How much consumption is really optimal?

Holidays creats a lot of satisfaction for Woodpeckers, so we spend a lot for them. But that might be different for you.

Travelling creates a lot of satisfaction for Woodpeckers, so we spend a lot on it. But that might be different for you. Photo: Périgord, France.

Hi there and a happy festive season (guess that’s the political correct expression for merry christmas, isn’t it?)!

Well, at least in Germany the consumerist part of Christmas is over (presents are exchanged on 25th of December), so it’s a good time to reflect a bit on consumption in general.

I guess concerning this issue there are two major opposing groups when I look around:

1) The more-and-more attitude

i.e. the materialistically driven group that is striving to maximize consumption ever more.
Consumption, materialistic gains, and all that belongs to it (like career, political focus on efficiency, perfectly trimmed CVs, status and it’s symbols) plays a major role for them. To different degrees they are consciously or unconsciously sacrificing many non-material pleasures in life (like social contact, idle-time, hobbies, travelling, chilling, creative work, benevolence) for the main purpose: “Getting ahead” and “achieving something”.
Whereas it seems to be pretty thinly defined what exactly the purpose of this “achievement” is in the end. However, pondering this kind of questions does not play an important role in this group, as they seem to behave according to basic universal “values” that our society is emphasizing. In fact they perfectly live up to these “common values”, often even beyond the original purpose of these values – like religious fanatics overdo it with living up to their religion’s rules.
The price this group pays is high in my opinion as they will climb at most the first 3 steps (maximal 4) out of 5 of Maslow’s pyramid of needs. And the rat-race stays their place to be, their shelter and their home right until the end.
I’d say they represent about 65% of western population. A bit more in the US and UK, a bit less in southern Europe. On the extreme end – those doing a dedicated choice for a materialistic life it’s maybe only 15%. The rest of 50% might be more or less unconscious fellow-runners who simply adopt these society rules to avoid the complicated task of thinking too much about how to live their lives in their own way. But all of the latter will as well mostly prefer more money above most other choices.

2) The strictly anti-materialistic.

This is the (much smaller) group that sees only the bad in consumerism.
They understand that the way of strictly materialistic living will miss out important things in life.
However, they tend to fall into the other extreme:
Consumption and materialistic things are sometimes seen as a “bad”. Work and achievement are frowned upon, and in the extreme even disdained. Some of this group came to this conclusion by being unsatisfied with the price that comes with consumption, some hold strong political beliefs and some because they were not fitting in our economic system, because they are not able or not willing to adapt to its rules. And some of course are only washed into this group because they simply failed when playing the game and thus turned away in anger.
The pro is that obviously this group successfully avoids the rat race.
However, they might pay a price as well:
At least on the more extreme end there is a great danger that they will miss many of the undisputed pleasures that consumption and material things can bring to life. And (in the extreme case) their consumption is so low that they could easily boost the pleasure from it by just accomplishing a tiny little more – far from exhaustion or stress. Because even to a monk a certain level of consumption is a “good”.
I’d say this group in total is 25-30% of population. The extreme part, that chose their belonging to this group consciously and voluntarily is probably even smaller, maybe  10% or so.

So why am I writing this?

Because I think – as so often – the most clever way lays in between – a middle way.

This follows from the economic model of marginal decreasing returns:

The more you consume of a certain good, the lower your additional pleasure will be.

The first burger tastes great if you are hungry, the second as well, the third is ok, the twentieth will make you sick.

This is a nearly universal rule:

Look into an arbitrary facet of your life and you will see it working (Food, Car, Housing, Children, Fun from Work, Doing a hobby, going out, exercising, having free time, you name it).

So the way to a happy life is neither maximizing consumption (->price too high for limited additional satisfaction; right side in the graphic) nor is it minimizing consumption (-> loss of considerable satisfaction at very low prices, left side of the graphic).

The goal is to find the right level of consumption where the cost (cost of money, cost of time, health etc.) begins to outweight the benefit/satisfaction of something.
You have to find that point for every category of consumption.
And it will be very individual: For one person holiday is important, for another food, for one person the price is relatively low (because he/she likes his job) for another the price will be high (because he hates working or he really loves spare-time).

The materialist will find themselves way to far on the right. The dogmatic anti-materialists will be too far on the left side of the optimum. (Funnily this often - not always - might match political attitude ;) )

The materialist will find themselves way to far on the right. The dogmatic anti-materialists will be too far on the left side of the optimum. (Funnily this often – not always – might match political attitude 😉 )

So don’t automatically listen to all those guys that tell you:
You have to save on this specific item!

It really might depend.

However, two things are for sure:

If you can get the same satisfaction for a cheaper price, you MUST go for this option and you should invest some effort to find it.
And you have to understand that your own mind can trick you by wrongly estimating satisfaction gained from certain goods or activities.

So please do listen to people who help you understand these tricks of our minds, and who push you to reconsider carefully if your assessment or your planned choices are really in your own best interest (Like the big car, whose happiness-effect is provably systematically overestimated; or social contacts, where the happiness-effect is systematically underestimated).

Woodpecker’s are currently doing the financial planning for 2013. Budget will increase quite a bit as Mrs. Woodpecker is starting to work part-time again. Passive income (dividends) will also increase due to this year’s good saving efforts (more details next post). So our price for consumption is decreasing a bit (more money available) and the value of certain pleasures will increase (more relaxation activities needed to compensate a bit more stress from work). Thus I tend to further increase our budget for travelling (already very high, but – hey – that’s one of our personal major happiness providers). Budget for going out and paid family activities will be increased as well to free up some time, and of course budget for childcare.
Budget for food, drugstore, utilities, insurance, car, transport, purchase of goods and short trips on the other hand should go down as I see plenty of room to cut these without any real loss of happiness (next post will be on this years many saving accomplishments that did not make any noticeable difference in Woodpeckers wellbeing).

Cheers and let me know your thoughts,

Woodpecker

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2 comments on “How much consumption is really optimal?

  1. zanzanaglob says:

    Understanding what really makes you happy takes time and effort, but it is really worthwhile, as it shows you what you have to save and what you can delete. After this, you are ready to answer “We can!” to all the “How can you live without…?” people normally ask, like: “How can you live without a car (or may be two)?” “How can you live without a smartphone?” “How can you live without that fancy bag?” We surely can, and we can feel even happier, if we just worked a little bit on that. Merry Christmas! 🙂

  2. […] sense. Humans are deeply social beings and in contrast to other goods, there is no such thing as decreasing additional benefit from additional friendships – in this case more is always […]

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