The X factor: Size does matter

Remember “economies of scale” from Econ 101? We got to experience it first hand recently! Since Matt joined Tushar in the experiment, the average costs per person have done down,  along with our risk exposure to external economic shocks, while the average morale has gone up. And no, it isn’t because Matt is a highly disciplined, jovial fellow (well, not entirely at least), its because when it comes to living together, eXtended is the way to go – be it families, communities or “societal networks”.

So where does it impact the most? We looked at a few trends and came up with the following areas where we think this “X factor” hits us hard.

COST TREND LINES - before and after Matt joined. See the bullet on "Hedging economic shocks" to understand the calculation behind risk exposure ratio.

1. Transport

Since our expenses are highly sensitive to how much we travel, it really does help to share a ride on the motorcycle – definitely to go grocery shopping, and for work as well, to the extent possible. You can see the trend line for per person expenses on transport before and after Matt joined, the average costs have decreased. No wonder why entire families travel on scooters! In fact, if they didn’t use the scooters and travelled using public transport, it could get really expensive as individual bus pass is Rs. 700 or so per month. Perhaps we should have “family passes” to incentivize a group to travel together?

2. Mobile and communications

Again, since it adds upto ~10-20% of our expenses, it helps to take messages on behalf of each other and be efficient about information/communication sharing. Again, you can see in the trend lines that the average communication bill (mobile bill being the reason) has fallen. Note: this is normalized for internet expenses, i.e. assuming internet expenses constant for before and after Matt joined. If we assumed that internet expenses were not shared before, the drop would be even more dramatic.

3. Food

While there is not necessarily a clear pattern in the quantity of food consumed, there most definitely has been a rising trend in the variety of things we try and eat. This has been largely possible because of the ability to cook more than one or two things per meal and spread the increased effort between two people. You can see our food album here.

4. Hedging economic shocks: the social insurance

The single biggest economic shock we have suffered till now is a broken pressure cooker. Of course we will happily split the costs and use our combined reserves to fix it/buy a new one. But it would have been much tougher doing it alone. Without the means to support health and other kinds of insurance products, social insurance by the virtue of being part of a family or community is perhaps our biggest support mechanism against any economic shocks. In the trend lines above, the “risk exposure ratio” has been calculated as follows: assuming an economic shock of Rs. 200 (doctor’s consultation fee), divided by (our combined net reserves until that point + Rs. 100). The Rs. 100 has been added because we are assuming that in the case of a real economic shock, we can stretch ourselves that day and spare Rs. 50 each from our daily budget to add to our reserves. Clearly the line is falling now as our combined reserves our building up and falling much faster because the reserves are of 2 people, not one! No wonder, the microfinance people give loans to groups pooling their credit and not individuals in rural India. The social insurance really works.

5. Overall Morale and social support

Most of our friends are spread all over the city, leaving very few people we know within the 5km radius that is economical for us to travel. That means that we primarily have each other only for company. It helps to engage in sports, share frustrations, insights, cross analyze/criticize and encourage each other. It also helps to have caring friends who like dropping by or invite us over occasionally for festival celebrations, however modest they maybe in our budget.

There is no doubt that life is better when shared with others, but this fact seems to get particularly amplified when living at lower incomes, whether from an economic point of view, or social support standpoint. It’s no surprise therefore that joint families, large household sizes, and clan/community based dwelling has been the preferred traditional mode of social organizations. Clearly we could see scale benefits appear when our “family” went from 1 to 2. Imagine if it was multiples of this – whether part of our immediate family or nearby community. Its perhaps this X factor of the Indian Societal Network that makes such a powerful foundation of our social architecture!

Agree/disagree? Do share in comments below!

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3 Responses to “The X factor: Size does matter”

  1. Good quality of analysis. The inv banker’s need for hard number crunching shines through! Best of luck for the remaining days!

    -Varun

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