Lesson 4 – How Good Are You With Your Money?
In this fourth lesson in the Smart Consumer Skills Guide for Brilliant Kids series we ask you to explore this question and make an honest judgement. In the last lesson, you learnt about how companies persuade you to buy, here will look at you and your habits.
Are you Good With Money?
When you ask people this question, many will say yes. Their reason will invariably be something like “I try and save, not spend, when I get cash”.
However, this doesn’t necessarily make you good with money. Being good with cash is just as much about how you spend, whether you spend it or not, or whether you save. It is about recognising the value of money, and what it can be used for and do for you. Remember that ‘saving’ is another product that companies will ‘sell’ you – just look around at the savings plans and accounts that offer seemingly attractive interest rates.
Can you effectively see through the thousands of companies telling you different things about where to stash it; where to spend it; and what to splurge it on?
Money is a tool, and as a tool, it is only as good as the person using it. Think about this – we are all born with the same opportunities – some people go on to make fortunes, and others struggle – why? The ones that make fortunes think differently about money and see it as a tool that they can wield. They have understood how money works and instead they have made money work for them.
Here is a little test – who do you think is better with their money?
Sally: She has $400 for a holiday. She spends $250 on a budget flight to Rome, and stays in a youth hostel managing to save $60 of it.
Silvia: She also has $400 for a holiday. She manages to find a bargain business class flight to Rome, stays in a nice hotel with a pool, sauna, fantastic breakfast bar and gets discount theatre tickets but spends the whole $400.
The answer depends on your circumstances and what you can use the money for. If Silvia’s in debt, and splashing out on a holiday, she’s not good with money even though she got the better bargain. For $60 more, Silvia probably had a better time, and made the most of the money. Being cash smart is both about understanding what money you have, and how to use it i.e. in reference to your circumstances.
The truth is that no-one is going to teach you about your money. There are 5 components of being good with money in this day – you need to learn these and practice them in order to be good with money:
- The best ways to spend – let’s face it you cannot live without spending so learn how to make the most of it.
- The best ways to save – you need to save for a rainy day, for a holiday, a car etc
- The best ways to borrow money – in this day, you need to borrow to buy large items – your home, car, new kitchen, paying school fees…
- How to budget and then stick to your plan – this is your control plan, where you can determine and adjust the level of spending for regular outgoings, one off’s, how much to save, and how much to borrow.
- How to analyse – how to get the best deal – what are the financial and other effects of the deal, the ‘transaction’ you are about to carry out.
If you think about about it – all the companies that are selling to you, are good at these methods, and know how to use them all effectively. So why not take a leaf out of their books and apply them to yourself.
In the coming lessons, we will look at some tools and strategies to get you started on these components. Once you understand these and can apply them, the next components to add will take you towards entrepreneurship, as you will have the basic financial skills to run a business with these 5 basic skills.