MSE’s Academy of Money
MSE’s Academy of Money

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MSE’s Academy of Money

Session 1: Making good spending decisions

Introduction

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Transcript: Video 1 Introduction to Session 1

MARTIN LEWIS
Spending. You might be thinking, I’m good at this one. Well, we are, of course, talking about controlled and clever spending. And as someone who’s set up a money and mental health charity, I know that spending issues are both a symptom and a cause of mental health problems. So controlling your spending is really important.
That’s why I’m going to start with my money mantras. There’s one if you’re skint, and there’s one if you’re not skint. And understanding that there’s a difference is important.
So if you’re skint, before you buy anything, ask yourself, do I need it? Can I afford it? Have I checked whether it’s available cheaper elsewhere? And if the answer to any of those is no, don’t buy it.
Why do I need it? Well, it’s pretty obvious. If you don’t need it, you shouldn’t be buying it if you’re skint. Why can I afford it? Because even if you need it, if you can’t afford it, you have to think very carefully about whether you should buy.
And of course, I’m the money-saving expert, you should always check whether you can get it cheaper elsewhere before you buy anything. If you’re not skint, the mantra becomes, will I use it? Is it worth it? Have I checked whether it’s available cheaper elsewhere? And if any of those is no, don’t buy it.
Why will I use it? You might not need something, but you’ve got to make sure you’re going to use it. And remember, shops are brilliant, in the immediacy of that purchasing moment, to targeting our impulses to make us think, I want it. I want it. I want it. I want it. I’ll use it!
When in the practical realities of the world that you live in, you may not do. So ensure you’ll use it before you buy it. Now the crucial one, is it worth it? This is about what’s called opportunity cost. Imagine you’ve seen a coat.
[GASP]
Fantastic. I’m going to look great in that. It’s 200 pounds. How many times are you going to wear it? If the answer’s twice, you’ve got to think about it as 100 pounds per wear. Is that worth it?
And I always remember going to a shop with a friend years ago, and she saw these two pairs of boots. One was 50 pounds, the other about 100 pounds. And I genuinely went out to the cash machine and said, you’ve got to think about the decision you’re really making.
There’s this pair of boots, and held up the 100 quid pair, or there’s this pair, held up the 50 pound pair, and had a 50 pound note in my hand. And I said, that is the real choice you’re making. And she said to me, I have never thought about it that way before.
Then she bought the 100 pound pair of boots, but what can you do? But at least you’ve got to think about the purchasing decisions that you’re making. And of course, the third element of that money mantra is have I checked whether it’s available cheaper elsewhere?
Let’s zone in on that for a second. Many people talk about shop around. You won’t hear me say it. I worry the phrase just points people to check a few different places. And if you’re making an important purchase, there’s a lot more to it than that.
The first thing you should always do is research to make sure what you’re buying is the right thing for you. An example of this is retail snobbery. Two digital radio players, one costs 100 pounds. One costs 50 pounds. Which is better?
Our instincts want us to say the 100 pounds one, because there must be a reason it’s more expensive. But it may just be they’ve spent money advertising the brand, or they think they can sell it for more because it’s got a prettier box, even if it doesn’t do more inside. You have to research your purchases to start with to make sure it’s right for you.
Do your reading. Make sure you get it right. Then once you’ve done your research, don’t just look in a few places. Think about the techniques and tools that are available to bring the price down.
Of course, you might want to check many places via an online shopping comparison site, but are there discount codes or vouchers? Are there tricks you can use, such as can’t find it cheaper elsewhere? Try and buy it online, leave it sitting in your shopping basket for five days without purchasing, and they may send you a voucher afterwards to reduce the price. There are lots more tricks like that out there. Shopping around isn’t enough. Think about what you want, and then zone in on the cheapest price.
End transcript: Video 1 Introduction to Session 1
Video 1 Introduction to Session 1
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Welcome to the first session of MoneySavingExpert’s Academy of Money.

In this session the focus is on spending.

Spending money is something we do virtually every day, whether that’s buying a sandwich at lunchtime, a trip to buy clothes for yourself or the family, or shopping online. A lot of us enjoy this, whether that’s the shopping experience itself, or the anticipation of using or consuming the item we’re buying.

We are, however, subjected to an array of influences when it comes to how we spend our money.

Some of these influences come directly from our personalities and habits. Some are socially driven – for example, spending money to impress others, or as a manifestation of a certain type of lifestyle. Or, we might be directly influenced, whether consciously or not, by the retailer marketing certain products to us

You’ll start this session by looking at these influences. Then, you’ll look at how a simple decision-making model can help you ensure that you make rational decisions when choosing to buy something, rather than falling foul of these internal and external pressures.

You’ll then be taken through how to apply this model to one category of spending that nearly all households engage in – buying insurance products. The range of different types of insurance, the multitude of insurance providers and the complexities in the terms of the products make this an ideal area for the help that the four-step model can provide.

Next, you’ll look at online shopping and at how to make good decisions online. You will also find out how to identify the clues to the scams that are found on the internet and the action you can take to minimise the chances of being scammed online.

To ease you into the course you’ll start by examining your financial personality. What are your financial traits? Are any of these bad habits? Understanding the ways you currently approach money management will help not only with this session but the entire course.

After studying this session, you should be able to:

  • understand some of the behavioural, social and marketing pressures that affect spending
  • use a four-step approach to make effective spending decisions
  • understand the factors affecting the cost of insurance products
  • apply the four-step model to the selection of insurance products
  • identify scams when shopping online
  • be a savvy internet shopper.

The Open University would really appreciate a few minutes of your time to tell us about yourself and your expectations for the course before you begin, in our optional start-of-course survey [Tip: hold Ctrl and click a link to open it in a new tab. (Hide tip)] . Participation will be completely confidential and we will not pass on your details to others.

This Session is one of a suite comprising the course MSE’s Academy of Money and has been made possible by financial and content contributions by MoneySavingExpert.com.

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