Taking Care of Mom and Dad: Curbing Bad Spending Habits
Most of us have at least a few bad spending habits -- whether we are spenders or savers. What follows is a review of some of the worst, but most common, spending habits that mess up people's financial lives. Check your parents' habits against these patterns.
Buying on credit is probably the worst habit anyone can have, let alone an elder parent who lives on a fixed income. If your parents have problems with buying on credit, they shouldn't feel alone. American consumers have more short-term, unsecured debt than any other group on the face...or in the history...of the planet.
People who avoid using credit are sometimes seen as cranks or eccentrics -- unwilling to play by the conventional financial rules. But there's a lot to be said for avoiding revolving consumer debt. Especially if you're over 65.
Borrowing money to buy things that lose value over time means you lose twice -- once in the interest costs of borrowing the money and twice in the shrinking value of the item purchased (depreciation is the accountant's term).
Consumer lending is designed to lull the consumer -- in this case, your parents -- into a false sense of financial security. That's why Circuit City, Bloomingdales and Nordstrom are happy to issue store credit cards. But credit cards are the worst form of borrowing. Once they've encouraged you to spend beyond your current means, they charge you anywhere from 15 to more than 20 percent interest.
Help your parents break this habit by explaining to them the pitfalls of buying on credit. They can make credit purchases if it's related to education, transportation or their home, but even those should be carefully evaluated. Most everything else should be paid in cash or paid off when they get the credit card bill.
Keeping up with the Joneses is another bad habit. Thanks to a natural competitive instinct and billions of dollars spent every year by advertising geniuses, we have been brainwashed into judging ourselves by whether we have the same material goods as our friends.
This is the familiar rat race of consumption -- more money to support a fancier lifestyle, which then requires even more money. And that word lifestyle doesn't just mean buying fancy cars and beach houses. It applies to just about anything: the amount of time spent on the Internet; the number of times you see your favorite band in concert; the food you eat, booze you drink or clothes you wear.
Buying without goals is a bad spending habit that even careful people can suffer from. For many people, making a good salary or inheriting some money means feeling that they have to spend it to show they've got it. This is the flip side of the debt problem -- and a variation of the status issue.
Most people are average financially -- they don't make that much more or that much less money than other people their age. Some people are simply better at using their money to reach their goals.
