Money Illusion and the Middle-Lower Metropolis: Managing the Financial Phenomenon

Abstract

Prior studies have revealed that money illusion is an incurable and non-exception financial phenomena. Meanwhile, its effects were quite significant in the economic perspective. This study aims at exploring the effect of money illusion phenomenon among middle-lower income people living in Jakarta. By using a modified questionnaire, which was used in the prior similar theme, the researchers tested whether the respondents’ demographic characteristics, such as education, occupation, living expense and family pattern of monthly living expense were the determinants from a sample of 90 respondents. Those respondents were used to observe the attitude of object study on two aspects, i.e., income and transaction. The results revealed that the metropolises, which were living in the big city like Jakarta and were assumedly sufficienteducated, were not illusion-free on transaction. Meanwhile, the family pattern on monthly living expense did not influence the transaction aspect. Another interesting empirical finding was immunity losing of the entrepreneurs’ logical mind (i.e. the ability to measure economic matters from the relative perspective), which was indicated by the significance regression coefficient of diluted-perception on nominal number, contributed to a big portion of the occurrence of this phenomenon. The study states that habitual family pattern on monthly living expense played important role to the increasing influence of money illusion on those living in urban city and were previously assumed well-educated and comprehending the concept of time value of money (TVM).