The Importance of Modelling

Showing your teenager a process for financial decision-making.

Our children are watching us constantly. They learn from the things we do and say, from the moment they are born.

We model behaviours, manners, attitudes, perspectives, diet, language use and so much more. They look to us for guidance in almost everything.

One of our core responsibilities, especially as our children grow up, is to model appropriate and effective financial decision-making processes. This article shows one way of modelling that process.

The next time you purchase something significant for the home, think about sharing your process of purchase with the children.

Here is an example of a purchasing process as well as ideas for how parents could include a child in that process.

This process has four steps:

  1. Understand
  2. Explore options
  3. Make a decision
  4. Review
 It is important that children hear and see a process for financial decision-making. This will help them to think about their financial decisions in the future.
decision making

 

An example situation 

How to involve your teenager 

The fridge is beyond repair and needs to be replaced.
We should explain to our children why it is beyond repair and will be more cost-effective to purchase a new fridge.

Explain:

  • We are going to need to purchase a new fridge in a short period of time.
  • We need to determine which fridge we want to buy, find the best price for that fridge and have it delivered as soon as possible.

PROCESS

We need to model for our teens a process that shows deliberate and considered thinking when making financial decisions.

Explain:

  • This will be our process.
  • The first part of our process is understanding what we have to do and what we have to buy
  • We will explore options
  • We will make a decision
  • We will review our decision-making.
   

Understand

Do we have a clear understanding of the type of fridge we need?

  • Size

Explain:

Before looking for fridges there is a practical aspect which is knowing the dimensions of the kitchen space in which the fridge will be located. This will predetermine the size of the fridge.

(Your child could measure this space.)

 
  • Functions

While the core function of a fridge is to keep food cool or frozen, there are several other functions now available e.g. ice, drinks drawers, etc.

If these extras are important, they should be considered in the family conversation, especially noting the extra costs that these functions may incur.

(Your child could investigate some of the various options available for consumers and their associated costs.)

  • Costs

For many families cost will be the determining factor. It may be that you want to spend no more than a certain amount. Share this amount with your children, explaining that this amount is within your overall budget.

(Discuss budgeting with your child, stressing its importance.)

Explore options

Once there is a clear understanding it is time to explore options.

  • View fridges

Explain:

This part of the process involves looking at fridges that match the decisions made in the understanding phase.

(Your child could view fridges online that match the ‘clear understanding’ as well as accompany the parent to retailers to inspect fridges more closely.)

  • Visit retailers

While it can be convenient to short-list fridges by exploring options online, it is preferable that parents show children the need to physically view a fridge, open its doors, look at the shelf layout and flexibility, etc.

(Your child could accompany the parent to retailers to inspect fridges more closely.)

  • Explore extras

Combined with the need to explore fridge options, it is also important to show your child the need to visit different retailers. This can be done both online and in person. Different retailers may stock different fridge brands but also be more flexible in pricing.

While extras are very rarely offered it is always worth asking the question of salespersons. It is important to model this to children, as the best buy may be the purchase that has extra warranty, insurance or free delivery included.

(Your child could ask these questions of salespersons as well as check online reviews of both different types of fridges and retailer service.

Make a decision

This step in the process allows the whole family an opportunity to participate.

All of the information gathered through the previous step now allows for a ‘quick decision’ to be made.

(Your child could compile the information and lead this discussion including a recommendation.)

Make a purchase

This involves identifying the fridge and retailer.

It also involves the payment method which is most appropriate.

After deciding on a fridge from a specific retailer also model to your children how you will pay for that fridge. Is there a benefit to using cash or card, perhaps aligned to a loyalty program, which may contribute points or rewards?

If you have different cards explain to your child why you are using that specific card e.g. it may have a lower interest rate, provide better rewards.

If you are going to use credit to purchase the fridge, and plan not to settle that debt before interest is applied, then this is another opportunity to talk about your financial decision-making with children. (Note: When you pay with credit you are using the bank’s money to buy the fridge, which is why interest will apply. If you pay from savings then no interest is applied.)
(Your child could find out the interest rates on different types of cards.)

Review

An essential part of the financial decision-making process is actually reviewing that process. This should be a two-part process that is shared with children.

When both steps are exemplified with children it shows the importance of the financial decision-making process in all of its steps.

Explain:

Part 1 is the immediate review, that is within a few days of the fridge being installed. Are you happy with your purchase? Is there any part of the process that could have been improved?

Part 2 is the same questions asked a month or two after the purchase. When there is a period of reflection between the purchase (instalment) and second review, sometimes there is greater clarity about the process of decision-making.

(Your child could lead this activity and ask:

  • whether the process could be improved, and
  • if the fridge has been good value for money thus far.)

Benefits

The benefits of showing a financial decision-making process are many, the most important of which is that there should be a process.

Spending significant amounts of money should not be haphazard and incidental. If we demonstrate that there is no process, then we are modelling poor spending and shopping behaviours, which if replicated can lead to financial stress in the future.

The reality is that we can model good financial decision-making when we buy a coffee and donut or a new car. We can show children that we are thinking about that decision, regardless of the amount of money.

Better financial decisions come from good decision-making. Good decision-making comes from good processes that should be practised.

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