Financial Literacy from FLC: Credit and Debt

Credit? Debit? Cash?

Do you think you spend less when you pay cash than you do when you use a credit card or debit card?  Research says you do.  What do you think?

I love this example from Ashley the Money Talks Coach: She says that the whole question can be answered with ice cream! Read this to get the idea and check out her whole blog on the subject. .

Ashley says:   You spend less when you pay cash and the reason has to do with ice cream.  Yeah, you heard right… ice cream.

I love a bowl of ice cream after the kids go to bed.  It’s one of my favorite luxuries.  However, when I indulge in this treat more than about once per week I gain weight.  I know this, yet I still do it.  Once or twice a year I will eat ice cream every night for two weeks straight and then cry when the scale reprimands me.

Why?

I do it because the consequence is too far away from the action.  I want ice cream and I get an immediate benefit (happiness) when I eat it.  Of course, for every action there is also a consequenceBut the consequence doesn’t come right away.  I don’t see the numbers on the scale move for a few weeks.  So right at that moment, when I’m standing in front of the freezer, ice cream scoop in hand, there is only the benefit on my mind.  I know someplace down deep that I’ll regret it later but at that moment all I can see is happiness.

Same goes for your purchases.  When you buy something you get an immediate benefit.  When you pay with a credit card you don’t feel the consequence of that action until the bill is due, some 30 days later.

What about debit cards?  While studies show that you will spend the most with credit cards, they say you still spend more with debit cards than you do with cash. .  So again, this consequence comes maybe 7 to 14 days after the benefit.

But with cash the consequence is immediateYou have $20 in your wallet and then you don’t.  You can’t put it out of your mind.  You can’t “work it out later”.  The money is spent and gone in one motion.  Certainly makes you think twice about that purchase.

Have you done this experiment yourself?  Do you spend less when you pay cash?

Thank you Ashley for the quick lesson!

Now check out the Lesson Plan #3 to help your students learn the language of Consumer Debit and Credit, and watch a couple of videos on how and why people use credit cards. 

Hope Lynn: What’s your money style?

I have style! Money style that is. Take a lesson from what I learned about myself to see how your money style can affect your past, present and future financial literacy.

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I found this financial awareness quiz on line today, How Does Your “Money Style” Affect Your Life,  thanks to my subscription to Money Talks.  It’s a great website to learn about your money style and then learn from Ashley Barnett on how to turn the patterns of your relationship to money around.

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As it turns out, I am an avoider!  I never wanted to be concerned with money. Everyone should have everything they need; no hunger, poverty, medical bills or illiteracy should deprive people of their human rights. My upbringing was based on the philosophy that with an education all things are possible.  I am an idealist, a child of the 60s.  I was so fortunate to have an education at a high ranking yet low cost city college in New York, and to have had a career in the field of my choice.  I shared what was important to me, a love of literature and writing with my students as my pay check was reliably deposited into my bank account and my retirement fund grew.  The funds were there when I needed to buy a house, have a child and replace a car. I lived the American Dream and am now a retired Boomer. Sadly, I know today that dream is quite fleeting for the next generation. I recently left the teaching profession after more than 30 years, and am now an AmeriCorps VISTA volunteer for The Florida Literacy Coalition.  I am aware that joblessness, poverty, hunger and illiteracy are growing as our economy struggles to resurface in troubled times.  More than ever we need to know where our money comes from and how it can be of best use. I know I can no longer avoid knowing about money!