True Cost Economics and Decision-making

For a change in behaviour to stick it usually requires a change in attitude first. Last week I blogged about attitude change around the definition of success. This week I thought I’d get into the choices we make.

Answers.com defines True Cost Economics as “An economic model that seeks to include the cost of negative externalities into the pricing of goods and services.”

So for example, you’re at the grocery store. You buy some bananas for 49 cents/pound. With True Cost Economics (or Full Cost Accounting) you’d also factor in things like the environmental impact of transporting those bananas from South America and whether the farmers are receiving a fair wage. True cost economics informs our choices by looking at the whole picture.

I like this idea of factoring in the full cost as it relates to production. But I think this principle should also be extended to considering the true cost of ownership when making decisions.

please, God, no more!

Take for example this past weekend. Saturday was my birthday. To celebrate I bought a bottle of gin to bring with me to Shaun and Tina’s place in Kitchener. Sadly, the true cost of that bottle was much more than the $25 I paid for it. The bottle cost me a pounding headache and a completely wasted Sunday as I nursed a grotesque and embarrassing hangover. Watching eight hours of TV in one day is not how I envisioned kicking off my 31st year.

Here are a few non-alcoholic examples of including the negative externalities in decision-making:

You’re looking to buy a new, bigger house. Other factors to consider besides the price:

  • How much more furniture will you need to buy to furnish the new place?
  • Are you going to have to spend more time commuting to work?
  • Will you be further away from friends and family? (this may be a good thing – depends on your family and friends I suppose)
  • Will you have to postpone traveling or doing other things you love in order to afford your mortgage?

You are offered a promotion and pay raise. Other factors to consider besides the salary:

  • How much extra time at the office will this mean?
  • Will you need to travel a lot and be away from home?
  • How much added stress will you be taking on?
  • Are you moving to a job that you’re passionate about?

You see a ginormous flat-screen TV on sale at Future Shop. Other factors to consider:

  • Could that money be spent on other things like a vacation or spending time with loved ones?
  • Will your annoying friends be spending all their time at your house watching your new, awesome TV?
  • Will this mean you’ll be wasting even more time watching TV?
  • How much more devastated will you be when you throw your Wii remote through your big-screen TV vs. your old one?

I think to a certain extent, we do factor in some of the other “costs” of ownership. But I think we need to be more deliberate about it. We need to get into the habit of broadening our perspective to see the hidden personal, social, and environmental costs that go along with any decision.

What do you think? Have you been in a situation where you didn’t factor in the “full” cost of something? Alternatively, have you ever turned down a “great deal” or offer because of the other costs not listed on the price tag?

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Funny stories. Good advice. Josh Martin is the author of the book “Simple(ton) Living: Lessons in balance from life’s absurd moments”. Click here to learn more and to purchase a copy.

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