Mental accounting

I came across an interesting article on mental accounting from the Washington Post that talks about how people treat money and budget differently, even when a dollar is worth a dollar across the board.

For instance, I am contemplating buying a used laptop for $400, because buying a new one for $1,000 would exceed the theoretical budget of how much I’m willing to spend on a computer ($500), even though I can afford to buy a new one without having to sacrifice anything else from my other ‘budgets’ for buying comic books, going out to dinner, gas for the car, etc.

Likewise, I know people who will plunk $300 for a Prada purse, but then eat at McDonalds; whereas for me, I’d rather buy a purse from Target and then dine at Boulevard. It’s a matter of personal priorities.

I remember when I was grade school age in Bangkok: In Search of Excellence was the hot new ‘business’ book; bigger than “Freakonomics” or “Tipping Point” today. Dad and I were walking around Central Department store when we saw the book prominently displayed, for 300 baht. Dad really wanted to get it, but even he felt that it was very expensive. So we walked around browsing the other departments. I saw a T-shirt and really liked it: cheerful, colourful horizontal stripes.
“You like it?” We looked at the price tag. It was about 300 baht too. “Yeah I like it too. Let’s get it for you.” exclaimed Dad.
“But it costs the same as the book. Why don’t you just get the book instead?” I liked the T-shirt, but I know I didn’t want the T-shirt as much as Dad wanted the book. We kept arguing: Why don’t you get the book? No why don’t we get you the T-shirt?

In Cantonese, there’s a term “(Mm) seh duk” that’s roughly means ‘(can’t) mentally afford to’, but carries a more subtle, emotional nuance. My dad mm seh duk spend the money on himself, but seh duk spend the money on his daughter.

In the end, we bought neither book nor T-shirt that day! But I did gain something valuable; insight into how parents sacrifice with such generosity for their kids.

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