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HSFPP Update # 210—Money Traps to Avoid

Message from Flashman: In our updates, we try to reinforce what is in the HSFPP student guide. We also try to keep you updated on changes in laws and regulations. This year we are also adding financial lessons related to being a smart shopper, how business tries to persuade us to buy their goods (Update # 207), and time management and study skills (Update # 205). We also discuss how other aspects of teen behavior, such as being convicted for use of illegal drugs, could affect their financial well-being (Update # 204). If you have other suggestions, please e-mail me at rflashma@uky.edu.

Message from Denisha: We all want what we want when we want it and don’t like to wait. Many of us end up paying more for an item than it is worth and are tempted by the word “free.” Teens know it doesn’t take much to get them interested in new shoes and CDs. The question they should ask themselves is: Why can’t I wait and save up for what I want, rather than charging it now and paying more?

 

Academic Expectation 2.18
Students understand economic principles and are able to make economic decisions that have consequences in daily living.
Units 2-6

Academic Expectation 2.30
Students evaluate consumer products and services and make effective consumer decisions.
Unit 5

Academic Expectation 3.1
Students demonstrate positive growth in self-concept through appropriate tasks or projects.
Units 1-7

 

In the New$.... Behavioral Economist Exposes Money Traps You Should Avoid

by Denisha White, a student majoring in social work with a minor in psychology at the University of Kentucky

Believe it or not, there is a field of study that specializes in people’s motivation to buy, buy, buy. Research in behavioral economics helps marketers separate you from your money, but it can also help the wise consumer learn to avoid the traps.

Businesses use this research to find ways to get you to buy from them. If you understand how you are being manipulated, you might not fall into these money traps. Three of these traps that do most to lure you into spending your money are the word, “free,” the need to belong, and the need for instant gratification.

It’s Free!

The word, “Free,” makes everything sound better, but you should ask yourself, “Is it really free?” In most, cases it isn’t. Sure, the price of “free” e-mail is that you must accept advertisements, but you don’t pay any money for it, right? Provided you are disciplined enough not to spend any money because the ads say you should, then that e-mail account is mostly free to you.

But take the example of the college freshman. When you are new to campus, the door is open to many opportunities that naive freshman take advantage of. There are, for example, frequent offers for free pizza on UK’s campus; and, as soon as people hear it’s “free,” most of them are up for it. Being a college student is hard on the finances, so you’re not likely to turn down a free meal. But what you don’t know is that, when you get to the restaurant, you have to sign up for a credit card to get the pizza. So, yes, you do get your “free pizza,” but it came with strings attached. You then will receive a credit card within a couple of weeks. If you decide to use the credit card, but you don’t have the money to pay off what you spend on it each month, you will find it quite expensive. Your “free” dinner could cost you several years in debt.

Instant Gratification

Your favorite music group just released a new CD that you feel you must have, even though you already have 15 CDs by the group and only a few new songs are on the new CD. What about your longer-term financial goals? You have to learn to outsmart your brain, which could be telling you, “Go ahead and buy it.” Author Teri Cettina says to “Infuse your future goals with emotion.” Visualize a trip to Cancun or how comfortably you will be able to live if you save enough money for the future. Now you can forgo that CD you thought you needed and save for that trip or for your future! (And, if you still want those few new songs, you could probably download them through a legal music service for less money than you would pay for the entire CD.)

Belonging

This category isn’t in Cettina’s article, but it is every bit as relevant for teens.

You just have to have that new pair of Air Jordans or other famous athlete’s shoes that are being hyped for more money than you would normally pay for a pair of sneakers. Why? Because you want to feel like you belong. Do Air Jordans really make you a better basketball player? Are those other types of sneakers really better than ones that are not endorsed by athletes? The answer is usually “No,” but you still feel you need to buy them because your peers are wearing them and you want to fit in.

What would happen if you shopped around and looked in Consumer Reports to see which items are really good and inexpensive and are not just “cool”? You would be establishing smart spending habits a lot sooner than most people do. In fact, some people never learn and you would find yourself much better off than they are. The “cool” ones might even come to you later and ask you how you got to be so well off financially, and you could tell them. Be nice about it and you’ll really seem cool to them!

This is as good a time as any to point out that those who seem cool to you now will not always seem that way. You might be surprised to find the person you once looked up to bagging groceries 15 years from now, while you’re a doctor or lawyer. It’s much more important to be smart than to be cool. Just look at Microsoft founder Bill Gates. He used to be just a geek and now he’s the richest person in the world. (Even those of you who are not as smart as Bill Gates can become better off financially by using common sense, which isn’t really common. If you know better than to fall for the consumer traps and you spend your money wisely, you will certainly be better off than you would otherwise.)

Source: Teri Cettina, “7 ‘Psycho’ Money Traps and how to Beat Them,” Bankrate.com, 10/06/08.
http://www.bankrate.com/yho/news/retirement/20081009_psychological_money_traps_a1.asp?prodtype=pfin

 

Discussion Questions:

1. How many of you have been tempted to buy something that was advertised as “free”? Do you feel that you made a conscious decision? Yes ___  No ___
   
   
   
2. Are you more apt to save money or do you spend it all as soon as you get it? Why do you feel that you spend money when you don’t need to?
   
   
   
3. Do you feel you make wise decisions about your money and how you spend it? How do you think you could make better decisions on how you spend money?
   
   
   
4. Do you feel the need to keep up with current trends? Yes ___  No ___ If so, why?
   
   
   
5. In what ways do you feel the need to be “cool”? Does being “cool” end up costing you money?
   
   
   
6. How would you spend your money if you didn’t need to be “cool”?

 

Follow-Up Activity:

Talk with family members about how they spend their money and what they choose to spend it on. Make a budget to follow for a month and keep a record of what you buy. At the end of the month go over what you bought, see whether you stayed under budget or not, and whether the purchases were worth it to you. Then report back on what changes you can make to spend your money more wisely.

 

Kentucky High School Financial Planning Program

http://www.ca.uky.edu/HES/fcs/hsfp

The purpose of the HSFPP financial updates, video lessons, and Web site is to assist county Extension agents, credit union educators, high school teachers, and parents who home school their teenagers so that they may improve the economic well-being of our teenagers; and also to show educators how the HSFPP, updates, and video lessons meet Kentucky core concepts. The Web site, updates, and video lessons are provided by the University of Kentucky Cooperative Extension Service, and are free to all educators. The list of core concepts and order form for free program materials including the student guide and instructors manual can be found on the Kentucky HSFPP home page.

If you are not already on our listserv:

The video lessons are available only to members of our listserv and will not be posted to the HSFPP Web site because of the timeliness of the information. If you would like to receive our video lessons, which are sent to our listserv biweekly, on alternate weeks from these updates, please sign up at the following page of our Web site: http://www.ca.uky.edu/HES/fcs/HSFP/response.htm

The use of any trade names or products does in no way constitute a recommendation for this product