Perceived Value of Money – AC9 Financial Management Article

Here is the next in the series of republished old Art Calendar Magazine articles with updated commentary. This time around I don’t feel like I have much to add in terms of updating. It’s basically talking about an approach I used to help stay fully conscious of my spending so I wouldn’t waste it on things that didn’t give me enough fulfillment. I believe it’s an approach that can work for many other people too, though perhaps not everyone. It feels as valid to me today as it did when I first wrote about it.

9 Perceived Value of Money

In the July/August 2005 issue I wrote about how to determine and use your real hourly wage to gain a solid, but very personal understanding of what a dollar is worth to you. This is a method to get a perception of the value of money you can use and relate to. I realized today that there is an additional technique I also use for this. It’s become so ingrained into my spending habits I almost failed to realize others might not know about it. My learning of this strategy I wish to share began as a small child.

Not too long after I was born my parents started a savings account for me with a local credit union. This was to get me started off right learning to save money for future needs. Through the years as a young child I would make deposits of the few dollars I got here and there.

I also had a piggy bank. In fact, mine was actually shaped like a pig in all its bright yellow plastic glory. My sister’s was a bright red purple dog. Occasionally my mother would give us kids some pennies or we might find lost change in a parking lot. These coins would be joyfully inserted through the narrow slot to clink into the pile. The problem with these particular repositories of loose change was the fact that there was no opening to get the money back out. My mother explained that the idea was to save it by adding not removing, which I understood. However, this lack of access was spoiling all the fun! I guess my sister and I whined enough since eventually holes were cut in the bottom of our piggy banks to be resealed with that modern age wonder called duct tape. We were now able to shake out, sort, count, and happily reinsert one by one all the coins in our banks. This was done frequently.

A difference developed between the credit union saving account and the piggy bank. Though I knew conceptually that there was more money in the credit union the plastic pig full of change felt like more. It was something tangible and real I could understand.

In my later adolescence, under the influence of science fiction/fantasy novels, I developed this further. With some scrap wood and a box of nails I made a treasure chest. Then the money I made in various ways would be taken to the bank, converted into change, and added to the mound of treasure in the chest. This actually made it easier for me to save money for two big reasons. First, it’s just a darned inconvenience to buy something for $20 with nickels and dimes. I’d have to really want an item to roll up that much change. Second, and perhaps more importantly, the perceived value of that chest of coins was great to me. I’d weigh the worth of the latest plastic action figure over diminishing the glittering hoard.

What I had discovered is that the form money is in can change the perceived value I place on it. The concept of perceived value is a significant thing. I’m sure there’s a whole other article here about how perceived value relates to the sale of your art, but I’m going to present it in relation to your money.

I think we can all understand that $100 in the bank has the same monetary value as a hundred-dollar bill, five twenty-dollar bills, or a hundred one-dollar bills. With perceived value, however, we are dealing with more of an emotional interpretation. A check for $100 doesn’t feel like as much as a thick stack of one-dollar bills. As a child I grasped that a number on a monthly bank statement didn’t move me the same as a pile of coins.

I don’t use a treasure chest to store my money any more. That’s just not practical. Using the same principle though, here is my trick plain and simple to maintain an emotional understanding. For almost all my day to day spending I only use cash.

When I’m spending cash I really feel and see the money going out. As a result I’m much less inclined to impulse shop or spend frivolously. The perceived value of cash is greater to me than scrawling some numbers on a check or swiping a plastic card through a machine. If you think about this I bet you’ll find the same is true for you as well.

While money is basically just a concept these days, no longer being backed by gold or silver, there is a hierarchy of connection to this concept. First there is cash, then checks, followed by credit/debit cards, and then pure electronic transfer. With each stage we seem to become more emotionally removed from the value of money.

As an example, a self-employed friend once made this observation to me. “If everybody had to physically write out a check to pay quarterly estimated taxes the country as a whole would demand more efficient use of our tax dollars.” She was observing that we emotionally feel the expense of taxes more by writing checks than having an automatic deduction from a paycheck. As a result we’d probably use tax money more wisely. If you don’t have to pay quarterly estimated taxes and want to experience the feeling. Go grab the stubs of your paychecks for 3 months, add up all the federal, state, city, social security, and medicare taxes that are withheld. Next physically write out a check for that amount and imagine actually sending this out to be withdrawn from your bank account. I bet you feel the impact of that expenditure now! Since this was just an exercise you should now rip that check into tiny little shreds and feel relieved. Of course, you’re still paying the money. It’s just being automatically deducted.

For one more illustration of the importance of maintaining a strong emotional connection to the value of money I think about the costs of a college education. I spent a long time in college trying to pay my way as I went. During most of the years I’d walk into the student services building, write out a check for the tuition, and hand it to the cashier. I really felt the expense and thus I didn’t waste my time in school. During my last two years, however, I went full-time. The costs exceeded my ability to pay so I took out student loans. With this process I was very much divorced from the emotional value of the money. Loan amounts were approved and sent directly to the university. The money never even touched my bank account. I spent $11,000 very easily. I’m only connecting to that amount now as I’m paying the loan off.

It took me quite a while to pay off that $11,000 in student loans. I still find it scary how easily and quickly those costs got racked up. Though I am happy to be able to report that I paid them off early saving myself a bit in interest.

During my time in college I saw many students for whom the perceived value of money spent for education was very little. Through the various forms of financial aid they paid for college without ever emotionally experiencing the sums of money they were spending. I met students who didn’t even know how much tuition was! It was a pretty safe bet that the students who drifted through, skipped classes, and made only half-hearted attempts were ones who had weak connections to the value of the money spent. If these students had walked into the college cashiers office and paid out stacks of cash for their education I bet their attendance and effort would have improved dramatically.

Think about all the bills and things you spend money on. What would it feel like to pay cash for all these? Does your sense of the costs compared to fulfillment change? It isn’t practical to pay for all expenses with cash, but I try to stay as high on hierarchy of monetary forms as possible. First cash, then check, then debit card, and lastly an electronic or automatic fund transfer (unless I’m being given a significant price break).

These days there are a lot of “rewards” programs with credit cards offering the consumer a percentage back in cash, or points of some sort. I feel that if you already have a strong handle on your spending, knowing what provides ample fulfillment and being able to avoid what doesn’t, then these could be good to utilize. However, I suspect that for many the emotional distancing credit cards create lead to more minimal fulfillment purchases, otherwise known as wasteful spending, than they are ever likely to get back in “rewards”. Thus in the end I feel like more money will saved for most people by avoiding credit/debit cards where ever possible.

People often object to carrying a lot of cash around. I agree. Being known, or even suspected, of having large quantities of cash makes one an ideal target for robbery. Not only this but it’s much easier for you to spend large quantities when it’s right there on hand. So while I pay for most things with cash I rarely carry more than $40 at a time. Like my old treasure chest of coins this makes it inconvenient for me to buy expensive items. I have to slow down, consider the cost, and evaluate the fulfillment I expect to receive. If I still want it then I will go the bank or an ATM to get the cash.

These days I may carry a bit more cash on hand due to inflation, but not much more. I still mostly just bring with me what I expect to need that trip out plus another $40 to $50 as a “just in case” factor. This also means my spending must be planned in advance rather than being a spur of the moment thing.

By making it a habit to just use cash I keep my spending in a currency form with the highest emotionally perceived value. This makes me naturally more reluctant to spend it. By limiting the amounts I have on hand it keeps me from making costly impulse purchases. This assists me in eliminating wasteful spending, helping to ensure I have the resources to pursue a fulfilled life as an artist. Why not give it a try to see if it helps you too?

Studio Snippet

I’m still off away from home so I’m not doing my normal studio work at the moment. However, right now I do have access to some lapidary equipment. In anticipation of that I brought along some stones I’ve picked up on the shores of Lake Superior during past camping trips to try cutting and polishing. Here are a few of the ones I’ve been working on. There’s actually quite a pile of them done at this point beyond what you see here.

Here are a couple closer up shots of them.

I’m happy to have a site where I can again allow comments. (I had to shut them off on my old website because the spam was simply uncontrollable!) So please I encourage you to share thoughts of your own. My general rule about comments though is just to play nice. Differing views are fine, but I’m not interested in engaging in or moderating verbal fights. If I feel things get out of hand, by whatever criteria I decide, I’ll just start blocking or deleting things.