Seeking a Rational Explanation for Spending

Perhaps I’ve been too hasty suggesting that people who spend too much are being foolish. Sometimes when I see people doing things that make no sense, I’ve later realized that I just misjudged their goals.

Coaching and playing baseball and softball, I’ve seen plenty of players who ignore bunt signs and others who swing away on 3-0 pitches. I used to think that the remedy was to explain to them that their actions are reducing our team’s chances of winning. Sometimes this works, but often it doesn’t because some players don’t care much whether the team wins. They like hitting home runs and their actions are quite sensible once you understand that their goal is not team victory.

Similarly, when I was young and naive, I would see the CEOs of the companies I worked for do things that were detrimental to the long-term health of the company. I thought maybe I was missing something or that the CEOs were misguided. Much later I realized that these CEOs were maximizing the near-term value of their stock options at the expense of the company’s future. Once again my mistake was an incorrect assumption about people’s goals.

In the same vein, I looked for a rational explanation for overspending. It must be that these people love to work! While some people dream of retiring at age 60 or earlier, overspenders must relish the thought of working all the way through their 70s. If you see yourself at age 80 still waking up to an alarm clock and heading off to work, maybe going into debt to buy expensive cars and clothes you don’t need isn’t a problem after all.