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My brother and I were having a discussion last week about family finances and had a major difference of opinion about discretionary spending. His position was
1) How you spend discretionary income does not negatively affect your or your families present or future stability so
2) No matter how you spend the money it is equally reasonable/rational.
I sympathize with this, as I have long realized that how you spend your discretionary income make no sense to most people. However, this does not mean all spending is eqaully rational. To wit:
1) Person A likes to collect gold coins issued by government mints. They spend all discretionary income on this hobby. While gold goes up, and gold goes down, it is likely to come close to preserving (or perhaps even exceed) its NPV over long period of time.
2) Person B likes to purchase trendy, high end designer clothing. They spend all discretionary income on this hobby. Its value after six months is 10% of the sales price and it is given to goodwill after 1 year.
Are these equally rational? My brother's position it that if both derive similar satisfaction from their spending, it is. Whatever gives you enjoyment in life. However, you cannot argue that at the end of the day, B is better off than A. Or can you?
I am not saying person B is doing anything wrong, or bad, or unethical. Just less rational than other choices.
Keep in mind, we are discussing the position where both A and B have already fully funded their present and future "fundamental" obligations. The kids college fund is full, the house is payed off, retirement is funded, etc.
What do you think?
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