By: Laura Walton AFC®
Sixth-graders in Chicago competed in the money equivalent of a science fair. Let’s see how two teams tackled the cost of prom and getting a dog.
Gail MarksJarvis, an award-winning financial columnist for the Chicago Tribune and contributor to the Arizona Daily Star, was among the judges for the competition “Talk with Our Kids about Money”. In her recent column, she shared these examples:
- “If you want to eventually go to a prom, it’s going to cost $455 on the cheap or $2,707 without skimping, so start saving far in advance, said Carina Lozano and Alejandra Perez of Lee Elementary School. Don’t simply decide you want to go to the prom and spend money you don’t have. Instead, add up what prom will cost: dress, shoes, tux, corsage, food, make-up, hair, and car. Then, calculate what you will need to save, how long it will take to save that amount, where the savings will come from, and – if you can’t save enough – change expectations instead of using credit cards or borrowing money. For example, instead of buying the dream dress, you could rent a dress, noted Nyla Newbern and Makeya Bradley of Hefferan Elementary School.”
- “You might love dogs, but you don’t simply buy one and figure out how to take care of it later, Kaylee Pezan and Melanie Rivas of St. Bartholomew School said. Dogs aren’t free, so before buying or adopting, add up the cost of the license, neutering, deworming, shots, food, collar, leash and treats, and make sure you or your parents can handle it. Their calculation: $2,903 the first year and $1,375 after that.”
Last week’s blog talked about the financial decisions of Neal Gabler, author of the article that appeared in the May issue of the Atlantic, The Secret Shame of Middle-Class Americans. He made a series of poor financial choices that, had he taken the advice of the sixth-graders, would have been avoided. Let’s see:
- Add up the cost, all costs, of the item or event first
- Determine if you can afford it. If not, how much will you need to save?
- Figure out where the savings will come from (increasing your income? spending less elsewhere?)
- If you can’t possibly save enough, then (this is my favorite) change your expectations
- Don’t let emotion (I want a dog) make your decision for you
I’m guessing that credit card debt would be virtually wiped out if we all followed these principles! Too often the short-term pleasure of spending turns into a long-term, anxiety-producing debt. The principles are really so simple but, then, human behavior is not. After all, there would be no need for the study of behavioral economics were it not for the complicated reasons we make poor financial choices.