Teaching Kids to Be Smart Shoppers
Posted by Gail | Filed under Kids & Money
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.
The fact that nobody taught most of us about becoming smart shopper is evident in the way we abuse credit. More than half of North America’s credit-card holders have balances owing, paying what can be exorbitant interest rates on products and services that may not even outlive their repayment schedules.
Have you had a look at how long it’ll take to get your credit card balance paid off if you pay only the minimum balance each month? Shocking! And yet so many people fall into the minimum payment trap.
While our values are very different from our parents’ who typically spent only what they had, our “spend-i-tis” is in large part because the money game has changed. Credit cards and lines of credit are relatively new ways of paying for the stuff we need and want. And the statistics on credit balances are staggering. The average level of personal debt in Canada rose 21% in 2013 to $15,910. But that’s the “average.” I don’t have any debt so someone else has mine to add to their pile.
Whether we are aware of it or not, we already play a huge role in teaching our kids how to shop. Each time hit a store 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 shoppers means looking closely at how we shop. It also means taking an active role in explaining what we are doing and why. And one of the most effective tools for helping kids understand what a product or service is really worth is the concept of “relative value.”
Relative value refers to the relationship between what an item costs and how many hours you have to work to pay for it. But it’s not as simple as saying that if it costs $140 for a concert ticket and you earn $10 an hour, you would have to work for two days to bring home enough money to afford that concert ticket. There are taxes to be paid, rent or mortgage costs to be covered, food to buy and transportation to cover. Since your essential expenses come first – those are our needs – we have to cover those costs before we can spend our hard earned money on “wants.” That puts a whole new spin on the real cost of that ticket, doesn’t it?
Since it’s your job to make sure you’re raising money-smart kids – have you noticed no one else is volunteering to do this job — you have to look for ways to introduce the idea of relative value. And if your kiddo is spending YOUR hard-earned money, it’s time to share your financial reality with your Mini-me. Hang on now, don’t go screaming from the room. What are you afraid of? If you aren’t prepared to share your own financial circumstances with your child, why should he listen to your money advice?
Tell Little Miss how much money you make per hour; if you aren’t paid by the hour, work it out. Deduct your total expenses (including income tax, shelter, transportation, savings and other essential expenses) from this hourly wage to show your remaining disposable income per hour.
Now it’s time to go shopping. Ask her to write down the price of that new whatever-it-is-she-wants. Divide the price by the hourly disposable income amount to show how many hours you would have to work to buy the item. Ask your child if she would be prepared to work that many hours for that specific item. If she chose a less expensive version, how many hours would you have to work? Is that item more or less important than some other thing your family wants to buy?
Once 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 hours he must shelving boxes (or whatever else he does to earn money) relative to the cost of an item. Remember to subtract the money he would have to pay for taxes, his cell phone bill and savings, along with whatever other costs he’s covering from his job, so he knows his real disposable income per hour.
Resist the urge to make every purchase into a lesson. Opportunities will naturally arise when you can reinforce the concept. Teaching relative value shouldn’t be arduous. Don’t lecture. Teach.