Saturday, February 19, 2011

Innumeracy; Not Knowing this Simple Calculation Could Cost You Thousands of Dollars in Your Lifetime - AOL's WalletPop Canada

To paraphrase the allegory at the start of the book, Why Smart People Make Big Money Mistakes and How to Correct Them, the scenario goes like this. You're shopping for lamp and spot one you like for $50. Just as you're about to make the purchase, a friend bumps into you at the cashier and tells you that identical lamp is available just a few blocks away for $25. You do a quick calculation in your head realizing that's a 50% savings for a little inconvenience and decide to go a few blocks for a big savings.

Here's the next scenario. You're shopping for a big screen TV. You're at the electronics store, you've narrowed down your choice, spent a considerable amount of time negotiating with the sales person and feel good about the $1,250 price tag. Again, just as you're ready to make the purchase, you bump into your friend that tells you the exact TV can be had a couple of blocks away for $1,225. You do a quick calculation in your head and realize that's only a savings of less than 3%. Do you put the TV down and make the extra effort? If you're like most, you decide it's simply not worth your time for such an insignificant savings. But that's a big mistake.

What happened in both scenarios? Read on to find out:

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