What Hawaiian Coffee Growers Can Teach Us About Money
3.1.10
The story behind First Fruits. The following is a guest post I wrote last month for dollarsanddoctrine.com.
The following is an excerpt from the Freakonomics Blog. If you haven’t read the book, you really should. It’s fantastic.
The price offered to coffee growers who turn in their “cherries” — ripe coffee beans — at Greenwell Farms in Kona, Hawaii, is $.90 per pound if they are paid weekly and $1.05 if paid monthly.
The weekly price is lower because it takes the company’s accountants more time to work out and record pay if they do it weekly rather than once a month. But what does this price differential imply about the grower’s discount rate? If he takes the weekly rate, on average he is getting $.90 one-half month earlier than he would get $1.05.
That implies an annual discount rate of nearly 4,000 percent — (1.05/.90)^24 – 1 –- a truly remarkable rate of impatience. Despite this, the tour guide tells me that a lot of growers do take the lower rate of pay.
So what do Hawaiian coffee growers have to do with sound Biblical finance?
The plans of the diligent lead surely to advantage, but everyone who is hasty comes surely to poverty.~Proverbs 21:5
By budgeting and having a plan for their money, the more experienced coffee growers maximize their income. They don’t work any harder, but (as the old adage goes…) they work smarter. They are diligent. The have made plans which account for ‘this week’ and by doing so, they have an advantage over the other coffee growers.
As we read the story, we are tempted with judgment. I mean, what idiots! Don’t these coffee growers realize the high cost of their impatience! Well, not so fast.
Although it is easy to look at the coffee farmers with eyes of contempt, Americans are guilty of a similar crime. Although our employers do not offer flexible payment schedules like the coffee buyers, we often pay the high cost of needing money this week.
