Is that iPad Costing You $2,000?

One of the biggest problems for Americans is that we are not sufficiently future-oriented. This is true in both an economic and a spiritual sense. We usually sin because we want to gratify an impulse in the present without due regard for the long-run (or eternal) consequences.

In the 1960s, Harvard sociologist Edward Banfield raised hackles across the academic world with his book The Unheavenly City, which demonstrated that the socioeconomic status of individuals and groups is closely correlated to their time preference; future-oriented groups are upwardly mobile with an ethic of deferred gratification, saving, and investment, whereas present-oriented groups are much more likely to suffer from chronic poverty.

Present-orientation leads to conspicuous consumption, maxed-out credit cards, trillion-dollar deficits, and empty retirement accounts. Future-orientation leads to modest lifestyles, balanced budgets, healthy investments, and economic security.

Yesterday there was a great column in the Wall Street Journal which highlighted this problem. The author urges people to consider their opportunity cost when deciding to spend money. That $500 you’re thinking about dropping on an iPad2 could instead be invested and turn into $2,000 in thirty years. Would you rather have the iPad today or $2,000 in thirty years? If you can’t conceive waiting thirty years for anything, your time preference may be too high!

Many people will say, “I’ll take the iPad today. In thirty years the government will take care of me.” Lots of luck!

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About Dr. J

I am Professor of Humanities at Faulkner University, where I chair the Department of Humanities and direct online M.A. and Ph.D. programs based on the Great Books of Western Civilization. I am also Associate Editor of the Journal of Faith and the Academy and a member of the faculty at Liberty Classroom.
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4 Responses to Is that iPad Costing You $2,000?

  1. Jeff Jewell says:

    In all seriousness, $500 today vs. $2,000 in 30 years is not that great a tradeoff. That’s a compound rate of return of 4.73%, which may well not be high enough for most people to defer gratification – especially considering that rate is probably barely high enough to beat the likely (true) inflation rate over that period. Now if you want to consider $500 today vs. $5,000 in 30 years ( a 7.98% rate of return) you would have a much stronger case.

  2. Rachel Wishum says:

    Hey, I know that author’s name from somewhere….

  3. worldtake says:

    Those of us who were alive and cognizant in the 1950’s and 60’s are completely aware of this now-dead phenomenon of living in the present and saving for the future. When my father or mother wanted something that they did not have the cash to buy at the moment, they had two choices:

    They saved the money until they had enough to buy the item and then they bought it
    They put the item on lay-away and when they had accumulated enough money to pay for it, they paid for it and then were able to get the item.

     

    The problem today, is not as much that fewer people are planning for the future, it is that more people are spending more and more money that doesn’t even exist yet — They are living further and further in the future.

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