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Opportunity cost

Category: Activities: Home | Age Group: 14-16

TOPIC:

Making money decisions

RESOURCES NEEDED:

A copy of a daily newspaper or magazine

LEARNING OPPORTUNITY:

Often adolescents do not truly appreciate that spending money actually has two costs. One is what it actually costs to purchase the object and the other is the opportunity which is lost to acquire something else because the money that was spent is no longer available. It is important to understand this idea which is referred to as “opportunity cost.” By understanding this concept, the purchaser has to pause before buying and ask the question, “If I buy this item what will I NOT be able to buy or use my money for? In this way, adolescents can reflect on the priorities they have and ensure that they are using their money to wisely achieve their goals.

THE ACTIVITY:
  • Find a quiet time to sit down with your child and ask them to take a moment and look through the paper or magazine and pick out two things of approximately equal value that, if they had a chance, he or she might like to buy. (Indicate to them that this is just a discussion so that they don’t get the expectation that this activity will result in purchasing that item.)
  • Once they have identified these items, ask them to choose one and explain why they would pick that item.
  • Ask them how they feel about having to turn down the other item.
  • Explain to them that this is referred to as “opportunity cost” – when you purchase one thing you no longer have that money to use for something else.
  • Take the value of the article that they indicated they would purchase having read the paper or magazine and ask them what else they might have done with that money that would have helped them achieve their goals or priorities.
  • With this discussion completed, ask them to remember that this is true of all money decisions – when you purchase something you lose the opportunity to use that money for something else. Always look at what might have been done with that money BEFORE you make a purchase.
TIPS:
  • Opportunity costs do not simply refer to purchases. This concept applies to most things in that it suggests the idea of what was the next best alternative. As such, it deals with any choice. For example, on Friday night you could choose to go to a movie, watch TV, read a book or go some other place. By doing one you cannot do the other – opportunity cost!!
FOLLOW UP IDEAS:
  • You might discuss with your child the fact that there are people who would never be able to consider buying either because they are having trouble “just making ends meet.” This could lead to a discussion about activities and ways that underprivileged people could be helped by those more fortunate – community work etc.
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