Economics · Personal Finance

A Christmas Carol Is a Lesson in Opportunity Cost

Opportunity cost is the how you would spend your time or money if you chose your favorite alternative to the choice you are making. For example, I am tempted to add the extra sports package to my Sling TV account, but it costs an additional $11 per month. $11 doesn’t seem like much, but if put into my retirement account instead, $11 per month is $6,000-8,000 in future value. Using the 4% rule, that’s about $300 in future annual income, or about $25 per month in retirement income. So an $11 per month now costs me $25 per month later. That’s a heavy opportunity cost that one might not consider before making a seemingly small financial decision.

In my view of economics, the key to a happy life is making decisions based on one’s values. Part of the lesson of A Christmas Carol is that Scrooge has come to value personal wealth above all things, and it makes him miserable. The popular interpretation is that he is greedy, but Dickens is clear that is really afraid. He fears poverty.

There is nothing on which it is so hard as poverty; and there is nothing it professes to condemn with such severity as the pursuit of wealth!

Belle tells him,

All of your other hopes have merged into the hope of being beyond the chance of its sordid reproach I have seen your nobler aspirations fall off one by one, until the master-passion, Gain, engrosses you.

Scrooge must be visited by the ghosts of Christmases past, present, and future because he has to see what could have been and what could be. Opportunity cost is easy to easy in hindsight and difficult to see in the future.

When Scrooge visits the past, he sees Belle with her children and asks,

What would I not have given to be one of them!

He even adds a comment about giving up all the wealth in the world.

In the present, Scrooge hears his nephew say,

the consequence of his taking a dislike to us, and not making merry with us, is, as I think, that he loses some pleasant moments, which could do him no harm.

In the future, Scrooge sees the outcome for himself if he does not devote time to other people and the outcome for others if he does not help them.

Where people go wrong with opportunity cost is they forget the past, struggle to envision the future, and fail to apply either to their decisions in the present. Scrooge promises the ghost of Christmases yet to come,

I will live in the Past, the Present, and the Future. The Spirits of all Three shall strive within me.

To make good decisions, we must stay focused on our values, to “honour Christmas in my heart, and try to keep it all the year,” if you will. And we must learn from the past, envision the future, and apply those to our decisions in the present.

Merry Christmas!

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