Lesson 5 – What You Should Do Before Spending?
In the last lesson we asked how good you really are with your money, and looked at the 5 components you need to understand to be good you’re your money. In this fifth lesson in the Smart Consumer Skills Guide for Brilliant Kids series we look at what you need to be doing to helping curb that impulse buying resulting from good and clever marketing.
Remember only you are responsible for making the decisions to buy or not. No-one else is responsible for this. So take this responsibility seriously and let’s have a little fun. Before you spend, you need to do some thinking and analysis, by asking a series of questions to help you take the emotion out of the decision and decide on a more objective basis.
Like anything else, do not expect to become an expert at this overnight, or to get it right the first time – this will take a little time. The more you practice, the better you will become. It is more important to understand that these questions will develop a more logical thought process and this is the key in developing a smart consumer mindset – one you have this, the rest is easy.
These questions have been put together from my own experiences and reinforcing this with what the experts had to say.
- Do I need it? If you don’t need it – don’t buy it. If you buy something you don’t need, it’s obviously a waste of money.
- Will I use it? What will you use it for, and how often. If you will only use it infrequently, then this is really a luxury buy and unnecessary. How much and how often will it inconvenience you if you don’t have it? Am I giving up anything else by buying this?
- Can I afford it? If you can’t afford it – don’t buy it. If you buy something you can’t afford, you begin a cycle of living beyond your means. Eventually, you’ll end up borrowing money either as loans, overdraft or on your credit card – the easiest of all debit, and this could take you into ever increasing debts. We will talk about debt in future articles.
- Can I get it cheaper somewhere else? Check and make sure that the same thing isn’t available at a better price somewhere else. Look in other shops, the local papers, and the internet to search for the best deal – try to make sure you know what the market rate is for this product. If you are not sure, then don’t buy until you have checked, even if the deal sounds too good to be true (if it does, then it usually is).
- Can I return it? It is important to know the returns and refund policy of the item. This is really about ensuring that who you buy from is credible, in that they have signed up to a code of practice. Also if something happens to the product – e.g. it fails. You know you can either exchange it, or get a refund – you will not be left with a dud product. It worth knowing the key terms of the returns policy – will they only exchange for other goods or offer refunds. If they offer a refund, what is the time scale? Is there a warranty of guarantee that comes with the product?
What you are really doing by asking these questions is assessing what is known as the “opportunity cost”. This is where you have one thing but, as a result, miss out on having another. This assessment is made by businesses all the time in finding the best ways to persuade you to buy – so why can’t you use this technique too for your benefit?
As you can see, it is easy to assess the opportunity cost. However, you need to ask yourself these questions honestly – remind yourself of your past history with products – how often have you used them? Did you really need them? This is the hardest part.
After reading these 5 articles, you now have the tools and understanding to become a smart consumer. Now you need to teach you kids the same way of thinking. As you do, talk to them about it and the thought process. Get them to ask the same questions as you – they may well be better at reminding you of your history. This will make it fun for them, and if they ask for something, you can more easily ask these questions of them.
A final word – with your children, you should try to maintain a distinction and a balance between this and reward for motivating them – if a child wants something – it is worth tying that to some actions that your child needs to complete. On completion he or she gets will get that item.
In the next article, we will talk about debt and what you need to know about debt.