Saturday, 29 March 2014

Is £5 a lot of money?

I know it's an odd sort of question but it's one that has, from time to time exercised my mind. I think it helps to show how our understanding of value is shaped by perceptions and circumstance.

The story starts back in, I think, 1990 or 1991 when John Hinchcliffe and I has a heated debate about this very question - "is £5 a lot of money". Now at the time we were the account planning and research boffins at a leading direct marketing agency - the issue had arisen during a 'meeting' (I use the word loosely here) to talk about a savings product we promoted with the line 'only £9 per month'.

So, given that we had the skills and resources available we conducted some research. Not the most scientific piece of research but rather better than much of the rubbish that masquerades as public policy research these days. And our findings were significant - some people though £5 was a lot of money and some people didn't. However, we'd expected those answering 'yes' to the question would be the less well-paid employees of the agency (and any clients we stumbled across in the couple of days we were paying attention to our vital study).

What we found (you'll have to trust me on this because we didn't keep the results) was more interesting - the only factor that appeared to correlate to thinking £5 a lot of money was age. The older people were the more they thought £5 a significant lump of cash. The 55 year-old agency director saw £5 a more valuable that the 17 year-old receptionist. We concluded - before moving on to more important things (that we were actually paid to do) - that this might have something to do with inflation.

So for all those clever behavioural economists and such here's the question again:

"Is £5 a lot of money?"


1 comment:

Junican said...

When I saw your question in the post, my immediate reaction was to say "No", even though I am 74. There again, nor do I think that £100 is a lot of money. But if you asked me if £1000 pounds is a lot of money, I would say, "Yes"
I think that the important thing in the question is that it is a 'closed' question. the answer must be either 'yes' or 'no', and there is no basis that dictates either answer. Thus, the answer is likely to be based upon immediate, past experiences. For example, I recently gave my daughter £500 to help her with some work on her newly acquired house. The gift did not hurt me financially, but the amount colours my visualisation of the value of £5.
There are also some strange psychological tricks in the question. For example, I think that £5 would be a lot to pay for a pint of beer, but that does not mean that I think that £5 is a lot of money!
Unfortunately, your straw poll suffered from the fault of many 'epidemiological' studies - correlation does not equal causation. There was a correlation with age, but that does not mean that age is the only, or even the main, factor!