Why people think $20 is more expensive than a $20 increase

FB @ FabulouslyBroke.com

– January 6, 2012Posted in: Money

If that title didn’t make sense, it will after I explain!

So where I work, you can buy a parking pass for $100.

If you decide not to, the cost of parking is $6/day, and if you consider there are about 20 working days, that’s $120/month.

Just recently, the parking cost went up from $6 to $7, a full dollar more, which means another $20/month extra, for a total of $140/month.

(The parking passes stayed the same locked-in price at $100.)

Now, people are starting to complain and ask for the monthly parking pass because no one wants to pay $40/month more if they can help it!

What I find funny about all of the above, is that most people found paying $20/month more to be ‘acceptable’ but when it went up another $20/month, they started complaining, especially when the company told them: Sorry, we can only give out 250 passes. You’ll have to go on a waiting list.

I know that $40/month is more substantial than the original $20/month, but to me, money is money, no matter the amount.

If I was told I could get a monthly pass for $100, or face paying even an extra 1/month, I’d get a pass as soon as possible!!!

I was then reminded of a study that stated that for consumers, if they are told the original price is $120 for a month, even if they could sign up for a discount plan that would save them $20/month, they don’t see the $20/month as a big deal.

It is the increase over the original stated amount that people take more seriously.

That means that even if the original price was an acceptable extra $30/month over the discounted pass, they will see ANY increase, even $10/month extra as unacceptable.

So readers, have you experienced something similar?

And what is your price limit for an ‘acceptable’ increase per month over a more finicky, but discounted option?

$1? $10? $20?

Turns out the most expensive isn’t always the best

How do people think other people get rich, anyway?

Poor people aren’t always lazy people

July 2009 Budget Set

Most Expensive Bills in the World

Canada vs. U.S.: Comparing the cost of homes by city (Canada seems to be 100% more expensive on the whole)

Tags: Amount, Cost, Difference, Increase, Money, Parking, Pass, Perceptions, Thoughts

About the Author

Just a girl trying to find a balance between being a Shopaholic and a Saver. I cleared $60,000 in 18 months earning $65,000 gross/year. Now I am self-employed, and you can read more about my story here, or visit my other blog: The Everyday Minimalist.

Karie

It`s always easier to find a few bucks every day than a large sum. If people could invest $2 per day into a mutual fund more people would invest because when it comes to the end of the month many people don`t want to part with $60 because they feel it more. Sometimes I question my logic about money in that I won`t buy canned pasta if it`s over $2 because that`s somehow too expensive but I will if it`s a $1.49 but then I buy a beer in a restaurant for $6 or any price and don`t think about it. I think we should be careful about money consistently but it`s not the small change that breaks people, it`s big decisions like investing, car purchase, where you live and house size and big purchases that do. Not sure what my exact dollar figure would be to buy the parking pass but I would probably just buy it to save a few bucks and for simplicity sake.
LAL

Because if you don’t drive a couple days, kids sick, carpool, etc then it’s not worth it to get the pass. It’s 4 days a month and working months are calculate as 22 days or 176 hours to be absolutely correct not 20 days 160 hours. So the daily cost is a little less than $5. But it’s still not cost efficient.

Now at $40 more it’s a bigger difference to make up. At least for me I wouldn’t necessarily do it unless I knew I drove most days a month. My BIL and myself used to do it the university, you can buy 10 day parking pass or pay monthly. Difference? If you get a rid or catch a bus some days then it’s not worth it.
Melinda

Wow, parking is cheap in Atlanta. Where I park is about $80/month and it’s even cheaper for me because my company pays it as an added benefit.
Mary

I pick up pennies off the ground. Even if it’s only 100 a year…that’s a dollar I didn’t have to work for (the bending down to pick it up is just good exercise, right?)

Diane Lowe

You just inspired me to start picking up pennies! Thanks!

Amanda

I think this might relate to the fact that people in general are loss-averse. A $20 loss means more to us than a $20 gain. Maybe when the price went up, it seemed like an addition $20 “loss,” moreso than forking over the money for daily passes in the first place.

Interestingly, people don’t seem to be sensitive to gains in the same way. Many people will brush off a $20 increase in monthly pay, while paying an additional $20 in monthly parking will seem like a big deal.
Revanche

You know me, any amount cheaper is going to be the one I choose after I’ve factored in the variables.

Having to pay to park if you drive to work as there is no dedicated parking is common and horrendously expensive here. When I had the choice of commuting by public transit (reimbursed) or getting my parking reimbursed, I chose the commute despite the lack of personal flexibility because it generally guaranteed that I had a regular schedule and it had the added hidden benefit that I didn’t have to pay for gas in addition to the reimbursed parking pass. That was a substantial extra savings.
LCulic

Gas prices for me…. drives me nuts when I pay 1.10 a litre and then two days later it goes down to 1.01 or something like that…. I’d say 10 would be the magic number for me…
LB

I get annoyed when I take my reusable bags into a store and they don’t give me my $.05 off for every bag. I know it is more work for the cashier, but man I want my $.05 that adds up.

Otherwise any increase doesn’t sit well with me. I am saving for school, retirement, pretty much everything and I want every cent I can get. I even pick up pennies I find on the sidewalk. OK that might be because I have a strange fascination with collecting money too, but hey it all adds up.
http://www.shelleyshouse.blogspot.com/ Shelley

If I worked at my old job in the States, I’d have bought the pass if there was any difference in the price, because I worked at the office 5/days a week the vast majority of the time; if I travelled, it was by car from the office. Here in Britain, the issue was about a Metro pass that allowed me to leave the car at home. I had a job where I travelled by Metro for 4.5 years; then a job that required a drive to where the Metro didn’t go (and a bus ride would take 2 hours). My final job was so unpredictable that I felt the Metro pass was wasted half the time, so I dropped it. Some days I needed the car to get to meetings during the day, others I didn’t, but work didn’t pay for car parking so there wasn’t a clear cut answer. Another smaller reason why I was glad to leave work, loads of little headaches.
http://jeweliette23.com/ Sunny

I think people get too complacent about these things. No wonder most Americans are horrible with their personal finances. I used to get annoyed that my cable company would tack on like a few extra dollars to the bill, for apparently no good reason. I just canceled cable altogether.

http://www.FabulouslyBroke.com FB @ FabulouslyBroke.com

Complacent for just a buck or two

Or when you’re in a grocery store and people sigh at you because you want the $0.50 you are owed when they overcharge you.

“It’s just $0.50″

…well that stuff adds up

http://add-vodka.com/ Daisy

I’d probably have caved for the pass after $5 a month. My thoughts would have been – what if I didn’t work 20 days? What about if there was a holiday? Or two? ie in December? Would I be able to find parking at least half of the time within a few blocks that is free?

I go to school where if you buy two semesters of parking passes at once, it’s about $40 cheaper. I always only buy one semesters at once, because I never know what my classes will be like in the next semester. If they are on Fridays and in the evening, I can find free parking a few blocks away and just walk for an extra 10 min. I wouldn’t want to lock myself into spending an extra $100 just in case.

But $20/month is huge to me!

http://www.FabulouslyBroke.com FB @ FabulouslyBroke.com

I did the calculations on that — 20 working days per month, what if I didn’t park..

But it was just worth it, and would even out/average out with the other months, even if I didn’t go into work that day (sick) or otherwise

http://indiashoes.wordpress.com/ Dips

Agree with OW. This is somewhat the principle of Consumer Susplus as talked about in Economics 101. (http://www.daviddfriedman.com/Academic/Price_Theory/PThy_Chapter_4/PThy_Chapter_4.html)
The willingness of a consumer to pay a certain premium is associated with his perception of the importance of the object. However, when the premium is much higher than the perception, there is a mismatch. The unwilllingness to pay in advance for a service which may not be used is probably justifiable to some individuals by $20, but at $40, it is not.
Perhaps these are people who travel a lot monthly? Or perhaps they dont need parking all the working days? Or is it a binding yearly payment of $100 *12 months?

http://www.FabulouslyBroke.com FB @ FabulouslyBroke.com

It was not binding for a whole year. It was per month, and you just had to give notice beforehand (about a month) to cancel.

I was with plenty of contractors, all working on confirmed projects with me for 3-9 months or longer. Some have been there for years!

They were too lazy to sign up for the pass for just $20 in savings….

http://www.oxyweb.co.uk/ OW

It reminds me a bit of the following Freakonomics chapter: http://www.nytimes.com/2005/05/15/books/chapters/0515-1st-levitt.html

The incentive to pay in full each month and therefore saving $20 was not great enough for the daily payers. That was until the apparent convenience or money control was outweighed with the price hike.

And as Debora has said, assuming the car park is owned by the company, I think it’s bad taste of the employer to charge you to park!

http://www.FabulouslyBroke.com FB @ FabulouslyBroke.com

Perhaps that’s where I read that study!!!

Debora

Is it just me, or is anyone else a bit shocked by the concept of having to pay to park at work?

http://senseofcents.blogspot.com/ Michelle

I agree! I’m glad I don’t have to.
Jessi

When you work downtown, or at a University, it is pretty common. I once worked at a downtown daycare and part of my compensation was a parking pass for a garage. What they didn’t tell me was that I got $100 on a swipe card each month, but parking for the entire month would be $140. The job pay was very low, so I threatened to quit over the issue. Suddenly my swipe card went up to $140. I wonder how many other lead teachers were being screwed.
http://www.FabulouslyBroke.com FB @ FabulouslyBroke.com

I was a bit shocked, myself. But apparently a third party owns the lots by the client site where I worked, and they charged per day.

If you worked for the company itself and were at a certain level, they would reimburse you the parking cost
Amanda

Nah. I live in a city where there are more people working than there are parking spaces. It’s very common for them to charge for parking. It sucks, but it does encourage those who can to take public transit, walk, bike, or carpool.

FB Newsletter
As seen in..
FB in a Nutshell

other blog: the everyday minimalist
talk to me: contact me here
location: canada/usa
works: business consultant
net worth: ~$155,000 as of Dec 2011
eats: sashimi, tartiflette, pho
drinks: earl grey cream tea
gadgets: macbook pro 17", ipod touch (pda)
beauty: fb's list of toiletries/makeup
wants: roland rd700-gx piano
reads: ayn rand, tom stanley, sophie kinsella
watches: bones, mentalist, castle, top chef
wears: wrap dresses & necklaces
loves: minimalism, $$ management, traveling
hates: wearing shorts & being late for anything
Categories
- Admin (56)
- Career (99)
- Life (465)
- Money (447)
- Thoughts (215)
- Travel (61)
- Uncategorized (1)
Recent Posts
Advertising

Why people think $20 is more expensive than a $20 increase

So readers, have you experienced something similar?

And what is your price limit for an ‘acceptable’ increase per month over a more finicky, but discounted option?

$1? $10? $20?

Related Posts

About the Author

FB Newsletter

As seen in..

FB in a Nutshell

Categories

Recent Posts

Advertising

Fabulously Broke in the City

Advertising