OppLoans Q&A with Paul Vasey of CashCrunch Games: Part 3
Paul Vasey is the founder of CashCrunch Games. Originally from the UK, he taught Business Studies for 12 years, and holds a Business Education Degree from Nottingham Trent University. Since deciding to leave the classroom and start walking the walk, Paul has dedicated his time and energy to teaching personal finance concepts to kids and teens through active, engaged gameplay. He currently lives in California and is affiliated with Centsai.com.
What are the most important things we should be teaching children and teens about personal finance?
Money is simple, like math. If you follow the rules, then it is easy.
They should know that they cannot spend more than they earn.
There isn’t a money tree in the garden. A dollar is earned once and spent once.
Understand the difference between a need and want.
If you want something, you have to make a choice on whether spending money on that thing is worth it. Instant gratification and entitlement are dangerous concepts. If you cannot afford it, you have to wait until you have enough money.
They should be taught that their allowance is not their budget. Always put some money aside first. Pay yourself.
“Pay yourself” is something you’ve mentioned before in things you have written. What exactly does that mean?
Pay yourself first. If you took that literally, it’d be quite confusing—because who’s paying you? Unless you are your own boss, or have a side hustle, you are probably getting paid by someone else. So then, I am paying myself to do what, exactly? It didn’t really translate until I thought about it a bit. But still, I like the terminology.
“Pay yourself” means, “Put something aside for yourself first, and then you can spend the rest.” I first heard it here in the US: Save something for yourself first, and then spend. Why don’t we automatically think about putting something away for later? People don’t realize that they don’t have that mentality. That’s the whole philosophy behind these games: save first, spend later. Because if you put that money aside and then spend what is left, you’re only going to spend what you have. It’s the same thing with the goldfish in a bowl: if you put the fish in a bigger bowl, it will grow bigger in order to fill it. It’s like that with a budget: The more money in your budget, the more you will spend. Instead, you take out 20% of your salary right when you get paid and you put it in savings. Once you’ve done that, you’re making decision based only on the remaining 80%.
What about using credit? It’s so easy for people to get a credit card, start using it, and all of a sudden owe thousands of dollars plus interest.
There’s two things here. First, let’s take basic money. The beauty of currency around the world is that they all have different colors and sizes for different denominations. Just look at pound notes in the UK, they’re a perfect example. So when you spend money, it’s much easier to know what you’ve spent. For instance, you spent a brown piece of paper, and you know exactly how much that brown piece of paper is worth. But in America, all the money is the same color and the same size. You can’t keep a mental track of what you’ve spent.
And with credit cards, it’s even more so. It’s basically play money, and you don’t know how much you’re spending. It’s easy to put something on a card, and you forget about the total bill until it arrives and then oh no! So you keep paying the minimum payment, instead of addressing the full balance, and with compound interest, the amount that you owe—it’s getting worse and worse. With cash, it’s finite. You spend it, and it’s gone. Credit cards keep going and going and going until you hit your maximum limit, which is usually thousands of dollars. And by that point, there’s very little to do.
Credit cards can be very good if you are disciplined—if you make sure you are paying off the entire balance every month. Unfortunately, there are a lot of irresponsible credit cards out there, and people will spend more than they can afford in order to obtain these rewards. You’re pushing up the amount that you’re spending in order to get points; you’re really only getting back a fraction of what you spent. With me personally, my wife and I like to use cash so that we know where we are. The first thing we do, as soon as we get out credit card bill, is that we check off the items that we know we’ve spent—to make sure no one’s stolen our identity—and then we pay it all off immediately.
Lastly, make sure to take the time and do the calculations before making a large purchase. Let’s say you go the shop and you buy an expensive 50-inch TV, and you use the store card so that you save $500 on the purchase. However, by the time you’ve paid that purchase off, you might actually have spent more in interest than you saved on the discount. For many people, the amount that they spend in interest could be enough for a rent check or a mortgage payment. It really adds up! Use your credit card to get the points and then pay it all off immediately.
Our customers and readers are always looking for great advice on how best to handle their personal finances? What’s the best advice you have to offer?
There are so many lessons. If you want to start at the beginning, then the best lesson I could give a household and to their kids would be to get a Monopoly set. Take out the amount of money that is earned in a month for that household. From that pile, next take out the corresponding amounts for their rent/mortgage, car, groceries, savings, etc. It will really hit home where the money is being spent. I am sure there will be a number of surprises. What is left over might be a surprise, for instance, and it is a great visual to learn from. CashCrunch Junior tries to simplify this concept with the Mo Money, Sammy Savings and Debbie Debt features.
If this discussion is done with kids, they will also realize where the money is coming from when they ask for something in the store.