True cost: An iPhone app

Like many application developers, Ajay Raikar created the True Cost iPhone app to improve his own life.

The Lakeville, Minn. father of a 12-year-old daughter and 10-year-old son, Raikar was sick of the near-daily conversations he had with them asking for cell phones and other gadgets. "Between the 'must-have' Lego sets and the 'cannot live without it' cell phone ... there had to be a better way to teach them about money," he said.

First he imposed a 30-day-rule requiring them to think about a big purchase and come back after a month to see if they really wanted it. Nine out of 10 "gotta-haves" were forgotten by month's end.

For the rest he uses True Cost, an app he created that costs 99 cents at the iTunes store.

You start by inputting your income and the interest rate that your saved money earns.

On the next screen, fill in the cost of an item and the length of time that you plan to enjoy the item - from a day long spa visit to a TV that will last 4 years. I'm hoping Raikar will add an hour button to more accurately calculate the true cost of that lunch out or latest blockbuster.

The application spits out the amount of money you would need to have in the bank in order to purchase the item without touching the principal. In other words, how much interest income you would need to make the purchase.

Raikar says the application has helped his children look at money and purchases in a different way. But they still don't always make the right choice.

For example, the 12-year-old picked a more expensive cell phone plan with a different carrier because the more affordable option didn't have the green phone she liked, despite plugging in the numbers to see that the true cost of that green phone was a lot higher.

But his 10-year-old son did the cell phone calculation and decided to buy Apple stock instead.