Posted on September 11, 2008 by Ben Connard
Consumer spending is slowing, driven by higher inflation and unemployment. However, TV sales were up 28% in the second quarter, led by liquid-crystal display televisions (LCD TVs). This sounds like a case of Americans spending frivolously.
It’s actually a case of Americans spending wisely. Let’s say you have a free Saturday night. You have 3 ways to entertain yourself:
· Attend a baseball game, spending $15 on bleacher seats, $5 for a hot dog and $8 for a beer for a total cost of $28
· Watch a movie in the theater, spending $10 on a ticket, $5 for a soda and $6 for some popcorn for a total cost of $21
· By a new 37” 1080p Flat-Panel LCD HDTV for $750
The movie must be the optimal choice as it’s a little cheaper than the baseball game and much cheaper than the TV. But the movie will entertain you for 2 hours, meaning you’re spending $10.50 an hour. The game will entertain for about 3 hours, resulting in a cost of $9.33 per hour. So the baseball game is actually a better deal than the movie.
The TV? You can’t watch enough TV in one night to bring down the cost per hour to $9.33—it would require watching 80 hours. However, the TV lasts for more than an afternoon—you could approach 80 hours of TV in about a month.
The TV must be the best deal because within a month you’ll have paid less than $9.33 per hour. Actually, no. Chances are you already have a TV, so you can simply stay home to watch it for free. So the real question is, with a new high def LCD TV, how many nights will you forgo a movie or baseball game and stay home and watch TV on your nifty new screen when you would have gone out with your old tube TV?
Let’s say with your old tube TV you went to the movies 24 times a year (twice a month) and a baseball game 4 times a year. With the new TV, you’ll go to the movies only 18 times a year and a baseball game 3 times a year, meaning you’ll watch 15 additional hours of TV (6 movies x 2 hours plus 1 game x 3 hours). These activities you’re skipping cost about $10 an hour, for an overall savings of $150. Another way to calculate your savings is by totaling the cost of the activities you’re skipping: 6 movies at $21 plus 1 game at $28 totals $154.
Either way leads to the conclusion that after about 5 years you’ll save enough money elsewhere to justify the TV expense. ($750/$154 per year = 4.9 years) If you’re planning to keep the TV for longer, buying the TV is the smart move.