Thanks for the excellent post. You highlight a most fundamental truth of economic analysis: value is subjective.

This has many consequences when you think about central planning or political paternalism.

Here’s an excellent explanation of the subjective theory of value, how it relates to exchange and differs from money prices: http://mises.org/AUSTECON/CHAP4.ASP

2) To increase perceived value of stuff, own less stuff so as to use what you own more often. This keeps the experience of the stuff fresh in mind.

The two works together. I think you need to do better than saving 15% and spending 85% to reach that level. That’s simply too little savings to realize the income and too many expenses to appreciate each expense.

I find the idea of “impulsive saving” has helped me a lot to save towards my goal. I simply keep track of the things I want and can afford to waste money on while shopping (but can do without), resist the purchase, and put into my savings account.

Example: case of beer $15, Candy $3, DVD $10. Instead of buying these, its an easy one time deposit of $28 into my savings. Though… I don’t always resist the beer urge like I should

That’s what I do on the treadmill, and it works!

When studied based on an objective measure of pain (like how much the pain interferes with your ability to preform a task), they show no effect.

Of course, though, an ad man makes his money by raising the perceived value of what you *don’t* have, which very often as a side effect dimishes the perceived value of what you *do* have. To take an example from Mr. Sutherland’s talk: when iron jewelry became the fad in Prussia, I’m sure that gold jewelry became a little less fashionable. And in modern times, when the hot new gadget 2.0 comes out with feature XYZ, the perceived value of gadget 1.0 that you already own decreases. Not exactly a recipe for a society with less Stuff.

That said, I have to admit that I’m a gadget hound myself, so I’m a total hypocrite.

The only thing that we can do as consumers to combat this is to change our response to such marketing ploys. Focus on our own personal desired outcomes instead of letting everyone else tell us what we need, have to have and want.

Where the notion of perceived value can be useful is in helping us refine (or redefine) our actual, personal values. Being aware that material “value” is almost entirely subjective can help us align our spending choices more consciously.

I heard about this concept on a recent Freakonomics radio program:
http://marketplace.publicradio.org/display/web/2010/11/16/pm-freakonomics-savings-security-with-gambling-thrills/

This way people are given incentive to save, since they have a chance (albeit little) of hitting it big, rather than only making a few dollars a year guaranteed.

This has been found to work to raise the savings rate in other countries, but has roadblocks in the US because most states have laws against lotteries that compete with their monopolistic state lotteries. Michigan is one exception, and hopefully other states will allow this at some point as I think it’s a great idea, especially for those poorer individuals who don’t have money to invest and need encouragement to simply save money for a rainy day.

One ING account is labeled “Christmas 2011 Account Goal 100″. I make a mental note that I really want $500 in there by December. $100 is a simple goal and I’ll hit it in the next month or so.

It’s a long term goal ($500) that’s broken down into tiny steps, so every time I check the balance and see “Balance $25″, “Balance $75″, I’m ecstatic because I think I”m nearly 100% of the way to meeting my goal. Then when I hit $100, then I change the account name to “Christmas 2011 Account Goal 200″ and work toward that. That ‘s one over-arching goal with 5 levels of achievement!

It’s a tiny detail that keeps saving a fresh and goal-oriented game for me. Works with the “Vegas Fund” “Burning Man Fund” “House Downpayment Fund”, etc, as well!

That’s fine, but I don’t know what to do with it.

Obviously, not all value is simply “perceived value”, for example, I’d argue that you can’t just perceive your way out of starving to death without some real food at some point. But a lot of things really are more perceived than actual — the real difference between a chevy and a mercedes is probably smaller than the difference in their prices. The difference between a $200 pair of shoes and a $50 pair of shoes seems to be almost entirely the ability to say “I paid $200 for these shoes” which is pure perceived value.

And so there’s truth in the message. But there’s not a clear course of action to take from there. He says we can either get poorer, or we can choose to perceive value in different things. So if not shoes and cars and gold jewelry, then what do we perceive value in that’s better than those?

I think human beings are competitive by nature, and so anything we choose to value instead of what we currently value will probably have to let us compete just the same. Maybe instead of trying to compete for the biggest house we compete for the most energy-effecient house. Better for the environment, sure, but will it make us happier? I doubt it, especially since (in this particular example) it will ultimately make us less comfortable, too.

Given the knowledge that beyond basics like food and medicine we can create value anywhere we like, how do we choose what to value?

It said that people who keep a gratitude journal (which I think could be done in various ways) exercise more, get sick less, feel better about their lives as a whole, and express greater optimism. He of course says many other cool things about gratitude in his book as well. I wrote a piece on kids and gratitude on my blog a few months back.

Now when I put the kids to bed each night I ask them three things they’re grateful for. I try to do this for myself in other ways. I also read my kids books about children’s lives in the past (Little House on the Prairie and Little Britches) as a way to help them appreciate what they have.

These are relatively small things but they’ve have helped to raise the perceived value of what we already have at our house.

It always made me think about where I could be living if I spent my money in a different way – we live on 5 acres on a lake so our budgeting could really have changed where we live.

We’ve been debt-free for awhile now & even though our budget isn’t so tight, it’s not so hard to spend less & stay home. I guess having the choice & choosing home & more savings (making them more valuable) helps make us more content.

In fact, I think that simply spending more time around people (online or in person) and not in your own head can help. Communicating your goals is also a good idea – some may not be supportive, but some may surprise you with how supportive they can be to you realizing your financial (and other) goals.

I find I am often pointing out to people that the higher priced clothes at the mall are not always more attractive and aren’t necessarily even better made or cut.

But people who need that particular “high” will convince themselves they are paying for quality. They are usually paying for status, at least in their own minds.

It’s an uphill battle.

I have had those days too, “Well, if they didn’t smoke a pack a day at $6 a pop and be sexist jerks, their daughter might want to visit more and they wouldn’t be depending on Meals on Wheels for their lunch…”

That is another way it can work…you do learn why certain people are in certain situations and make mental notes how not to get there in the future. I am nicer to people when I come across jerks and am better for it.

I’ve seen a couple of debit card options that either put the odd change from your purchase into a savings account (you spend $3.75 and it is rounded up to $4.00 and the .25 gets put into savings), or $1 is transferred into your savings account every time you use your debit card. Either one is just fine and I wish my bank did this, but I think the best idea is to take it a step further and send a text or an Email at the end of each day to tell you that you have saved $XXX amount that day and $XXX amount that month or year. You could even have a thermometer or some other eye-catching graphic that would make your progress more visible.

It’s sort of a little intangible reward that helps you to celebrate that small, incremental progress. I actually work for a bank, so I think I will suggest it on our bright ideas website.

I’ve got a good life and I feel very lucky to have it, and my guilt over that is such that if I don’t do something with all I’ve been given, I feel Karma (or whatever) is going to come back and bite me. But sometimes I think I’m the only person in the world who doesn’t feel better about myself or the world when I volunteer to help the less fortunate.

For instance, I volunteer through my church to drive senior to appointments. Easily more than half the times I’ve driven, I’ve thought to myself, “You know this person would have a friend or relative to do this for them if they weren’t such a nasty old cuss.”

But maybe that’s what you mean by feeling good? For sure, I’m nicer to my kids when I get home so maybe one of them will drive me to appointments when I’m an old lady. When I volunteer in a homeless shelter or soup kitchen, I’m less likely to have an alcoholic drink at the end of a tough day.

But like you said, different things work on different people.

I watched the whole clip. It is really really good, well worth the time.

For me this is the primary help of Facebook. It has let me follow people like Dave Bruno and his 100 Thing Challenge, which provide for me some of the community I am trying to emulate and cultivate. It would be much harder without feeling part of that community