Hey everyone, it’s Finance Fridays again. Today I’m going to talk about a concept that people seem to understand intuitively as common sense, but I will try to flesh out… it’s the “Pay Now or Pay Later” concept.
Pay Now or Pay Later?
Yea.
It’s kind of a companion post to my prior post of:
So, let me first give you some background from when I was a kid:
When I was a kid, schoolwork came relatively easy to me. Not to say that I was super smart or anything like that, just that when it came to math and reading and stuff early on, I didn’t have too many problems with it.
However, as you can imagine when concepts and schoolwork come relatively easily to you, they tend to become boring and repetitive. As such, I would rush to finish my work and undoubtedly make a few errors. So I would always have to go back and check my work in afterwards. As a child I didn’t really understand that even if I finished my work fast, it still resulted in being slower if it meant I had to either do the work over or spend more time checking it over.
It wasn’t until I was in junior high that a particular intelligent friend of mine gave me an epiphany.
“You don’t need to check your work if you just get it right the first time.”
Such a simple statement, but it really resonated with me. I spent a lot of time in junior high and high school trying to “get things right the first time”. What this meant was that rather than rush through work, I gave the work my full attention to “get it right the first time”.
Well… everyone knows that…
It’s true, everyone knows that now. However, it’s a hard concept for a kid to grasp — and perhaps I was slower than most. The idea of doing your work slower actually gives you more free time than doing it fast.
My daughter is very intelligent, but like me, she has grown bored of schoolwork and homework and tries to rush through things to get more playtime. It’s a very hard for her to understand that even if she finishes her work faster, if she gets questions wrong or has to do work over — it doesn’t give her any extra time. Since she’s only 6 years old, she requires this to be demonstrated in a concrete manner.
So what I plan to do is have her do her work and let her do it “her way” — as fast she wants. Then, when she inevitably gets something wrong I will tell her to correct it. Of course, I will time all of this.
Then we’ll do a similar worksheet and tell her to do her best work, concentrate, and try to get it right the first time. This will be timed as well. The assumption is she will get less (hopefully none) wrong and that she can see that she actually saved time from doing her best work.
Interesting… so what about pay now or pay later?
It’s the same kind of concept, but with differences in scale. This concept can be as simple as buying toilet paper or paper towels. You can either buy a bunch of it, knowing you will need it, or you can buy it in small amounts a few rolls at a time. Either way, you are paying now or paying later. However, if you “pay now” buy buying in bulk, there is probably some cost savings in there (assuming you have enough room to store it).
Then there is the concept applied to credit cards. You either pay for the item you want in full now and always pay off your credit card’s balance — or if you pay it off every month, you’re “paying later”. Obviously paying later incurs significant interest rates.
This also applies to anything based on a payment plan, like a car or a house. Of course, those things are a little different because people don’t normally have enough cash on hand to buy those things outright — unless you buy a used car. However, in an ideal scenario you would pay for them now.
Hmm… but those are slightly different concepts than what you are teaching your daughter isn’t they?
You’re right.
The concept I’m teaching my daughter has more to do with preventing problems from happening. If you do things right the first time (pay now), then you don’t have to deal with problems later on (pay later).
This is currently true for me. As I’ve discussed before we’ve been doing some ongoing renovations on my house. Things are coming along as planned and the paint is chosen and the lanai is getting fixed. However, we may need to increase the scope of the project for long term sustainability. Of course, any increase in work will cost more money so I need to weigh whether we should make the fixes now or if they can wait a little bit.
The worst case scenario is when you don’t fix the problem and it becomes a much bigger problem.
For example, let’s say instead of fixing my lanai I put it off for another 10-15 years. By that time, the lanai would have become rotten and probably even dangerous to fix. It’s also possible that it would made the house itself have problems or structural instability. A fix like that in 10-15 years might even require demolishing the house — which would be horrible.
Pay now or pay later.
TL;DR
Pay now or pay later — it’s not just credit cards and loans.
It’s a concept about doing things right the first time — and fixing small problems before they become big.
I think it’s common sense for most adults, but something that may be difficult to teach to a child, especially a young child.
I am hopeful that Kylie will learn that doing things right the first time will provide her more free time than rushing through her work.
-Sensei
Agree? Disagree? Questions, Comments and Suggestions are welcome.
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