Price, Value, and Financial Literacy
I’m Andy Temte and welcome to the Saturday Morning Muse! Start to your weekend with musings that are designed to support your journey of personal and professional continuous improvement. Today is February 22, 2025.
Well, if you haven’t noticed already, we’ve embarked on an extended journey to discuss financial literacy on this show. The statistics I’ve shared with you over the last few weeks are a wake-up call regarding the dire position we’re in as a country. We don’t even rank in the top 10 in financial literacy amongst developed nations! I’m compelled to use this forum and my background as a financial educator to help as many people as I can make progress on their journey toward financial literacy and ultimately, financial freedom.
For the foreseeable future, I’ll be creating and releasing short 7-10 minute lessons each Saturday morning on money, investing, credit, tax, insurance, retirement, and everything else you need to improve your grasp on important financial topics. There will be no gimmicks, no get-rich-quick schemes, and no ulterior motives. Just useful financial information presented in an approachable, digestible fashion—heck, we might even have a little fun along the way!
My ask of you is this—if you find value in this series, please share it with your friends, family, and colleagues. The goal is to improve the financial literacy of as many people as possible.
We’re going to begin with the basics of financial literacy, and over the next few episodes, we’re going to focus on a few preconditions for it—akin to last week’s discussion of the importance of numeracy and mathematical literacy. This week’s conversation centers on the concepts of and interrelationships between value, price, and decision-making.
If you look up the word value in the dictionary, it is a word that carries many meanings. It can be used as a noun, a verb, and an adjective. When I’m using the word “value” in this episode, I’m NOT talking about being cheap or buying only inexpensive things.
For our purposes, we’re going to focus on value as the relative worth, utility (usefulness), or importance of a product or service (Merriam Webster). The word that is common to most definitions of the word “value” is worth and it’s worthwhile (pun intended) for us to pause on its meaning, which is the value of something measured by its qualities or by the esteem in which it is held (Merriam Webster). As you can see, both words, worth and value, have similar definitions, but the point I’m stressing is the subjectivity of value and worth as indicated by the use of the words relative and esteem in their definitions. So the value I ascribe to some good or service may be completely different than how you value that same good or service.
Now let’s look carefully at the word price. Price is defined as the amount of money expected, required, or given in payment for something (Oxford). The reason for introducing the definitions for both value and price is to stress that price and value are not necessarily the same thing. They are related concepts, but only in the aggregate. The price of a good or service is set and adjusted over time based on the value that the prospective buyers of that good or service ascribe to it. Each individual prospective buyer will value the product or service differently, some higher, some lower, so the price will be set at the level where the seller and a group of actual (as opposed to prospective) buyers of the product agree.
We’ll talk much more about supply and demand in later episodes, but for now, the point I’d like you to focus on is that price is the result of a market clearing process and value is a personal opinion based on the worth the individual ascribes to a product or service. Price is determined through real life transactions and value is a subjective, individual perspective.
Why does this discussion of price and value matter to building financial literacy? As humans, we tend to not put enough thought into the worth or value we assign to the products and services we purchase. The point of today’s Muse is to stress that we’ll make better decisions on what we purchase with our hard earned $$ if we take a bit more time to consider how we place value on the things we buy. The interesting thing about finance and financial literacy is that it is equal parts objective evaluation of our financial position and our behavioral perspectives about our personal economy. How we feel about money, investing, and consumption is as important as the numerical and analytical side of working with our finances.
After all, we are the product of our environment plus the stack of decisions we make as we move through our daily lives. We place far too many of our economic decisions on autopilot and we don’t stop to ask “why” we do the things we do. Why do I go to the coffee shop three times per day? Do I really value all three cups of coffee or am I just in a rut? How about I only go to the coffee shop twice and put the money I would have spent on that third cup into a savings account?
Financial success is dependent on making better decisions with our money. Making better money decisions depends on our ability to appropriately assign value to the things we buy. Turning off our mental autopilot tendencies and thinking more consciously about value is a prerequisite to improving our financial position.
PS: For a more in-depth conversation about the difference between price and value, see my interview with Doug Howarth on The Balancing Act Podcast from July of 2024.
Grace. Dignity. Compassion.
