the One Lesson NEVER to Teach Your Child
If you don't have money you can use a card?
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"Granny", Annie said tentatively, chewing the ends of one of her plaits. "Daddy bought me a whole load of Christmas presents today."
Her granny looked up from the magazine she was reading, closely eyeing the chewed plait. "That was very kind of him. That must have been expensive."
"Yes," she said, nodding her head in agreement and releasing the chewed hair to let both plaits bob back over her shoulders. "He got me a Furby and that costs a LOT of money and he got me a lot of other toys I wanted." She reeled off the names of other popular toys, all expensive, then paused.
"Daddy hasn't got any money, has he?" Her granny put the magazine down, frowning slightly and turned to give Annie her full attention.
"What makes you say that?" she asked slowly.
"Well he said he didn't have the money, so he put it on his card. If you don't have any money, you can just put what you want to buy on your card, can't you Granny?"
Granny took a deep breath. "You still need to have money to pay back on the card," she pointed out, but Annie was already away to play with one of the toys her daddy had allowed her to have from the Christmas stash.
Granny shook her head and got up to find Annie's father.
"That's not what I meant," he exclaimed impatiently, after his mother had explained her concerns. "I paid for the toys with a debit card, that takes the money straight from my account, not a credit card, where you pay interest and the debt can pile up if you let it."
What's YOUR expenditure pattern?
How do you spend most of your money?
Cards make it too easy to spend
What Was the Lesson?
Annie does not understand money, debit and credit. She has no idea that the money you take from a "hole in the wall" or ATM is actually your own money that you have earned and that has been deposited in your bank account by your employer, or however you earn your money. Annie also doesn't understand the difference between a debit card and a credit card. But do we? There seems to be a disconnect somewhere between the idea of earning or accumulating money and what we actually spend. And this disconnect seems to me to have come about since we stopped using cash and took to using debit and credit cards.
Whatever you want?
The child's lesson
Children have to learn the idea of "correspondence", that is, that what you spend has to correspond with the money you actually have. They learn about coins in school and how to add or subtract money but do they learn that you need to HAVE this money first, before you can spend it? Children's pocket money and money earned from chores used to be the way they learned how to budget their money or how to save for something big that they wanted. But nowadays? Do they just ask and expect whatever they want to arrive from the on-line warehouse by "using the card"?
It All Adds up!
The adults' lesson
Many adults too, have been taken in by the ease of "the card". Advertising tells you what you should "want" or "must have" in order to take your rightful place in society. Other advertising tells you how "easy" it is to get credit or easy terms to get what you want. What they don't tell you is that using all those easy terms and credit adds up over time to a thumping unaffordable sum and that much of what you got with the money went on non-essentials. that is, it wasn't spent on food, housing costs, heating or necessary clothing but on unnecessary items. I can't tell you what those unnecessary items were but take this tiny example: maybe you work in town and you go out every lunchtime to have coffee with friends or colleagues. Because you are in a group and you don't want to seem mean or unable to keep up with the crowd, you order the spiced latte or some other popular drink. It's only $5 or £3. What's that? If you work 5 days a week for 46 weeks a year, that adds up to 230 days at $5 a day = $1150 or £690 in the UK. Maybe you buy your lunch or an impulse treat in the shops, even an average of $10 or £10 a day on each working day will cost you £2,300 or $2,300 over a working year. That may seem like small change to someone in work (though not to someone who is unemployed) but apply the same to something bigger that you "WANT" but don't "NEED". Do you need two foreign holidays a year? Do you need to replace your furniture with something different or buy another car? Do you need to buy designer clothing?
What's the difference?
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Well, no, I don't have an answer. What I want is different from what you want. And what I can do without, maybe you can't (and vice versa, I am not excepting myself from this). But I have learned to ask the following questions (adapted from the money saving expert's site) when I see something I might want to buy, which is "Do I need it and Can I afford it?" If either answer is "No", I try not to buy it. I have also taken to using cash for my needs, instead of a bank card (adapted from Pam Young's "Get out of debt book" - the GOOD book) because you can SEE what you are spending your money on and SEE that it is getting depleted, whereas if you use a card, you do not get this physical realisation that your resources are being rapidly depleted. Adults have a "disconnect" where money and cards are concerned too.
Use cash more often
So what action can you take to reduce dependence on bank cards, if you want to cut your expenditure?
1. Use cash more often, instead of your card, especially for those small purchases that can add up to large amounts unknowingly.
2. Ask yourself the two questions "Do I need it and Can I afford it?" before purchasing anything.
3. If you don't want to make up a total budget, then start out by allowing yourself a small daily budget of say, $10 or £6 and keep that on you in CASH. Once it's gone, it's gone. If anything is left over, put it in a jar and save it towards a treat.
4. Teach your children the correspondence between what you have and what you can spend - it may be the most valuable financial lesson they'll ever learn.
The Next BIG Problem
There are now contactless payment cards. Some of you may already have them. In London, the "Oyster" card is used to pay for travel journeys on the London Underground. You top up the card, and then as you travel on the Underground (metro), your total amount is depleted without having to use a machine, the cost is deducted contactlessly as you pass the barriers. But some customers have had the wrong card charged! http://www.theguardian.com/money/2013/may/25/contactless-cards
Banks have been testing out debit cards for contactless payment in some areas in England. Children got pocket money cards and adults did not use cash at all, just these cards even to pay for very small amounts (such as a bar of chocolate).
Banks are now issuing contactless cards whether you want them or not! Some customers are complaining that they have been charged on these when they did not want to pay that way. http://www.thisismoney.co.uk/money/saving/article-2328578/How-safe-new-contactless-bank-cards.html
Why would banks issue contactless cards? Well, they say they are safer for the customer and remove the need for large amounts of money to be moved about the country. I suppose it doesn't hurt the banks that they then find out EVERYTHING about your spending habits, down to the last bar of chocolate or skinny latte you buy? This is valuable information that they could sell.
BUT it still gives US a disconnect between the money we have available to us and the amount we spend. Is that deliberate?