Why things get cheaper but you spend more

November 12th, 2007 - 22 Comments

Ever wonder why things are getting cheaper but you never seem to have more money?

The New York Times reports that the FCC “is preparing to impose significant new regulations to open the cable television market to independent programmers and rival video services after determining that cable companies have become too dominant in the industry, senior commission officials said…Officials say the finding could lead to more diverse programs; consumer groups say it could also lead to lower rates.”

Here’s what I predict will happen: Cable rates will fall and new options will become available — meaning we’ll actually pay more on total services. This is a similar pattern for food, Internet, cellphone services, clothes, and pretty much anything you can think of. While things are getting cheaper and quality is going up, there’s just more stuff to buy. I wrote about this earlier in Guess How Much Your Subscriptions Cost?

Think about it when planning.

Btw, the best three books on this topic are:


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22 Comments

 

Comments

  1. Food is most assuredly not getting cheaper. I pay over 30% more now for milk than I did just two years ago. Breakfast cereal and ice cream too have gone up in price, although more sneakily as package sizes have shrunk slightly. Energy – fuel, heating — has gone up in price a lot too. And home rents have been going up as well, since rental demand has increased due to houses in housing boom areas getting priced out of reach of most people. Put together big price hikes in food, energy, and rent and I am not surprised that people don’t seem to have more money for discretionary spending.

  2. What I’d like to see is the ability to order only the stations I want. By opening this market up it will be possible to create new demand for products that currently do not exist. I currently have no cable subscriptions because I don’t want to pay to be subjected to a bunch of garbage. So in that sense you are right, if cable offered a la carte channel subscription and more options for programming were available I would potentially spend more because I would add an additional subscription (cable) to my list.

    That being said, I do not agree that most things are getting cheaper- food and energy costs are totally rising! Also, import (ie almost everything we buy that is a good, and not a service) costs are only going up.

  3. That’d be awesome…pay for cable by the channel, or time watched…well, that’s what the internet is for, anyway.

  4. Hot tip, Ramit – that Amazon widget shows up really badly in at least two feed readers, including Google Reader.

  5. Food isn’t getting cheaper compared to a couple years ago, but it is definitely cheaper than it was say, 20 years ago.

    http://www.salem-news.com/articles/july192006/food_prices_71906.php

  6. Food isn’t cheap, at least the name brand stuff I eat. I love going to casual fast food places much better then Burger king. I like Red Robin, Penera Bread, among others.

  7. Says thanks to farm subsidies and ethanol for higher food prices. Someone asked Buffett and Charlie Munger about alternative energies, specifically ethanol, and Munger said it best. He basically said what sense does it make to take a basic safety net like food and turn it into fuel, especially in such an inefficient way. Without fuel, we walk, read by candle light, pay more at the pump, whatever. Without food, we die. Tough choice. So instead of running the risk of people paying more attention to their energy usage, we run the risk of people starving, or paying more to keep people from starving AND paying more to make sure farmers grow corn instead of wheat or whatever. It’s like saying we’re going to start turning drinking water into fuel (or whatever). Sounds like a great idea until there’s a drought.

  8. It seems to me that people are endlessly buying new things because that is their satisfaction metaphor. People don’t buy more because they need things or because of the price. They buy because the want things. The problem is that most never realize what they’re doing and they continuously rinse and repeat.

    There are other problems as well, such as bullshit social “expectations” causing people to think “the more I have, the better I will be regarded”. Nail #2 in the coffin of controlling expenses.

    My opinion is that you should own in modesty, but always take care of what you have. Don’t buy flashy things or large quantities of them because they won’t make you feel better for very long. They guy you’re showing off to is envious, but you’ll get a lot more attention if you’re happy from the inside.

  9. Kudos on recommending The Millionaire Next Door. Fantastic book. Everyone should read it.

  10. I think you’ve confused a couple issues here and this is why the FCC is investigating this matter. We’ve all been conditioned to believe that bundling is the same as competitiveness and that just isn’t true. As more people have awoken to this problem, more are complaining and hopefully something will be done.

    Cable claims they have competition and as such offer channel packages at rates comparable to satellite, FIOS, etc. However what this does not address are commitments to increasingly longer contracts for service, an inability to buy and own the equipment versus renting it, and finally that shovelling loads of junk at me does not mean I have gotten what I wanted at a price comparable to the value provided.

    I can get phone service, internet access, and digital television service from my local cable company prices of around $150 for a couple sets, phones, etc. The problem is that this “competitive” price can never be manipulated. If someone offers internet to me at a better deal and I attempt to unbundle, the cost of the remaining services moves into an entirely uncompetitive realm.

    Is there really competition if when I attempt to take advantage of a $25 DSL offer from a competitor my remaining services jump up $25 each to more than offset any savings I would have realized?

  11. Hi ramit,

    I just wanted to say that I really like what you do, and I (and I am sure a lot of other people) appreciate the time and effort you take to educate and inform the lay person about issues of personal finance, self developement etc.

    What I like is that not only do you give good advice, but you make it a point to flip the advice to make it relevant in several different scenarios.

    A good example is this post: It shows how the books you recommend (I am guessing that they are from the 50 books you recommend list) can be used in several different ways.

    I picked up The Millionaire Next Door and was just floored with it. It really changed how I look at wealth. Previously I equated wealth with show-off-ness, bad hair and bad relationships that usually end in divorce and people suing one another. [Think Donald Trump]

    Without getting into too much fanboy-ism, I just want to say thank you for taking the time out of your life and making the effort to make a measurable change in peoples lives.

    Sure people may say that you are trying to make money off of this project (iwillteachyoutoberich.com), but I haven’t paid you a single cent.

    You might count the book I bought as an expediture on my part, but it was an over the counter purchase [not though amazon, meaning that you don't get anything from the purchase ] and yet I learned a lot just by reading it.

    Rock On!!!

    p.s

    If the guy was too afraid to approach you to even say “hi, I read your site”, then he deserves to fail.

    Nothing ventured, nothing gained.

  12. i have read the millionaire next door and it has changed the way i live. my FI (Financial Intelligence) I would say is still not very high and I’m working on improving it. I would reckon that as people, we tend to change habits easier when we are younger than when we get old so should develop high FI at a young age. I’m also gonna get another book that you recommend Ramit, the one on more choices equals less $.

  13. I am fully agree with you, Every time we buy the latest electronics from the market we think now we have everything latest and no need to buy anything in next year, But after one month you say a new must buy thing in the market.
    I know I am little out of topic, But it comes in my mind after reading the article. Nice pick man.

  14. Hmm, that is a valid point. I always strive to keep my monthly expenses to a minimum, but the more options there are, the more people are likely to spend. That being said, if you focus on eliminating excess subscription costs, you may be able to finagle a lower rate.

  15. What crazy world do you live in where things are getting cheaper? Gasoline and food are crazy expensive, and the worst culprits in food are inelastic items, like milk or breakfast cereal. Fancy crap like chocolates seem to be a little more affordable, relatively speaking.
    I suppose the single thing that has gotten cheaper between VA and CA has been cable, interestingly enough, as well as a basic landline. We were paying $50/month in VA for the same thing we are getting for $30 around here.

  16. Dimes,
    I understand where you are coming from but you are trying to look at the costs in isolation. You can NEVER do that,in that case nothing will make sense.
    When Ramit says the prices have come down he means gone down relatively, relative to how much more you earn, the price of a house or general inflation, your income being the most important number here.
    You probably make more than you did in the 50 dollar cable days.

  17. Could it be that cost of living expenses increase (inflation), while consumer goods – recreational or optional items – become cheaper?

  18. Prices are generally declining, provided you aren’t buying the latest and greatest. Older model MP3 players are dirt cheap (no, not used, just not the latest item out there). Models that were $99 2 years ago are only $20 today.
    For food, hit the Dollar Store, Big Lots, and other such places. 7 oz bag of dried tropical fruit for $1, big bag of pretzels for $1, name brand cereal for $1.50, 130-count aloe-infused Kleenex for $1. Cheeeeaaaap!

  19. I recently saw that flat screen TVs are supposed to drop another 30% in 2008, and all I could think was that people will probably not spend less on televisions. They’ll either buy more of them or buy bigger screens. Either way they’ll probably spend more, not less.

    Also, I think people like to stick to certain internal guidelines, like “spend 30% of your income on housing” and then they stick to it even if prices go down. So if my income goes up, I’ll go buy a bigger house.

  20. i cant believe ANYONE pays for television viewing. plain and simply, its a waste of money. INTERNET service i will defend.

    but until you can select exactly the cable networks you want, its stupid. i think the industry is heading that way, actually.

  21. Hi, first of all Ramit…greal blog. I’m probably a little older than your target audience but I visit your blog regularly. Its well written, the topics are interesting…and we all need reminders to pay ourselves first, and to spend conciously on things we value as opposed to mindless consumerism.

    I think you’re right, in the sense that costs for some things go down but there’s just more options out there to tempt us. When I was growing up we didn’t even have cable in our house, just free TV over the air. And my childhood was quite happy without the gazillion packages already available.

    Personally, I just subscribe to the expanded basic cable package. I don’t get premium channels, no Tivo or any recording device whatsoever in fact. I had a VCR about 7 years ago that broke that i never bothered replacing with anything. You know what…I never really missed it., never order Tivo or anything. I watch stuff if I’m home, if not I just try and catch it on a rerun. I think the important thing is to realize what YOU value as opposed to what Madison Avenue tries to sell to you. They will always try and sell you on the idea that you NEED the most advanced gadget or service if you want to be productive, successful, cool, and happy. The reality is you can be productive, successful, cool and very happy without most of what they’re trying to sell.

  22. People who think a-la-carte cable will save them money are deluded. The only thing that will really lower cable prices is true competition (e.g. I can pick from 2 different cable companies)

    Without that competition, I am 100% sure that the average cable subscriber who pays $80 per month today (for some channels they do want, but mostly channels they don’t want), will find that after switching to a-la-carte cable, they will STILL be paying $80 per month – but now they’ll only be getting the channels the DO want.