Spending is a significant part of money management, so it makes sense to try to help kids figure out the best ways to use their money. Since children don’t have “needs” on which they must spend money on a regular basis, it means taking the time to explain how needs and wants are different. For kids, everything is pretty much a want. And yet they come to think of those wants as needs, which is how they end up not being able to make the distinction later.
The fact that nobody clarified “needs” and “wants” for us, or taught most of us about smart shopping, is evident in the way we abuse plastic. More than half of North America’s credit card holders have balances owing, paying what can be exorbitant interest rates for products and services that typically fall into the “wants” category and that may not even outlive their repayment schedules.
Think dinners out, movie tickets, a party dress, or the latest technology toy.
While our values are very different from those of our parents, who typically spent only what they had, our “consumeritis” exists in large part because the money game has changed. It is in our generation that credit has become a substitute for disposable income. This has allowed some people to fall into the trap of thinking they can have it all at the same time. The result? Our generation has managed to rack up record levels of debt, and we are spending bazillions of dollars in interest every year because we’ve become such rabid consumers. If you don’t want your children to fall into the consumeritis trap, you need to help them distinguish between the things that are Must-Haves and the things that are Nice-to-Haves.
Whether we are aware of it or not, we already play an important role in teaching our kids how to shop. Each time we hit the mall, we model what a consumer looks like. And whether our model is positive or not, our kids are learning.
Teaching our children about becoming smart consumers may mean looking closely at our own spending patterns and developing some new habits. Teaching our children also requires that we take an active role in explaining what we are doing and why. And that’s where relative value comes into play.
Relative Value
Relative value refers to the relationship between what an item costs and what you have to do to pay for it. If it costs $140 for a concert ticket, and after all your Must-Have expenses are met you’re left with a disposable income of $5 an hour, you would have to work for 28 hours—or more than half a work week—to be able to afford that concert ticket. That puts a whole new spin on the real cost of that ticket.
As your children’s primary financial guide, you have to look for ways to bring home the lesson of relative value. If your child has a job, talk about relative value in terms of how many papers have to be delivered, how many lawns have to be cut, or how many babysitting jobs have to be done relative to the cost of an item.
Let’s say that your young lad has a job cutting grass for the neighbours in the summer. He cuts about five lawns a week, earning $25 per cut. He’s pulling in $125 a week. Now let’s say that he decides he has to have a new laptop. It’s the fruity kind that costs about $1,700. How many lawns does Laddie have to cut to pay for the laptop? Here’s the math: $1,700 ÷ $25/lawn = 68. Yup, he’d have to cut 68 lawns to buy the laptop (not including tax). Put another way, he’d have to work for almost 14 weeks (methinks that’s the whole summer!) to pay for that laptop ($1,700 ÷ $125/week = 13.6 weeks).
Now, here comes the hard part. It’s time to share your own financial reality with your mini-me. Don’t go screaming from the room. What are you afraid of? If you aren’t prepared to share your personal financial circumstances with your kid, why should he listen to your money advice? Tell Junior how much money you make per hour; if you aren’t paid by the hour, work it out. Deduct your total expenses from your net monthly income, and then divide by the number of hours you work each month to show your remaining disposable income per hour. So if you put $2,600 a month into the bank, and you spend $2,250 to cover your living expenses, you have $350 a month left. Assuming you work a 40-hour week for four weeks a month, your disposable income is ($350 ÷ [40 x 4]) $2.19 an hour.
Now it’s time to go shopping. Tell your child to pretend she has your hourly disposable income to spend on that new computer. Ask her to choose a computer she would like to have and write down the price. (You can make this as simple as a look through the ads in the newspaper or as detailed as a visit to one or two stores.) Divide the price by the hourly disposable income amount to show how many hours she would have to work to buy the computer. Ask your child if she would be prepared to work that many hours for that specific computer. If she chose a less expensive one, how many hours would she have to work?
Repeat the exercise with a holiday purchase, the purchase of a new TV, a snowmobile, a bicycle, or whatever is the “hot buy” in your kid’s mind. But resist the urge to make every purchase into a lesson. Teaching relative value shouldn’t be arduous. Opportunities will naturally arise when you can reinforce the concept. Don’t lecture. Teach.
Fending Off Influences to Shop
Studies show that, on average, we’re exposed to 3,000 ads per day, everywhere from the obvious media sources like TV and radio to the less obvious gas pumps and washroom stalls. Advertising is impossible to avoid. Houses are now being wrapped in ads, and companies are even looking at placing ads in space that will be visible from Earth. I kid you not. It’s your job as an aware parent to offset the barrage of messages your kids receive so that life doesn’t become about being driven to buy the new hot Stuff.
Challenge your children’s definition of “cool” by asking them how they feel about not owning something all the other kids have. Discuss how Stuff impacts on their sense of self. Would people like them more if they owned a certain item? Would people like them more if their face, body, skin, or hair looked different? Does an ad (and show them an ad targeting teens) make them feel that they’d be more popular if they bought whatever the ad was selling? If they say “yes” to any of these questions, talk about how important it is to have a sense of your own self that is not dictated by others. You can spend a lot of time and money to create an image you think is more attractive to others. Ultimately, however, you can’t please everyone, and if you let yourself be dictated to by the cultural icons that set trends, you’re just a wannabe. This isn’t a “money” issue. This is an issue of self-esteem, and your job as a parent is to help your children develop a clear sense of who they are so they aren’t unduly influenced by marketing tactics.
Encourage smart shopping by challenging advertisers’ claims about their products. Do your own blind taste tests at home. Point out how the packaging influences the desire to buy, and discuss whether what’s contained in the package is all that different from the less expensive alternative. Celebrate Buy Nothing Day at home and use it to talk about why we often buy things we don’t need, and how we can become smarter consumers and better savers.
Put shopping into perspective by explaining that shopping isn’t a hobby or pastime. It’s something we should be doing consciously. So we shop with a list, and we don’t buy anything that’s not on the list. And we shop with a budget, but we always look for ways to save, so we can put what we successfully keep in our pockets to work for us in our savings.
Most importantly, understand your own motivations to consume and walk the talk. Demonstrate how much more important it is to experience things together than it is to accumulate more stuff. Don’t make up for the time you can’t spend with your kids because of work or school or whatever else is making demands on your life by buying them whatever crap they say they want. If you use Stuff as a substitute, you’ll be teaching your kids the wrong lessons. Focus on keeping money in the right place in your life, and help your children understand the role money should play in theirs.