Hidden costs, exposed

What do you give up to pursue that A-plus — or that enormous new house?

February 06, 2011|By Mike McGrew

Back when university computers were the size of houses, my goal in college was straight A-minuses. Why? In addition to my full course load, I cooked at a restaurant, played sports and enjoyed time partying and sleeping. In my mind, A-pluses required way too much study commitment.

Economics class introduced me to the concept of "opportunity cost" — the cost of the alternative (or its potential benefits) forgone due to one's choice or action. In my case, the opportunity cost in seeking A-plusses would have been the partying and napping pleasure I'd have to sacrifice.

How do opportunity costs apply today? This past Christmas, my mother gave us a nifty electric pepper grinder, full of cutting-edge cuteness. Privately, I considered it another stupid moneymaking invention that offered negligible convenience. Still, as a gift, the opportunity cost of our new electric grinder was low — only the price of four batteries and the assembly time forgone if I had ground my pepper manually.

Also in the realm of the small bore, but possessing slightly greater opportunity costs, are those "Quattro" razors offering a four-bladed, "ultimate" shave experience. These have failed to seduce me from my extremely old but still very smooth Atra razor, whose generic blades cost half the name-brand's prices. I've saved countless dollars sticking with my Atra and rejecting the Quattro's disguised expense.

What about bigger choices? My wife mocks my display of grocery receipts from those rare times when the value of my coupons and discounts exceeded my total food purchases. She describes my exhilaration in obtaining the lowest price possible as similar to my winning a basketball game. She's clearly right, but what I save on food, appliances, clothes and maintenance also means I've more to spend on special beers, travel and dinners out. To this educator living on a static salary for four years, the cost of forgoing nonsale items and the time I spend securing good deals are clearly worth it.

I've recently pondered the opportunity cost of more expensive economic decisions. Compared to European neighbors I met while living overseas, we Americans endure much more cultural and advertising pressure to purchase the latest, biggest, most-accessorized models. This applies to cars, appliances and other conveniences (with the best upgrades, of course) to maximize our experience, fulfill our fantasies, and/or keep up with the Joneses.

I don't begrudge anyone concluding that such purchases have merit — if their benefits outweigh their opportunity costs. However, such costs (especially environmental ones) are often hidden and can include forgone savings and interest; working hours required to buy, power and maintain items; not to mention the satisfaction and peace of mind we may forsake by not spending our time and money on more pleasurable, less expensive, or personally fulfilling alternatives.

For me, the benefit of accessing 600 channels with a 60-inch, high-definition plasma TV just isn't worth the money, confusion, distraction or increased resentment from my wife, whom I already infuriate with my channel clicking within our basic cable package using our much smaller, older, no-frills TV.

Another example — and I know I'll catch flak for this one — but to me, the cost of expensive tickets, tailgating, transportation, traffic jams, parking, food and beer (plus the commute time I might otherwise spend watching an additional game, exercising, reading or writing) makes stadium viewing of high-cost sports very rarely worth their opportunity cost when TV viewing is free.

How about our very biggest choices? The opportunity costs of a larger, newer house with the best options in the most desirable neighborhood usually consist of extra commute time, additional work time and money dedicated to a larger mortgage, interest paid, increased utilities, greater environmental costs, taxes, insurance, maintenance, repairs, forgone savings and unearned interest.

In today's unstable economy, with skyrocketing energy prices, such costs should cause many of us to re-think the true value and costs of large home ownership. Given the difficulty most college graduates now have securing decent jobs and affording school loan payments, the same is often true when considering expensive universities from a cost/benefit standpoint.

It's also helpful to examine the implicit trade-offs of our employment choices. As a public school employee, I don't rake in super big bucks. Nevertheless, I love most of what I do, my commute is short, and I have plenty of time to enjoy exercise, the outdoors, relationships, volunteering, travel, reading, music, micro-brews and writing. Thus, I feel more contentedly free than most friends with high salaries, bigger houses, longer commutes and greater employment pressures, instability, dissatisfactions and distractions.

My advice: Resist bigness, newness, cuteness, marginal conveniences, unnecessary upgrades and work you don't enjoy unless their value exceeds their opportunity costs. Sometimes, A-pluses aren't really worth it.

Mike McGrew is a school psychologist from Carroll County. His e-mail is mcgrewclark@hotmail.com.

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