Relative Value
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 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 on products and services that may not even outlive their repayment schedules.
While our values are very different from our parents’ - who typically spent only what they had - our “spenditis” is in large part because the money game has changed. It is in our generation that credit cards have become currency. And the statistics on credit-card usage and balances are staggering.
Whether we are aware of it or not, we already play an important role in teaching our kids how to shop. Each time 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 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 you earn $10 an hour, you would have to work for more than two days 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 baby-sitting jobs have to be done relative to the cost of an item.
Now, here comes the hard part. It’s time to share your financial reality with your Mini-me. 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 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 (including income tax) from this hourly wage to show your remaining disposable income per hour.
Now it’s time to go shopping. Tell your child to pretend she has your hourly disposable income to spend on a 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, whatever is the “hot buy” in your kid’s mind.
Teaching relative value shouldn’t be arduous. Resist the urge to make every purchase into a lesson. Opportunities will naturally arise when you can reinforce the concept. Don’t lecture. Teach.
January 30th, 2008 at 11:26 am
Excellent advice. That is how I figure out my own purchases (using the NET not the gross) and I sometimes even double the hours taking into account all the hours that are already dedicated to fixed expenses and food. As a result, most of my wardrobe is hand-me-downs from my shopaholic sister!
My husband and I have always involved the kids in the Math of purchases. They are at peace with the fact that we can’t always get what we want exactly when they want it, and if they are willing to save for it, we will help.