Percentages vs Absolute?
When it comes to money, think in percentages, not in absolute terms.PoyoDuit
Last year, during my “Taman” resident annual meeting, the management proposed to increase the monthly fee from RM100 to RM120. The reason given was due to an increase in security fee charges. Several residents agree with the price hike while a minority of them, including me, were against it.
To counter the minorities objection, the management immediately responded the following “It is just an extra of RM20.00 per month. We are sure everyone can afford it”. I believe the management said it jokingly, but it was the wrong place and time to throw that sort of joke. As expected, the minorities grew even more agitated with the response.
It was twofold. First, I was aware the management has a huge amount of cash reserve in the Fixed Deposit, which can be used to cover the price hike. My argument with them, Residential Association (RA) is a non-profit organization, no reason for them to hoard that much of cash reserve.
Second, the management made the mistake to look at the price hike in absolute terms and not in percentages. To be fair, RM20 a month may not seem much for many residents but when we start looking at it in percentages, an increase of RM20 corresponds to 20 percent price hike. 20 percent price hike in a year can be considered as a drastic hike.
Is the management saying the security fee charges has inflated by 20% in a year? When this point was brought up, residents whom initially agreed with the price hike started asking the management to justify the reasons. The management finally explained in detail why they were proposing the 20% price hike.
There were additional costs involved with maintenance that were not considered previously. Upon hearing the reasons and digesting the numbers, I understood the situation and agreed to the price hike. However, I wasn’t pleased with the
A few years ago, the previous government increased the toll prices for several highways. I was badly affected by this change as I must drive through 4 different tolls to get to work daily. In one of the toll booth, the price was increased from RM1.00 to RM1.80. One of my neighbour commented “extra 80 cents is still OK”, but when I told it is an 80 percent increase, I could sense he was unhappy about it.
Why does it matter to look at money in terms of percentages?
In both cases, RM20 and 80 cents increase may not seem much. Reason being we are looking at it in absolute terms and they may seem affordable or still within our mean. Only when we start looking at it in percentages, we will realize the actual price hike. These sudden price hike will affect or expenses in the long run.
Besides expenses, I do notice a number investments or insurance saving plans quoting returns in absolute terms. Returns in absolute terms do not justify the actual investment return rate. The absolute value may look big, but in percentages could be a very small value. In some cases, the return in percentages is less than the annual inflation rate.
A part-time Malaysian blogger writing his thoughts online. Interest in both personal finance and economics, mainly the behavior aspect of them. I consider myself Poyo since I do not have any significant credentials in both fields, so readers beware. Thanks for reading.