Penny wise, pound foolish

Yes, we’ve all heard the famous idiom that cautions us against frugally counting our pennies and saving every hard-earned cent, while at the same time losing sight of the larger picture to the extent that we lose more money than we could ever hope to have saved by coin-counting. The problem with idioms is that they’re repeated so often (and sometimes completely out of context), that they eventually (sadly) lose their impetus and the value of their message is diluted to the point of being meaningless. You might be surprised to know that being ‘penny wise and pound foolish’ is not just the foolish financial behaviour of the frugal few. If we give the idiom some careful thought, we’re likely to find that we’ve all fallen victim to the dangers of being penny wise and pound foolish.

The oft-quoted idiom was first recorded in a book by E. Topsell written in 1607 called “Four-footed Beasts“, and while this information may leave you unmoved, I find it fascinating that consumer behaviour today succumbs to the same pitfalls as it did some four hundred years ago! Let’s look at some modern day examples:

  1. Selecting the cheapest medical aid option: How many of us have been guilty of this one? We’re a healthy family that suffers from no chronic ailments, no history of ill-health and no major hospital expenses, so why should we bother paying for a comprehensive medical aid plan, right? Wrong. A common misconception is that the history of your health (and that of your family) is absolutely no indication of what can happen in the future. Cheaper medical aid plans generally include capped benefits, larger co-payments and a limit on hospital cover. While your monthly premiums will surely be more affordable on the entry-level medical aid plan, it can only take one major hospital event to side-swipe you financially. Which leads me to the next matter of…
  2. Not going to the doctor when we’re ill: How many of us have been guilty of this one? You wake up with a sore throat, swollen glands and a throbbing headache. To avoid the costs of going to the doctor (but in order to survive the day)  you pop into your local Clicks and pick up some over-the-counter medicines – the cost of which (you’ll convince yourself) is substantially less than a doctor’s consultation and a course of antibiotics. A few painful days and a couple of hundred Rand later you end up where you should have been in the beginning –  in the doctor’s rooms begging for a course of antibiotics to clear up that dreaded throat infection. Now, I’m not for one moment suggesting that you should dash to the doctor for every ailment. But let’s be honest, Strepsils don’t treat throat infections – they only ease the symptoms to a very limited extent – so be cleverly selective about seeking medical treatment and don’t be fooled into thinking that over-the-counter medicines are cheaper than prescription ones.
  3. Taking out a funeral policy: There are so many more practical ways of ensuring that you’ve got sufficient funds to cover the costs of your funeral! Funeral policies cost on average about R60 per month for a R10 000 funeral benefit, and if you stop contributing towards your funeral plan, you don’t get any of your money back. I’m all for getting your Estate in order and planning your affairs, but you’ll be better saving an additional R60 per month month into a savings account than buying a funeral policy.
  4. Opening shop accounts to take advantage of special offers: The incredible offers that retailers and banks offer for opening an account never cease to amaze me! The latest FNB radio advert offers prospective clients a brand new Samsung Galaxy plus a Samsung tablet just for opening a new cheque account. Most clothing retailers offer special discounts or shop vouchers for opening a new clothing account. There’s nothing clever about taking advantage of these special offers. These savvy marketing strategies are designed  ensure that the retailer still makes a handsome profit out of you. Even if you open a shop account to take advantage of the discount, the chances are that you’ll end up making the minimum monthly repayments and get nailed by the interest.
  5. Buying the least expensive clothes/shoes: We’re not even vaguely suggesting that you should confine  your purchases to Jenni Button or Jimmy Choo, and spending your disposable income of designer labels is never a good idea. But, conversely, buying no-name-brand or low cost clothing and shoes can cost you more in the long run. Retailers and shops that stock the really budget clothing (and footwear) ranges generally compromise on quality somewhere a long the line. In addition, you’ll find their returns and exchange policies to be lacking or, at best, inadequate. Poor quality combined with a poor refund policy could result in you spending even more on your clothing than you would have if you’d shopped at a more reputable retailer in the first instance.
  6. Not putting money in the parking meter: Taking a chance by not putting money in your meter often results in the an excessive parking fine that could so easily have been avoided if you’d just slipped a few coins into the meter. Over and above the financial implications of having to pay a parking fine, the inconvenience of having to deal with the traffic department is enough to make paying for your parking worthwhile. Which leads me to the topic of…
  7. Speeding: I find it fascinating that the  people who queue at petrol stations late at night before a petrol price hike are often the very same people who have no regard for speed limits. Over and above the dangers of driving recklessly, speeding can take a massive chunk out of your monthly disposable income – far more than the impact of a few extra cents per litre!
  8. Buying the cheapest products: A direct by-product of our inability to delay gratification is that we end up purchasing cheaper products of lesser quality. We’ve no doubt all fallen for the trap of convincing ourselves that the toaster that costs R120 is probably just as good as the Russell Hobbs toaster that costs R400. We also know (albeit subliminally!) that  Russell Hobbs products come with better guarantees, are widely accepted to be of a higher quality and that the Russell Hobbs toaster has the exact functionality that we’re looking for. My advice is as simple as delaying gratification and paying cash next month for the product that you really want.
  9. Not taking out a motor plan on  your vehicle: Instead of blaming Murphy for the fact that your vehicle’s head gasket blew exactly one month after your motor plan expired, consider the fact that motor plans (and motor plan extensions) can be worth their weight in gold. It only takes one head gasket replacement to appreciate the value of a comprehensive motor plan!
  10. Eating fast foods: There’s absolutely nothing cost-effective about ordering take-aways. In fact, a take-out meal for the family can cost more than a meal at a restaurant if you take into account the additional delivery charges and the generally poorer quality of a delivered meal. There are so many cost-effective ways to prepare a really healthy and substantial meal for your family. And if you’re short of ideas, you’re bound to find something interesting at Nina Timm’s sensational website.
  11. Not contributing to a retirement fund: While funding for your inevitable retirement is essential, it’s also important to find a balance between being able to afford a good lifestyle now, creating an emergency fund and putting enough away for your retirement. Whatever you do, don’t skimp on your retirement funding so that you can enjoy unnecessary luxuries now. Retirement may seem like a lifetime away, but if you’re 40 years old now and plan to retire at age 65, the scary reality is that you’ve only got 300 pay cheques left to save for retirement.
  12. Spending money to make you feel good: One of the most dangerous (and expensive!) methods of giving yourself an instant mood lift is to go shopping. If you need to boost your mood, go for a run, have a hot bath, eat a tub of ice-cream or have coffee with a friend. But, whatever you do, don’t allow shopping to become your pick-me-up of choice.
  13. Drawing smaller amounts of money: For the impulsive shopper, carrying wads of cash in your wallet is nothing short of pure torture. And, yes, an effective prevention against impulsive buying is to carry smaller amounts of money in your purse. However, the solution is not to draw smaller amounts of money more often, as this will only result in escalated bank charges. If you’re disciplined enough, draw the amount of cash you’ll need to tide you through the week, but only keep enough cash in your wallet for each day.
  14. Buying cheap life insurance: We’ve all heard the adverts: if you phone now, you’ll be able to get R500 000’s worth of life cover for a ridiculously low monthly premium. Never (and I repeat, never!) buy life insurance without consulting with your financial planner first. Life insurance comes in all shapes and sizes, and while your first year’s premiums may seem ridiculously low, you’ll probably get caught out by the excessive annual premium escalation clauses and a whole list of exclusions that you weren’t told about upfront. Get advice. Period.
  15. Buy two, get one free: The ‘buy-two-get-one-free’ is deal is great – if you need three of the same thing! If not, you’re wasting your money simply for the sake of getting something (anything!) for free. ‘Buy bulk and save’ is a wonderful concept, but if the extra bulk you’ve purchased is never going to get used or (in the case of food) is going to go off long before anyone gets around to eating it, then you’d have been better off spending less money on buying a single item.
Another fascinating insight into being ‘penny wise and pound foolish’ is that many of the pitfalls associated with this behaviour are as a direct result of innovative marketing and advertising campaigns aimed to encourage this exact behaviour. We don’t need to play puppet to multi-million Rand retailers and ad agencies. In the words of Noam Chomsky: “All over the place, from the popular culture to the propaganda system, there is constant pressure to make people feel that they are helpless, that the only role they can have is to ratify decisions and to consume.”
We’re highly evolved, intelligent consumers capable of making smart purchasing decisions. Let’s behave like it.
Have a blessed day.
Sue

Make sure you spend time looking at the bigger financial picture!



Categories: Lifestyle Financial Planning

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