Saturday, March 31, 2012

Cost of Entertainment

This year was the first time my family ever went skiing/tubing with the family.  We drove 1 hour 15 minutes to get to the slopes.  It was a beautiful day out, but not really for snow sports.  It got up to 49 degrees.  I was dressed in full snow suit, and was sweating like crazy.  The cost was $24 for adults and $12.50 for kids for 3 hours.  I went out with my two daughters for about 1 ½ hours.  Then my wife switched with me.  So the trip cost us $49 plus around $15 in gas since I was taking the minivan.  The purchase price for entertainment was $64 for 3 hours.  Taking the amount paid by number of hours came out to $21.33 per hour for our family.  Plus we lost 2 ½ hours for drive time.  Lucky for me I enjoy driving with the family.

Something to keep in mind is determining how much you are paying for your entertainment.  Sometimes you pay a lot and get very little in return.  For instance…going to the movies with the whole family of five would cost $45 for the movie plus about $20 for popcorn and drink for one person.  The movie would last about 2 hours.  Total cost per hour…$32.50.

In economics they have something called utility.  That is the amount of enjoyment or satisfaction you receive from consuming a good or service.  Maximizing your utility is very important.  If you have ever had buyer’s remorse…it could be because you just purchased something that has negative economic utility.  Another example is eating fast food.  You might enjoy the first sandwich, and maybe even the second.  However with each sandwich you have diminishing enjoyment.  If you ate 15 sandwiches you might have negative utility by throwing up or getting sick.

Understanding this concept can help you save money.  For example…whether you watch a movie on the big screen or on home, you may get about the same utility.  You may be able to increase your utility at home by watching with friends.  I would rather wait until a movie comes out at the library, Hulu or Netflix.  We pay $8.50 per month to watch streaming movies and TV shows on Netfilx all the time.  Remember...the price for convenience is very high.

I was able to watch several TV shows that would have taken ¼ longer due to commercials had I watched them when they originally aired.  Shows like Lost, Battlestar Galactica, 24, and Star Gate I was able to watch straight through.  Our family probably spends about 3 hours a day on Netflix during the winter months.  That is 90 hours per month or $0.09 per hour.  Pretty cheap form of entertainment, but as a family we sure waste a lot of time watching the TV.

If I purchased cable TV for $100 per month, and watched the same amount of cost per hour would be 90 hours/$100 = $1.11 per hour.  This is over 12 times more expensive or 1200%.  Consider this return on investment.  If you switched you would get 1200% return on your investment.

This is a very important concept.  Spending a lot of money on something can create bad habits when it comes to entertainment.  If you are paying over $100 per month for cable it almost forces you to watch TV.  Why?  Economic utility!  You are forcing yourself to achieve your optimum economic utility based on how much you paid.  This concept is probably pretty new to you, so if you have questions be sure to comment.

Let's say that your economic utility for TV is $1 per hour.  If you pay $50 then you may watch TV for 50 hour per month.  If you paid $100 you would need to watch TV for 100 hours per month.  100 hours/$100 = $1.  I am not certain if any studies have been done, but I think that games like World of Warcraft among others in a way forces people to play because they do not want to "waste" their money.  You spend $12 or $14 per month, you want to get your money's worth.

The same thing is true when going to a lunch or dinner buffet.  You say to yourself...I want to get my money's worth?  Am I right?  So, many times you each much more than you would have otherwise.  Many times to the point of seriously diminishing your economic utility.  I know I have done it quite often...why did I eat so much?

As I stated earlier sometimes you increase your utility by having friends join you.  Adding friends can be an easy way to increase utility.  It can be a way to decrease as well.  For example, if you are married and you invite friends that your spouse doesn’t like…negative utility for the spouse.

Try determining how much you are paying for your entertainment, plus the number of hours, and then rank them as far as how much you enjoy it.  It may surprise you how much you are paying or wasting your time doing something you might not like as much as something else.

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