When Purchases (Including Educations) Flunk You

 When Purchases (Including Educations) Flunk You

brain with arms and legs run away with money

Easy Enough

So far I probably haven’t revealed to you anything earth shattering. For most, affordology seems simple enough in theory and the filters make sense. In some ways I’ve merely systematized thought processes we all instinctively and subconsciously complete on our own. However, you should be aware that at least three mistakes in thinking will trip you up (with fair regularity) if we don’t address them. Let’s explore these before we move on into the planning phase.

No Peeking!! 

First, let’s address something very obvious: Everyone is different. Some of us are quite different, even to the point of ridiculousness, but that’s not my point. We’re all different from one another. What effect do our differences have on affordology’s filtration processes?

Let’s answer that with a quick mental exercise: Think about you and the totality of your circumstances along with a product you want to purchase in the next year. Now screen this product through the three Rs. Think about how that product ranks versus all your other options, what percentage of your resources its cost would eat up, and the return it would provide to you. Now run the same item through the same analysis, but while standing in the shoes of nearly anyone else you know. Do the outcomes match? Very likely not. After all, one’s highly important purchase of an i-gadget might not cross the mind of a single mom fretting her dwindling supply of diapers and vice versa. My point? Though we can all use the same basic affordology process, our varied inputs will yield varied results.

Different people can “afford” different things. This makes approaching affordology with an open mind very important. You will be tempted to adopt what works for someone else, such as a particular college or a certain degree, but you must know that you will not achieve the same results by doing so.

Grading On a Curve

Second, rarely will anyone end up with a purely black and white, yes or no answer to the affordability question. In fact, approaching affordology’s filtration with the expectation of clear-cut results will likely yield frustration. Whatever the R in question, a purchase will simply fall on a sliding scale somewhere between “I’d be cat-lady-hoarder nuts to pass this up” and, “This is a worse idea than doing brain surgery with a spork.” We can utilize this scale to set a tipping point, the point at which anything which costs less makes sense and anything which costs more does not.

Sometimes the problem when something desirable doesn’t pass our screens is that we toss the whole process aside, consequences be damned. Obviously, not a good approach. In such instances ask yourself not, “Can I afford X?” but, “At what price can I afford X?” Now you can get to work creatively applying your energies getting it at a certain cost, assured you can afford it when you finally do.

Much of the time families can’t afford college on its face, which causes them to take out debt blindly, which in turn only defers and compounds the pain.  This is unfortunate, because with creative thinking and tactical maneuvers the experience could have made much more sense—and caused much less stress.

Falling for Common Tricks

An interesting thing happened as I initially researched the principles of affordology. When I entered words such as “buying decision process” or “purchase considerations” into an online search engine, I ended up skimming through hundreds of marketing studies, sales force training manuals and academic papers from the marketing departments of major universities. A scan of curriculum syllabi revealed that those of you who pursue a marketing degree will spend at least a class or two learning buyer behavior and why people choose one product over another. Why? Do marketers want to guide consumers toward wise, logical decisions?

Ha! They want to sell stuff—their stuff—and lots of it. This goes for those who market the college experience as well.

Buyer beware. If you don’t recognize the powerful ploys of some of the smartest, savviest and highest paid institutions in the world, you will end up bearing the cost of unnecessary purchases. This includes purchasing college for all the wrong reasons. Fortunately for you, the bulk of their strategies tend to fall into three categories an astute affordologist will recognize immediately and counteract with an adjustment of the filters.

Marketing Ploy #1: Rearrange Rank

Celebrity endorsements. High pressure pitches. Limited time offers. Super sales events. Cost leader advertising. False dichotomies. The shame of using an uncool product. All of these are designed to make us put certain products higher on our priorities list than where we would otherwise put them objectively. Perhaps the most dangerous ploy is that of translating wants into needs.

Products in the “Need” column on our lists get bought. Our very survival depends on obtaining key supplies, such as food and water, so obtain them we will. Therefore, the easiest way to peel us away from our hard earned cash is to convince us we literally can’t live without a particular item. Ultimately we can subsist with a mere handful of goods, but you wouldn’t know it by watching advertising or by listening to daily conversation. “Mom, I NEED a cell phone.” Ever notice that the luxuries of yesteryear we now can’t possibly live without, thanks to advertising and the peer pressure it foments?  Falling for any marketing strategies that make you believe a want is a need will lead to an unaffordable result via having good things at the expense of having better (or more necessary) things.

This phenomenon largely explains the expense and expanse of higher education. Here’s one pitch: “Everyone needs to go to college if they want a good job.” Ever hear that one? Potential students enroll driven by survival instinct, then pay dearly for the opportunity. Statistically, as we’ve already seen, many should have sat it out. Crazy talk, I know.

Marketing Ploy #2: Rally Resources

The average person can’t possibly afford most of what gets pushed through advertising. To work around this little hurdle, marketers fool us into underestimating prices; and in doing so, the resources necessary to get their things. This largely explains payment plans, financing and hidden costs.  TV and radio ads tout products with a price tag of four easy payments of $19.95 plus shipping and handling (never disclosed), and auto salesmen answer “three hundred bucks per month,” when asked how much the red pickup costs. If we sat down for three minutes with a pencil and notepad, the results would curl our hair and they know it.

Likewise, students do not show up to college with suitcases of cash to cover the next four years of tuition. In fact, most pay for at least some schooling via the loan which only requires an application and a signature. We sign away without hesitation because with the magic of debt, higher education costs nothing at all. That’s right: This school, this class, costs nothing…for now. Don’t think for a minute this basic fact doesn’t skew one’s ability to properly manage resources. Outta sight, outta mind. You, of course, will know better. You will have addressed the grand total cost and assessed what the future looks like six months after graduation, when once dormant school loan bills begin eating into your ability to pay rent, drive a car, look for hard-to-find jobs and eat.

Such is also the fallacy of hidden costs. Printer manufacturers know they can sell hardware at a loss because we don’t factor in the cost of the grossly overpriced ink cartridges we soon must buy. Software makers can hook us on freeware, then refuse us access to our data unless we pay up. Likewise, many colleges have highly advertised, relatively cheap tuition but make up for this by requiring students to live in overpriced dorms. These dorms conveniently lack kitchen facilities, so guess who also ends up footing the bill for an overpriced meal plan?

Marketing Ploy #3: Rave the Return

Perhaps the most egregious (albeit entertaining) tactics marketers employ involve inflating perceived returns. In doing so, they hope to generate an emotional desire for returns so overwhelming it shuts off a brain’s logical veto abilities. Watch any given advertisement to see what people who take them at face value end up buying and, more importantly, why. Does male body spray smell all that great? I don’t think so, but in Commercialville, it makes the hotties come undone like lady deer picking up the scent of buck pee. Do certain jeans really make the wearer look supermodel fabulous? Well, let’s not go there. Would Super Bowl advertisers put up massive amounts of dough each and every year to exhibit sex-crazed beautiful people enjoying their shampoo cycles way too much if millions of people didn’t run out and buy their brand? Every bit of marketing, every commercial and lots of hype from people we know leads to thinking we’ve found a field littered with gold and we’d be crazy not to buy it.

For this very reason people also pursue diplomas at unaffordable prices. After all, every guidance counselor on the planet touts the fact that the average college graduate makes more than the holders of only high school diplomas; that in recent years the average college graduate made about $39,000 per year, relative to the $24,900 earned by those whose formal educations ceased after twelfth grade. Therefore, the marketing goes, college will all but pay for itself, and by not going, you essentially turn down a pay raise. We in the investment world call such logic the “flaw of averages.”

Remember, average is just a number lying somewhere between higher and lower amounts. Consider what this means in very practical terms for the individuals behind the earnings numbers. Every fat cat nuclear engineer with a degree in nuclear physics pulling down a six-figure income is offset by at least one impoverished basement-dwelling barista with a renaissance literature degree balancing out the other side of the equation. While many do increase their earnings by more than $14,000 per year thanks to their education, many by default do not.

Moving Forward 

You now have in place the theoretical underpinnings of affordology. You recognize its bearing on college funding. Let’s now adapt this knowledge to your particular circumstances by custom-building filters that will save you from the miserable fate a good chunk of your classmates are in for. Then you can use them to screen good purchases from bad ones given your particular circumstances.

Part II outlines a four-step process that will serve this purpose.