When is a Dollar Not a Dollar?

Last week was the 35^th anniversary of the release of the videogame Pac-man.  In terms of computer technology this is practically ancient history, but at the time guiding the little yellow circle with the pie-wedge mouth around the screen eating up the dots while avoiding the four ghosts in pursuit for 25 cents per shot became a big hit.  It even spawned a sequel game, Ms. Pac-man.

At first glance the natural reaction might be:  why should we even care about the anniversary of an archaic videogame except to make those of us who remember it feel even older.  This USA Today article put a spin on the news that should be of interest to everyone and will help to explain why so many times in the past I have emphasized the need for good decision-making.

“Had you dropped 25 cents into a brokerage account on May 22, 1980 – rather than in that oh-so-alluring Pac-Mac coin slot – that quarter would have been worth $1,818.27 (in 2015 dollars) had you bought and held the best stock in the Standard & Poor’s 500 instead.”  Of course, the chance of identifying and investing in exactly the right stock is easy to talk about in retrospect but is extremely small in reality.  Nonetheless, they go on to say that a quarter invested in a fairly broad index of stocks, a mutual fund representing the S&P 500, would be worth $4.88 today.  They also remind us that avid players rarely stopped at one game and, perhaps over the course of the year might easily have dropped $100, one quarter at a time, into the Pac-man slot.  That $100 would have grown to almost $2000 over those 35 years.

This is all very interesting from a hypothetical standpoint, especially if you were not a videogame fan and perhaps weren’t even born when Pac-man debuted.  To me the power of the story has nothing to do with videogames, it has to do with the idea of wise and foolish spending that I have emphasized over and over in these 400+ essays emphasizing how we often create our own money problems by our choices and behaviors.

The common example used by financial planners is the daily or weekly stop for the expensive cup of fancy coffee.  Cut that out or at least cut back, they say, and your financial future will be much brighter.  But that’s only a handy example, an easily identifiable substitute for all the other decisions we make.  I cannot even count the number of times I’ve pointed out that spending money on products, pills and various unproven remedies, cures and so-called healthier options may actually harm your health, but even if they are totally safe, it still is a waste of money.  The list is long, but includes:  dietary supplements, GMO avoidance, organic foods, other food fads and exotic fruits and berries, bottled water instead of tap water, fad diets that promise results without effort, performance bracelets, products marked up in price based on the use of the positive or negative “trigger words” (green, natural, all-natural, antioxidants, ancient wisdom, holistic, sustainable, gluten-free, probiotic, vitamin-rich, chemical-free, low testosterone, mercury, MSG, r-BGH, Omega-3, quantum mechanics, carbon dioxide, etc.) to entice or scare with no science behind the claims.  Furthermore, every time a company redoes it's formula or menu or is forced to reprint labels due to "popular sentiment," the costs of these adjustments will be passed on to us, the consumers.

From the information above, a penny saved is not a penny earned.  A dollar saved and prudently invested over 35 years is almost $20 earned!  Likewise each dollar wasted on unproven products based on vague or even false claims is almost $20 unavailable in retirement.  This is not a one-time waste; it adds up from week to week and year to year.  Remember, the bottled water industry alone is almost $11 billion; supplements were at $32 billion in 2012 and projected to grow to $60 billion by 2021.  Think of how much better off we would all be if those funds were growing in IRAs and 401(k)s instead.