Debt Economics: Shopaholics Don’t Have a Spending Problem, They Have Issues Managing Their Leisure Time

December 6, 2011

 

Relaxation in Tel Aviv hotel.

Image via Wikipedia

Let me begin with something counter-intuitive; Shopaholics don’t have a money spending problem. They just don’t manage their leisure time well. At least that is the diagnosis from the school of classical economics. If you’ve ever wondered what economics has to say about spending, consumer debt, work and retirement, you are about to get a decades-old lesson in time management.

 

According to classical labor economics, workers are faced with a basic time management problem. There is only so much time in any given day and people need to decide what they should spend that time doing. For simplicity sake, economists give workers two options:  spend time working or engage in leisure.

It is assumed that people would prefer leisure and I don’t doubt it. Would you ever pay an employer so that you can go to work each day? The value an individual places on leisure determines the wage with which they are willing to work and the number of hours they are willing to put into a job. The less value there is on leisure, the more people are willing to work.

The Economics of Spending

Working is not an ends to a means, we are compensated with money and the only real use of money is to buy and consume things. Since consuming stuff is the true motivation to forgo leisure, any spending that you do is essentially a trade-off of your free time and the accumulation of stuff. The more stuff you own, the less time you have outside of work.

Oddly, this principle holds true even with rich CEOs. After you’ve banked eight figures, why do you think so many CEOs continue working a 60-hour week? Perhaps they value the paycheck more than free time? Plus, large incomes allow individuals to buy more expensive stuff like yachts and private islands in the pacific. If the voodoo of economics holds true, a shopaholic values consuming and spending more than free time.

The Economics of Debt

What if we don’t make enough to purchase something we want to buy? Then spenders can take out a loan and use debt.

Staying true to our economic analogies, debt can be seen as a demand on your future work time in exchange for consumption right now. However, with debt you also exchange extra future work to cover interest payments. In the eyes of economics, shopaholics and chronic debtors have a problem spending their leisure time working. What they need to do is manage their freedom better.

The Economics of Retirement

There is of course another side to this coin. You can exchange your leisure time early in life for more leisure time later in life. In fact, those that are good at saving their compensation can have 24 hours of leisure each day and still be a consumer when they retire.

An Economic Time Management Trick to Avoid Spending

The US has some of the best marketing in the world. I’m often reminded of my run-ins with door-to-door salesman as proof.

I had no need for a water system and had never used one in my entire life. Then a salesman walked into the room and noted how horrible hard water can be on a baby’s skin. Suddenly, there is a tug within my soul to consume and save my child’s soft, young dermis (I didn’t if you were wondering).

Advertising and marketing can create a need to consume where there was none previously. Convincingly, they can blur the lines between our value of working and our value of leisure time. I think about the water system situation like this: if my parents had come to me as a child and asked if I’d rather not see them for six months while they worked nights, part time to pay for a water system, I would have easily advised them that it isn’t worth it.

The ability to take on loans confuses the demands on our time. After all, we are Americans and we live in the here and now. What good is future leisure time when I can spend now and not increase my weekly work week?

Our time spending-decisions are also clouded by optimistic views of how much time we really have and what that time is worth. We assume our work time will be more valuable in the future thanks to raises. We believe that the amount of leisure time in the future is limitless, when in reality, there is only so much time that we can work in a lifetime. We may not value leisure much now, but what about when we are 80?

What can sober your decision-making is thinking about how much work-time it takes to buy things. This is something Squirrelers has done in the past and it is very helpful. Do you really want to eat out at a restaurant once you learn that dining out requires 3 hours of work? Perhaps cable isn’t worth the cost of 4 hours of work each month? Do you want to spend 130 work hours for that new car?

Economics teaches us that spending is not about money. Money is just a medium that converts time at work into stuff we can consume. What we are really sacrificing when we spend is our freedom and I care much more about that than I do stuff. It’s important to keep that in mind when shopping.

Read More about Working and Spending:

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8 Responses to Debt Economics: Shopaholics Don’t Have a Spending Problem, They Have Issues Managing Their Leisure Time

  1. Denise @ The Single Saver on December 7, 2011 at 2:22 pm

    So true. Leisure can be very expensive. Too many people equate shopping to “fun”, as in “I’m bored, let’s go to the Mall.”

    • Shaun on December 7, 2011 at 11:34 pm

      it’s interesting that you should mention that because I located stats that found that Americans shop more than any other culture. I think it is definitely a concern when even our leisure time is driven by buying stuff.

  2. Jeremy @ Personal Finance Whiz on December 7, 2011 at 5:04 pm

    This line of thought runs through my head anytime I am thinking about a big purchase. Do I want this enough that it’s going to take a month’s-worth of work?

    • Shaun on December 7, 2011 at 11:36 pm

      When I’ve earned income from sales, it is also interesting to think of things in terms of how much of something I need to sell. How many knives does this cost me?

  3. Aloysa on December 8, 2011 at 4:07 pm

    Hmmm… I am a shopaholic or as I call myself I am a shopping enthusiast. :-) I do agree that shopping is a fun activity. But it is not just that. Shopping addiction is caused by many other factors as well not just bad time management. :-) I wish it would be just that. Life would be much more simple!

    • Shaun on December 9, 2011 at 3:07 am

      That’s the problem with economics and real life: it doesn’t always convert nicely. I agree, who is really thinking about how much more work or less leisure they are going to have? Most people are like, I had a bad week I need shop and relax.

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