In today’s day and age society and television have conditioned our children to want what they want and that they want it right now and by God they should get it. Unfortunately we are as much to blame as society. How many times, without any thought, have you just popped down your credit card for a purchase while you’re young child or teenager was watching? What message did you just send to them?
Let’s face it, in America today our entire economy, hell even our government, is based on consumerism and debt spending. Can’t afford to pay your bills? Don’t worry about it just borrow the money. Can’t afford that awesome new 52″ flat panel TV? Don’t worry about it, we have easy financing. Just a few forms and you can take it home today. Can’t afford that new designer dress or shoes you just have to have? Don’t worry about it, just use your credit card and take it home today!
Whatever happened to the days of saving your money and paying cash?
The messages that we are conveying to our kids is that the consequences do not matter and that if you want something you should just go ahead and get it right now; after all who wants to wait for something when you can just borrow the money and take it home and not have to wait.
Let us take a moment to look at the damage.
First of all, let us take a look at an alternative to buying something on credit. Instead of making $50 or $60 or more dollar payments on your credit cards imagine if instead you opened a dividend re-investment plan and purchased stock in a company instead. Now, your money would earn a hell of a lot more than if it was in a bank earning a lousy 1% rate of return. With a DRIP you would earn money as the stock rises in price and the company would pay you money for each stock you owned in the form of dividends. One company I own pays me over $3 in dividends for each share that I have every quarter. On that one stock alone I stand to make an extra $500 per month.
Now, in exactly three months time I can collect a check for $1,500 and use that to buy what I want with out ever having to touch the principal underlying stock which continues to grow and continues to earn money in the form of dividends. So I had to wait three months…big deal! In three months that 52″ Plasma TV dropped over $500 in price!
So NOW, I saved over $500 off of retail, plus I earned money, plus I paid cash and got a cash discount and I still have the original principal earning me money instead of paying the interest on the credit card!
Let’s look at the reverse of that and see what it would have cost me buy buying it on credit. First of all I would have had to pay full retail at $1,999.99 plus tax with no cash discount. That is $2164.98 total on the card after taxes. Now, calculating that out at a conservative 11.99% interest rate and assuming I can make $150 payments it would take me 16 months to pay off the balance and an extra $184.95 in interest alone. A great website you can use to calculate all this is www.bankrate.com
Even at only $100 or $150 per month you’re money, in the right investment vehicle, can quickly add up as opposed to the $100 or $150 per month in credit card payments which can bankrupt you.
As you can see, it makes much more sense to return to a sense of patience and savings vice instant gratification and borrowing. In the long run would it not make more sense to start your kids on the path of “smart” savings and putting their money to work for them instead of them working for their money.
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