Is a Penny Saved Really a Penny Earned?

PennyI am a natural tight-wad, so this concept comes very natural to me. What I mean by a tight-wad is: When I go to a restaurant I read from the right side of the menu (where the prices are). It is my natural inclination, I do not necessarily go with the item I want most, I go by price.

Along with “eating out” habits, I categorize people as either “water” people or “soda” people. When I go out to eat, I order water. If I get a coke (or sweet tea when I’m in a really good mood) it is only on occasion. The “soda” people wig me out and order a drink that costs a couple of dollars EVERY time they go somewhere. In my head, the $1.50 to $2.00 drink charge racks up so quickly and I can’t do it.

My girlfriend of 4-ish years, Megan, is a “soda” person. When she goes to a restaurant you better believe she’s ordering that diet coke. A few months ago I lobbed the idea of “a penny saved being a penny earned” to her to see if she believed in this line of thinking. She said yes and the scenario that I painted was this (this will either help or frustrate all the “soda” people):

Let’s say all drinks in the world are free. You could go into a restaurant and get a coke, tea, water, whatever and it would be free. However, if you order a water the restaurant would PAY you $1.50. Would you start ordering water at restaurants if this was the case?

There might be some “soda” people out there that would still order their delicious Coca-Cola, but she said that she would start ordering water if this was the case.

The funny thing is the “net” amount (how much money you have in pocket or bank account)is the same in this made up scenario as it is in our real life circumstances. The scenario that I made up does not change the “net” $1.50 in your bank account.

Let’s say you have $10.00 in both situations.

In the real world, you order lunch for $3 and a soda for $1.50. At the end of lunch, you’d have $5.50. OR You order lunch for $3 and water for $0 and end up with $7. Obviously, if numbers were the only thing involved, you’d choose to have $7 in your pocket over $5.50.

In the made up situation, you order lunch for $3 and a soda for $0. At the end of lunch, you’d have $7. OR You order lunch for $3 and water and get PAID $1.50. At the end of lunch you’d end up with $8.50. If numbers were the only thing involved, you’d choose to have $8.50 in your pocket over $7.

In both situations, ordering water is the best NUMERICAL choice, but for some reason as humans we view it emotionally and not numerically.

In all honesty, I am not out to stop the world from ordering Coca-Cola’s at restaurants. In fact, this is more of a humor study for me than anything else. However, I do want to point out that we (as humans) sometimes need to realize that whether we believe it or not, we allow emotions to creep into our decisions and oftentimes muddy the waters.

I believe this is a reason why some people believe money to be a difficult thing to manage. If money were strictly numerical, it would be the easiest thing in the world to take care of. You have a number coming in (income) and you choose how many numbers go out (expenses). Yet, because personal finance is just as much personal as it is finance, there are many other factors that come into play.

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3 Responses to Is a Penny Saved Really a Penny Earned?

  1. Anne says:

    What’s interesting is that this result is directly contrary to what behavioral economics would predict. Most people tend to be loss-averse and would prefer to avoid losing $5 they already have than to gain $5 they could have.

  2. Nicole says:

    Actually, what I realized the other day is that a penny saved is more than a penny earned. If I spend a penny, I have to go out and make another penny to replace it. But at my tax rate, the government will tax the penny I earned at more than 30%. If I just hold onto the first penny and don’t spend it, it’s worth more than the pennies I earn.

  3. AmandaD says:

    They make so much profit off those soda fountains. Just think how much they would have to raise food prices if they weren’t making a ton of $$ off soda. Just thank those who buy the soda and subsidize your food order ;)

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