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 Credit
cards are a hot topic of discussion and I will have a lot
to say about them later.
But before we start talking about credit cards, I
want to talk a little bit about some general personal
finance issues. I know. You just considered pressing the
next link at the end of the page to skip ahead and see if
you can get through this without reading what I am about
to say. I can totally understand that desire. I probably
would have felt the same in your situation. Please don’t
do that. I am
going to be brief and I don’t plan on lecturing you. I
just want to pass on some thoughts based on my own
experience and make you think about a couple of things.
Good you are still with me. In this
unit, we will talk about choices: how you make them, what
they mean and what consequences they have. That sounds
like some heavy weight stuff and if you choose to take a
more in-depth class on personal finance, there is plenty
of ground to cover on this topic, but for now we will be
keeping it short.
.gif) So
what is a choice, or more specifically, what is a
financial choice? You are thinking -- that’s obvious -- it’s what you do with your money, it’s spending and
saving, it’s buying a computer or buying new clothes,
it’s going on vacation at spring break, it’s buying a
new CD. And you are correct.
It is all of those things, but it’s something
more. It’s
a reflection of your values and it comes with an
opportunity cost. I know I am sounding pretty heavy here,
but neither of those points is complex if you stop and
think about them for a moment.
Financial choices reflect your
values. What does that really mean? It means that what you
do with your money says something about you as a person.
If you choose to spend your money on a vacation instead of
buying a new TV, it means that you value the vacation
experience more than owning a new TV.
There’s not really a right or wrong to this.
It is just the way it is. What is important is that
you are comfortable with the relationship between your
personal values and the way you spend your money. If you
never think about this, you may find that you are spending
money in ways that don’t really reflect the things you
value, the things that are really important to you.
.gif) Opportunity
cost -- that sounds like a really complex economic term.
There is a good chance you know what it means, and know
that it really isn’t that complex, but here’s my way
of thinking about it when it comes to money.
Everyone has a limit to their financial resources,
even your parents. For
some, the limit is higher than for others. However, the
concept of opportunity cost always applies. That is, if
you do one thing with your money, like going on vacation,
you cannot do something else, like buying a new TV, with
that money. Now
the two things don’t both have to be the same kind of
thing. Instead
of buying a new TV as the alternative, you might save the
money to do something with it at a later date. Basically the point is, once
the money is used, you lose your choices and sacrifice all
the other alternative uses.
.gif) Now, I will briefly mention credit
cards here because they appear to increase your choices.
Sometimes your choices feel limitless with a credit card
in your pocket, but that’s not really the case. When you
use your credit card, you are still using your own money.
What you are doing is limiting your future ability to make
choices, so the opportunity cost is still there, it just
isn’t as obvious.
.gif) The other thing I want to talk
briefly about is needs and wants. I know that sounds like
the start of a lecture, but just hang in here for a
minute. My take on this is that in any given situation,
there are some things that you absolutely have to have.
You have to have food, you have to have a place to live,
you have to have some clothes, you have to have a way to
keep warm in the cold. Now these are basic survival-type
needs. In college you might add your required textbooks to
that list. Then there are wants. We all have them. Those
are the things that make our life comfortable, more fun,
enjoyable, more than just an existence.
When you are thinking about your financial
decisions, just think for a moment about whether you are
addressing a need or a want. I am certainly not saying you
shouldn’t act on your wants -- very few people can live
like that, and I don’t expect you to be one of them.
But please make sure that in satisfying a want, the
opportunity cost isn’t your ability to meet a need
either now or in the future. I knew people in college who
did just that. They spent, spent, spent on
their wants,
and by the end of the semester, they were so broke that
they had problems buying food and paying their
rent. Then
life becomes miserable, and that’s not cool.
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