Happiness, Health, Wisdom and Wealth ^™

Present-Future Cost-Benefit

One of the most important aspects of planning and of happiness is how we choose to distribute cost and benefit across time. Virtually all actions have a cost and a benefit. At the very least an action costs the time to perform the action and at the very least every action carries the benefit of experience. Most people understand the idea of trying to get a ‘good deal’. This is the attempt to create the greatest benefit for the least cost. This attempt is often complicated by the reality that cost and benefit don’t necessarily happen at the same time. A great many people undermine their happiness by misunderstanding or misusing the time placement of cost and benefit. This is compounded by the fact that people have a great deal of difficulty in perceiving cause and effect when the cause and effect are widely separated in time or space.

For example, if you were working in your garden and in your work you were pricked by a rose thorn but the pain was delayed for three weeks, would you ever learn to avoid being pricked by rose thorns? Would you ever discover the connection between being pricked by the rose thorn and the pain? Probably not; the cause, the thorn, and the effect, the pain, were widely separated in time so you wouldn’t perceive them as connected. Another example is cigarette smoking. Smoking cigarettes results in serious health problems for more than 90% of smokers. The problem is that those effects may take several years to appear. If those negative health effects developed immediately after the first cigarette, that is if more than 90% got seriously ill immediately after they tried a cigarette, almost no one would choose to smoke.

Another example, what if at the end of every day everyone looked the way they would look if they continued to eat the way they did that day for twenty years. I'm betting a lot fewer people would be over weight. Weight issues are largely causes by the separation of cause and effect in time.

Buying on credit is similar, particularly if the things being purchased are not necessities. Paying for a house on credit is a perfectly wise behavior as long as the house is within your means. You have to live somewhere so you'll be spending money on housing one way or another so you might as well use credit to invest your money and build equity. Buying a big screen TV on credit may be somewhat less wise. You aren't going to be spending money on a big screen TV one way or another. So buying one on credit is taking the benefit in the present and deferring the cost into the future. Is that 'wrong'? No, it's not wrong, each person's financial situation is unique but whenever you defer cost into the future the impact of that deferred cost in the future should be carefully considered.