everybody who is reading this can tick an OK to all of this points anyhow, like most people in developed societies can.
    That’s great news, because then the door to happiness is quite open.
  • Beyond that point, I’d tend to propose the following if it comes to a buying decision:
  • If the product you are considering to buy can be used in a creative and interactive way, if it can add to or amplify your skills, your ideas, your creativity in a long-term way, then you should buy it. Because in that case, I’d say the law of adaptation does not apply.
    Why? Because the product will not be the same over time, it will renew it’s utility with each usage by you. Thus it’s happiness boost will not, or only very slowly, wear of.

Take an example:
Music instruments, or a laptop.
Each time you play your instrument, it will give you some joy, and each time your play will be different. You will get better thanks to the possibility to practice and your creative potential will be improved by it. Same holds true for the laptop – if you use it for interactive purposes, like writing, reading meaningful stuff and so on.

  • Now the other case:
    If the product you are considering to buy does only fulfill a passive or status role, or it is excessively expensive not due to functionality but due to non-functional features, then you should not buy it because very likely its happiness value will diminish quickly by the law of adaptation.

Example:
Aluminum rims for your car. These things do not add any more functionality to your car that standard steel rims could offer. To the contrary, they are less durable and quicker to damage. But they cost three times the money, because they are stylish.
Same holds true for a golden automatic watch, expensive designer cloths and so on. Actually for most products that are considered as “hip” or “life-style”.

  • Obviously you might rather not buy:
    Things that only replace other things you have already, but do not add significant functionality but rather are “new” or “more modern”.
    Things that are too specialized, such that you would need them only seldom and could easily replace them (like the funny example of “special electric pumpkin knifes” for Halloween)
    Things that you need seldom and that your neighbor or friends already own. Just lend it out and buy a bottle of wine instead as a present.

For the moment, I am quite satisfied with this solution to the consumption problem, but let me know if you have any other ideas.

Cheers,

Woodpecker

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4 comments on “The income and consumption illusion – Part 2: What to buy

  1. Woodpecker your post is really relevant to our view of too much stuff \ consumption:

    I have recently been lured by the latest tablet on the market place. Since I have adopted a process to save first then re-consider the purchase this has really stopped a lot of frivolous purchases of expensive shiny things that are out of date in a short period of time. I have found that buying technology that is nearly new but does the job saves a lot on the initial purchase price.

    We are now facing the issue of Christmas shopping. Personally we do not really want anything that is expensive and non consumable. The challenge for us is emphasising to our families that a nice bottle of wine or a book for us and one (only one) present for each of our children would be great and we would be really grateful. Especially if they could all invest in the same present. Ideally a little money invested for their future would be even better.

    Unfortunately we will continue to de-clutter our house from excessive expensive toys (and clothes). These will be sold on at a considerable loss or given to our local charity shop (which we do on a regular basis). The children are actually happier in the park, playing with some pens and a coloring book, reading a book or riding their bikes – a lot of the toys are touched once then not used regularly !!!!!

    Too much stuff actually makes us unhappy as the clutter can fill rooms up make them feel cramped and unwelcoming. The constant de-cluttering we have to do is time consuming. However we do not want to hurt the feeling of our very generous friends and family.

    All part of the fun of living.

    All the best

    MUFF

    Looks like you had a great holiday – lots of ideas for the future :)

    • mrwoodpecker says:

      Hi Muff,

      Yeah, I know the problem you describe only too well. I also start to feel somehow unfree if I have too much stuff around me. And our relatives as well are difficult to stop from making many presents especialy to the kids. And I’d guess they would not like to pay only into a savings account, although I find this a great idea. They tend to want something ‘tangible’. We try to channel this into things we indeed need, like a bike for the boy. Maybe it would also be worth a try to make them give activities with the kids, e.g. going to the Zoo or in a costly Fun park or so…

      Cheers,
      Woodpecker

  2. @MUFF: would starting a special savings acoount or education account for each of your kids help? That the family can give money for that, and that they are told explicitely that they do not need to bring (much) more?

    • Hi Spaarolifantje,

      We are fortunate that the grandparents do contribute to tax efficient savings accounts for the children. Lets just hope I invest it in the right assets for them! Our challenge is that the grandparents also want to provide too many gifts as well (I believe they are a little competitive) so that the girls have something tangible for Christmas and their birthdays. We have reduced the number of presents through wish lists which in itself has been a challenge!

      We are very luck to have such generous families. The need to buy too many presents perhaps is because they were brought up at a time when there with less resources available and they would have liked their own bike etc. From our concerns about over consumption and the related environmental degradation we do not like to see these valuable resources being used fleetingly before being passed on. We prefer quality over quantity and longevity over short term entertainment (a wooden train set keeps them happy for hours and will continue to do so in the years ahead).

      The girls would be very happy with with more train track or a book and we would be happy to see more go towards their education in the long run as per your point. We will reiterate this to the grandparents an a very regular basis – persistence as well as demonstration (the parents setting an example – which we like to think we do) will win the day sometime in the future.

      Looking forward our goal is to be financially free as a family next year. Our challenge then is how to ensure we equip the girls with the intellectual resources they need to thrive in life. Hopefully at the same time (with the help of the grandparents!!!) build some savings to help them avoid debt when they get started.

      All the best

      MUFF

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