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What you lose by what you choose

Category: Activities: Home | Age Group: 16+


Opportunity Cost


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It is important for adolescents to understand that a person can’t have everything and that there is a limit to what that individual both needs and can afford. For this reason, it is equally important that he or she understands that there is an additional cost related to the choice. That cost is what is known as “opportunity cost.” This concept simply stated means that for every choice one makes there is another option that cannot be selected. As an example, let’s assume an individual was choosing a destination for a holiday and was trying to decide between Location A and Location B. By selecting Location A the person assumes the costs related to that destination but the additional cost is the lost ability to go to Location B. The “opportunity cost” of selecting Location A, then, is the inability to go to Location B. The significance of opportunity cost, therefore, is that there are consequences to the choices one makes. That consequence increases when one chooses wants over needs or luxuries over necessities. As such, it is important for adolescents to understand this concept so that they can weigh all factors before they make financial decisions.

  • Sit down with your son or daughter and give them the following scenario: “Let’s assume that you have $100 to spend. What are you going to buy?”
  • Get their response and then ask them what they think the cost of making that choice is.
  • Once they have given their answer indicate to them that there is an additional cost which is the opportunity that is lost to do something else with that money.
  • Discuss what other choices could have been made.
  • Once this discussion has been completed indicate to them that the loss of a second alternative use of the money is what is known as “opportunity cost” – you can’t have the second choice because you made the first choice.
  • Explain to them that they need to carefully consider opportunity cost before they make important decisions because the consequences of spending money erroneously can be significant. They should even consider whether or not the expense is necessary and that perhaps the money (or some of it) could be saved by not spending it at all.
  • Discuss the concept of “paying yourself first” – that is saving some of the money first prior to paying bills and looking at “disposable money.”