Economics is a social science concerned with the production, distribution, and consumption of goods and services. It studies how individuals, businesses, governments, and nations make choices about how to allocate resources. Economics focuses on the actions of human beings, based on assumptions that humans act with rational behavior, seeking the most optimal level of benefit or utility. The building blocks of economics are the studies of labor and trade. Since there are many possible applications of human labor and many different ways to acquire resources, it is the task of economics to determine which methods yield the best results.Economics can generally be broken down into macroeconomics, which concentrates on the behavior of the economy as a whole, and microeconomics, which focuses on individual people and businesses.
It had me thinking of 2016 when I discussed who to vote for. I remembered I talked about the need to actually invite foreign direct investors (FDIs) to the country. The response was rather stupid. One of the people I talked to was an overspender. He said, "Why are you inviting them over? Only they will get rich!" I argued this and that but the person is just bullheaded. The incident made me think about people who don't know how to value money are going to ignore economics. Sure, such people can pass high school economics and college economics (in my case, I had a total of 12 units in my entire academic life). However, they are simply ignoring the basics of economics when all they do is study it for a grade.
An overspender doesn't know how to economize, right? To economize means to spend less and reduce one's expenses. Economics is also concerned with spending less and reducing one's expenses. However, this doesn't mean being a miser too. To economize would mean to analyze all alternatives possible not just to save in the present but also to make sure one gets a good Return On Investment (ROI). That is to avoid any unnecessary expense that could've been avoided if certain actions were met. It's like spending money on proper waste disposal will cost less than having to pay for much bigger costs related to environmental damage in the future. For the overspender, they tend to live like money is free which results in them spending without thinking of the consequences.
For the overspender, all they care about is easy money or acting like money doesn't run out. It's pretty much like spoiled children of overly rich parents or some Overseas Filipino Worker (OFW) families. I remembered a symposium at the University of San Carlos-Main Campus (USC-Main) during my MBA days. One of the undergraduate accounting students mentioned about spending habits of OFWs. The family that's left behind in the Philippines tend to live on remittances. The OFW is abroad, sweating, working, and the family thinks that money is so easy. For spoiled children, they don't know about the sacrifice their parents made. It can e worsened when rich people want to spare their children from their struggles--a really bad mistake that will cause the family wealth to disappear eventually.
For those in business, I think why the overspending businessman may oppose economic reforms may also be linked for easy money. It's much easier to earn money by offering bad services for a high price. You don't need much effort to make a good product if you're protected from competition. All a greedy businessman who overspends may care about that customers give him money, he's the only one among the few offering the service, then get money even if his products and services are bad. He would object to foreign competition because he fears his comfort zone will be gone. I guess it's all about lying that only FDIs will get rich. It's more of protecting one's selfish interests to gain more money for overspending.
The overspender then starts to panic when the money runs out. What happens next can be a very bad decision. There are plenty of bad people out there who will take advantage of their plight. Too much spending can lead to the You Live Only Once attitude (YOLO), the necessity to give a blowout, envy of what others have, splurging during paydays, and lifestyle inflation. This will eventually lead to them falling for bad loan schemes (such as Five-Six Lending) and Get Rich Quick schemes such as Ponzi schemes. Charles Ponzi was notorious for his financial schemes hence it was called a Ponzi scheme. Many fall for Ponzi schemes because they want to get a lot of money quickly so they can overspend. Think about convincing your friend not to invest in the Get Rich Quick scheme or the Five-Six scheme? He or she will just ignore it because all he or she cares about is the huge promise--never mind that simple mathematics will prove that the scheme is a sham. I bet Ponzi loved the economic illiteracy of his day and he got rich cast. Ponzi got rich fast but he eventually died penniless in Rio De Janeiro, Brazil, on January 18, 1949.
Another economic term to think of is the Marginal Propensity to Consume (MPC). It's defined as a proportion of an aggregate raise in pay where a consumer spends rather than saves. It would be interesting to know that a key takeaway is that MPC is typically lower among people of higher incomes. That would mean that people of lower-income overall tend to spend more money than those of higher income. The MPC might even be defined as follows:
Given data on household income and household spending, economists can calculate households’ MPC by income level. This calculation is important because MPC is not constant; it varies by income level. Typically, the higher the income, the lower the MPC because as income increases more of a person's wants and needs become satisfied; as a result, they save more instead. At low-income levels, MPC tends to be much higher as most or all of the person's income must be devoted to subsistence consumption.
So, pretty much, the overspender ends up devoted to subsistence consumption. The person with the higher income ends up focusing on savings. It might be best seen as that when a person doesn't have savings--it's because they might not be focused too much on their needs but the wants. That means when stuff like basic needs is needed--they tend not to have it. Meanwhile, those who slowly try to grow their money may discover their MPC starts to decrease. It may be because by spending on what they needed during the time they had a higher MPC--they end up securing more money in the future by also learning to save.
For the overspender, none of these matter already, right? For them, all that matters to them is that spending makes the world go round. Never mind that overspending has been one of the major causes of governments falling down. A lot of dictatorships are also attributed to overspending to satisfy the wants of those in power. Meanwhile, any good ruler knows not to overspend and to spend only what's necessary.
References
"Charles Ponzi"
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