In our last lesson, we reviewed what it means to be “rich,” both financially and as a human being. Now, we’ll transition into lessons on Opportunity Cost – an integral concept for your kids to understand, and for future Kids & Money lessons. These ideas are fun and easy to grasp. We hope you and your children enjoy them as much as we do in our home!
What is opportunity cost, and how do I teach this financial life skill?
Recognizing what opportunity cost is, and how it impacts many decisions along the road of life, is an important idea for your children to learn early on. Here’s some methods you can use to teach the concept that are fun and engaging.
Elementary / Middle School:
- Have two pieces of different candy or other fun food or snack that they can choose from. Let ’em pick! Tell them that the one they didn’t pick is called “The Opportunity Cost.” Have them say it out loud!
- In other words, Opportunity Cost is the choice not taken. It’s what you “give up” to choose the other option.
Middle School / Teen:
- Offer two different choices of the same general reward – Redbox movies, fast food options, organic meal options, or smartphone accessories. Let them pick!
- Make sure they know that the choice not taken is called “Opportunity Cost.”
Now, let’s add a 3rd way….
Elementary / Middle School / Teen:
- Like before, you need to offer your children the power of choice. However, this time it must be 3 or more options.
- So, in the example of candy, you might offer: a Reese’s Cup, a bite-size Baby Ruth, and a fruit roll-up.
- Before or after your child makes their choice – remind them they can only have one — have them name their 2nd favorite choice as well.
- This 2nd choice is the opportunity cost. In other words, the cost of missing out on the next best alternative.
- This is important because the third available choice (and any subsequent choices) is NOT considered an opportunity cost in this case.
Tips for parents on teaching opportunity cost:
- While in general, this can be an easy concept for many children to grasp, it can be tricky for some — patience, and understanding how your child learns, is key.
- Remember to let your children make the choice on their own. This will help them to internalize the result, and understand the implications of their choices.
- Also, ensure they repeat the concepts and their choices out loud while you go through the lesson to reinforce the ideas being taught.