Don’t assume your kids are going to learn in school how to manage money well. There is a growing recognition for the need, but few children are lucky enough to learn about money matters in school.
If you have kids, teaching them about money rests squarely on your shoulders. So, how are you doing with that? Don’t know where to start? Today, I’ve prepared an important but simple lesson for you to teach to them.
The secret to reaching your goals in life is to make good choices with your money.
If you spend your money without thinking about your choices, you will probably make bad decisions. A wise person considers three important things before making a spending decision.
» Values. What causes someone to go on a hunger strike, or climb a tree and not come down until “they” promise not to cut down any more trees? What causes a boy to host his 13th birthday party at a homeless shelter and give gifts to 300 children he’s never met? What causes a 16-year-old girl to skip lunch every day in order to pay for a tattoo? What causes you to do the things you do?
The answer is values. Values are things like kindness, love, self-worth, spirituality, respect, fairness, compassion, creativity, thrift and faith. Make a list of your top seven values.
» Wants versus needs. Sometimes it’s not easy to tell the difference between a want and a need. Basically, a need is necessary to sustain life, health or safety, or to comply with a legal obligation. Food, shelter, clothes, medicine and paying taxes are needs. A video game is a want.
But it’s not always that clear-cut. Are Lucky Brand jeans a need or a want? Well, clothes are a need, but paying a lot of money to get a certain brand crosses over to a want.
There is nothing wrong with wanting things. It’s just important that before you make a spending decision, you are clear in your mind whether it is a need or a want.
» Opportunity cost. What you give up when you make a spending decision is called the opportunity cost. Let’s say you’ve got $10 in your pocket. You can either save it or spend it. If there are four things you want to buy with that $10, you have to make a choice. Let’s say you choose to buy a cool poster. You gave up the choice of saving it. So that becomes your opportunity cost.
Every decision you make with your money now and in the future will have an opportunity cost. If you can train your brain to calculate and think about the opportunity cost whenever you make a spending decision, you will start to make better choices with your money and have fewer regrets.
There’s a popular belief in our society that says “You can have it all!” That’s just the line from a commercial. It’s not true. You can’t have it all, but you can have enough.
You will make decisions every day of your life, and many of them will involve money. As you begin to make good decisions and prove you can be responsible with money, you’ll have more of it to take care of and your life will be more enjoyable.
— Mary Hunt is the founder of EverydayCheapskate.com, a frugal living blog, and the author of the book Debt-Proof Living. Click here to email your questions to her at Ask Mary, and click here for previous columns. The opinions expressed are her own.