A key concept in the chapter is the idea of habituation, which is how we respond to constant exposure to something. For example, over time, we get used to things we may not like such as the cold of winter or bad smells. Habituation helps when the exposure is something bad, but it acts to minimize lasting pleasure for things we like. As the authors state: “This is the sad reality of the human experience: in general, the more we’re exposed to something, the more its impact diminishes”
Companies capitalize on this idea by limiting exposure to products. Think of pumpkin spice products that explode every fall season. Lovers of pumpkin spice eagerly anticipate the dozens of pumpkin spice foods every year. Their enjoyment is magnified because these products are limited to a couple months of the year.
Most of our larger item spending is on housing and transportation. The chapter does a nice job discussing automobiles. It tells us that most people don’t receive more joy from a more expensive car once the initial thrill subsides.
Don’t confuse this with predicted pleasure people have about driving a BMW over a Honda Civic. People always predict a higher pleasure from driving the BMW. But when asked about the pleasure of driving on a particular day, there is “no relationship at all between the Blue Book value of the car and the amount of enjoyment the owners got from driving it that day.” The stresses of driving in traffic are not overcome by the type of car you drive.
The exception is when you make driving a treat, such as a joy ride along the water. But, unless, you take a lot of joy rides or are wealthy enough to afford a second sports car, maybe the Honda will allow you to spend on happier things.
So how should one use this idea to help with money happiness? The first thing is to understand the effect that habituation will have and remind yourself that the initial joy of a material purchase will wear off. Second, before any purchase, ask yourself: is the purchase a need or want? If it is a want, hold off purchasing it for a few days, and especially, for larger items, do not purchase without a cool down period.
Do not do as I did when I took an Audi A3 for a test drive. While test driving the car, I looked into the salesman’s eyes and said “what do I need to do so that I can go home tonight with this car?”
I have learned this costly lesson through experience.
I have had a love for German cars since I drove my 2004 Volkswagen Jetta on a hilly, curvy road one day. I had bought the VW for its value and a change from a history of owning Toyotas. But, once I drove that road and experienced fahrvergnugen – the tightness in the steering, I was hooked. The initial experience was wonderful.
A few years later I felt I had to upgrade to the ultimate driving machine and buy a BMW 330.
The marketing effect is powerful for the VW and the BMW, but the joy ride experience is unquestionably better.
After my 3rd BMW, I found that the car payment didn’t buy me the initial joy I had experienced with the VW. I asked what happened to farfegnugen?
I realize now I was habituated to the experience. Most of my driving was short drives in traffic. No long and windy roads.
Last year, I started thinking about saving the money* and buying a VW again, the experience in the BMW was not worth twice the cost. But, I am human, and need to take incremental steps an bought an Audi A3. It is 3/4 the cost of the BMW, it is fun to drive and the gas mileage is amazing. I am still financially ahead, although no more or less happy in my life.
Maybe next purchase will be a VW or I could just Uber.
Financial decisions are a trade off. They require prioritizing and giving up non-essentials so you can have money to experience life. I always think: on my death bed will I be glad I drove a beautiful car or spent that money on experiences?
* Think about this: A lease or loan payment could average around $600/month on a higher end vehicle. Add in insurance, gas and maintenance costs and the annual cost can run close to $800/month or $9,600/year. If you average 30 minutes a day in your car that equals 10,950 minutes a year. Divide the minutes into the cost and you get a cost per minute of $.88. Factor in taxes and for every minute you are driving your car it is costing you a dollar bill.