We often tell students that it is best to delay gratification when it comes to many situations in their financial lives.  Here is a great example where they can actually see the cost of immediate gratification, in this case, a TV they must to watch the upcoming Super Bowl.

I did a similar activity back this summer but realize that washer-dryers may not be as engaging for high school students:) This article from Wise Bread blog served as the inspiration for this mini-activity.

You  might start by asking students what they think the cost of immediate gratification is.

Here is the scenario: They want a TV in time for the Super Bowl early in 2016 and don’t have the money to pay for it.  Their first stop is a rent-to-own company a few miles from their house.

They found this offer at a leading rent-to-own company:

I wanted to expand the cost information, which makes it clear what the cost of immediate gratification is…

Boy, that seemed reasonable, only $134/month and they could get a TV immediately. However, the fine print tells another storyt. A TV they could buy today for $1,371 today would cost them $3,129 over the next 23 months (note: multiplying $134.28 by 23 months comes to $3,088 and change, so there is another $41 buried somewhere in the fine print).

The cost of immediate gratification: $3,129 – $1,371 = $1,758. Wondering what the interest rate is? Well, I have a spreadsheet for that, which shows rates nearing 100%!  Here is the methodology for the spreadsheet:

• The student is receiving the TV which is worth $1,371 if they paid for it today so that is how much they are borrowing. They are making monthly payments of $134/month, part of which is principal and part of which is interest payments
• The students can play with the interest rate (which is annualized) to get the Ending Balance in the cell in the 23rd month to zero out.
• I am happy to provide you with a spreadsheet (with formulas) that your students can use. Just email me at tim@nextgenpersonalfinance.org.

Questions:

• Instead of paying rent-to-own $134/month, what if you saved that amount towards a TV set. How long would it take to purchase this TV?
• What are other options you might investigate before choosing rent-to-own?
• Rent-to-own stores are incredibly popular, why might you think this is the case?

About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.

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