Spending - Head Matters

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1. Evaluate a Purchase

b. Know the importance of quality and quantity and how they can affect price


An important factor that often affects price is an item’s quality – or perceived quality. A higher-quality item may last longer and be more useful than a lower quality item. But be careful, “alleged” quality, through marketing and branding can encourage us to spend more for an item JUST because of its brand.  It may not actually be a higher quality than a less expensive option.  Ask yourself:  what could I do with the money I don’t spend to get the same quality?

Let’s look at an example. Erin has decided that she will buy a bike to use for short distances instead of driving her car. Riding a bike can be a great way to cut down on expenses because you don’t have to buy gas or pay for parking. Erin is also thinking about starting to bike for exercise and might want to enter in some races.

Erin doesn't know a whole lot about bikes, but she knows that she wants one that will last through college and beyond – and one that will be good for beginner bike races. She’s been shopping around and has found that bike prices vary a lot. At a national chain super store, she saw a bike that costs about $100. When she went to a specialty bike shop she found bikes that cost more than $5,000.

Why would there be such a big difference in the cost of similar items? Two wheels, some gears, handle bars…why are some so expensive?   One reason is the quality of the bikes. Manufacturers use many different materials and techniques to produce bikes. A serious bike racer needs a very light bike that is aerodynamically designed to go as fast as possible. These high-performance bikes are produced with specific materials and may even be handmade specifically for a type of race or rider. This bike takes much more time and effort to produce and uses more expensive materials than a $100 bike bought at a big-box store .

Even though a more expensive item may be higher quality, it’s important to think about how you’ll use the item and how much you can reasonably spend. 

Erin narrowed her bike search down to four bikes and then used this worksheet to help her decide which bike was best for her.

 

   Light frame
(under 20 lbs)
Need
Comfortable

Need
 Nice looking

Want
 Cool Brand

Want
Price
 Bike 1    X  X   $200
 Bike 2  X    X  X $650
 Bike 3  X  X  X  X $1,200
 Bike 4  X  X  X   $550


As you can see, there was only one bike that met all her needs and wants – but the price was a lot! There were also a few bikes that fulfilled all but one of things that Erin wanted. When Erin put her chart together she listed the items across the top in priority order – with the items at the left being things that she needs and at the right the things that she wants. Erin saw that even though Bike 3 fulfilled all her needs and wants, she could get a bike that had everything except for the cool brand name for less than half the price. Given Erin’s budget, she decided that the best option for her is bike 4.

Current Course:
Spending

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