MONEY OBEDIENCE

Setting up a Budget: Buying a Handbag at a Sample Sale

Have you ever seen the Seinfeld episode in which Jerry carries a “carry all” and then he gets caught looking at least very, very “metro-sexual” as he caries this purse. So, he yells out in his defense, “It’s European!” Whatever it is, I don’t know much about purses either for men or for women. When I try to pick out a purse for my wife, I always get the wrong kind.

The other day my wife and I went to a sample sale where she bought a bag for herself (among other things that she needed). I must admit this bag looks pretty cool and she has already gotten a lot of compliments on it. It has some leather trim but for the most part it is made of other man-made material – still, it does not look cheap. It looks cool, yet functional. We bought it at a 75% discount from the suggested retail price, which means it came out to about $80. If I am doing the math correctly, the suggested retail price is $320! I think this is a rather steep price for a handbag. I even think that $80 is not a screaming bargain, but as I said, what do I know about handbags?

Nevertheless I am okay with the purchase, and so is my wife, of course, even though this kind of shopping is not really her thing. (She prides herself on being a low budget shopper.) We did get the bag at a pretty good discount and one could argue that the value of the bag is indeed $80 when we compare it to other bags. (As if I know anything about comparing handbags.) Why am I cool with buying this bag, which was not really needed in our family’s handbag collection? (Or was it, wifey?)

When we consumers give things different values, we employ something called a reference point. My reference point for the price of the handbag was the suggested retail price, which is really an arbitrary number as far as I am concerned. But the way the reference point works is that if the suggested retail price had been $100, I don’t think we would have bought the handbag at $80. Regardless of my feelings about the suggested retail price, there is no other way that I can actually value a handbag like that and give it the “right” price. So, when I determine the right price for me, I am relying on reference points that may or may not be that good. What other options do I have?

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Posted in Budget and Expenses