Wednesday, April 27, 2016

Sketch The Lifetime Value Of Your Kid's Next Purchase

Today’s fantastic family finance article is:

Lifetime Value Comparison Charts


“Dad, the Joneses have a trampoline. It’s awesome! Can we get one too? Plllleeaasse!!!”

Day 1. Indeed, awesome!

Day 10. Yeah, pretty fun.

Day 100. Meh...

The awesomeness of a fancy new “want” inevitably decays over time. In fact, the initial drop is often quite steep. Sometimes, it can crash from delightful to dull in just days.

The next time your kids ask for that shiny new thing, pull out the graph paper and plot a projection of its awesomeness over time.

Shade the area under the curve. That represents its lifetime value.

Things like trampolines often start high on the awesomeness scale, but descend rapidly. They’re just novelty items with a rapidly decaying fun factor.

On the other hand, things like ordinary bikes might start relatively low on the awesomeness scale. But if you ride your new bike every day, it delivers consistent long term value that ultimately exceeds that of the long abandoned trampoline.

So, focus your kids on buying things with lots of area beneath that value-over-time curve, especially when it comes to expensive items.

Does that mean your kids never get to enjoy a fancy want? Nope. As Mr. Money Mustache points out in today’s article, they just need to figure out how to extract that initial high value without paying for the low value long tail.

The upshot: buy the bike, but visit your friend’s house for the trampoline.


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