January 20, 2015

Cereal vs. Space Planes

Economics for a Three-Year-Old

Teaching Kids About Opportunity Cost

Today, while grocery shopping, I had the wonderful opportunity to teach my 3 year-old about the economic principle of opportunity cost (every dollar spent is a dollar that can't be spent on something else).

Dictionary.com defines Opportunity Cost as:

the money or other benefits lost when pursuing a particular course of action instead of a mutually-exclusive alternative

Or the British Definition:

the benefit that could have been gained from an alternative use of the same resource.

Basically, if we spend money on one thing, we can not spend that money on something else, the cost is the benefit of making the alternate choice.

A few examples:
If I buy a cheeseburger for lunch, I cannot use that same money to buy ice cream for dessert.
The cost of the cheeseburger is losing the opportunity to enjoy the calming sugar rush I get when I eat ice cream.

If I get a loan for a car, the money paid in interest cannot be used to go on a vacation.
The Opportunity cost of financing the car is not being able to use that money to relax, play and see something new.

Our lesson:

As I was walking down the cereal aisle, unbeknownst to me a little hand stealthily reached out and grabbed a box of cereal, a few minutes and an aisle later, I reached to place something in the cart and glimpsed something that I didn't put there, a box of Reeses' Puffs. 
My initial reaction was to remind him that he can't just grab things and put them in the cart (something he hasn't tried to do in months), but as I was scrambling for an appropriate consequence, I paused and realized there was a much better way to handle this.
Yesterday when I was giving him his allowance he told me he wanted to use his money to buy space airplanes, Echo and Bravo from the movie Planes, which cost about $6-8.
I bent down so I was looking him right in the eye and asked him if he wanted to use his money to buy that box of cereal, he said Yes.
I then asked if he wanted to buy a new airplane, he got really excited, "Yes, a space airplane......."
Next I explained that the box of cereal cost the same amount as a new airplane (not quite accurate, but reasonably close), and asked if he would rather use his money for cereal or an airplane, he firmly replied "A space airplane!" so we walked back to the cereal aisle and he happily put the box back.

In that instant he made the decision that the benefit of a new airplane outweighed the cost of not getting a box of Reeses' Puffs.
It doesn't mean cereal would have been a bad decision, it means he's choosing something he wants more.
He doesn't know it but he just had a lesson in Opportunity Cost, Delayed Gratification, and Budgeting.

Helping children understand the principle of opportunity cost while they are young, can help them make decisions that align with their values and goals when they are older and the decisions carry more weight.

It seems overwhelming, even to someone who's spent a good amount of time studying this very concept...

I'm going to break it down into 3 steps:

1. Stop (or cut back on) buying things for your kids and instead give them the money to buy those things themselves.
Whether they do chores for they money or you give them an allowance (read my thoughts on Allowance here), kids need to have their own money so they can have opportunity to make decisions with it.
When they want something at a store, event, etc. the empowering response sounds something like:
Did you bring your money?
Do you have enough money?
Is that what you want to spend your money on?

2. Guide them, but let them make their own choices.
You might suggest:
That costs $xx.xx if you wait you could get it for less at _____.
You might want to wait and look at some other things before you decide.
Weren't you saving money for _____? Would you rather have this or _____?
That's XX weeks worth of allowance or XX jobs, is it worth it?

If my 3 year-old had decided to buy cereal, I would have let him.

3. Allow them to Make Mistakes
Nothing helps kids learn financial responsibility better than a toy that breaks after 10 minutes, 
Or a drink that disappears while a brother is still enjoying a toy, 
Or watching a sister enjoy a whole new wardrobe for the price of your one pair of designer jeans,
Or watching your sibling go to a movie on Friday night AND Ice Skating on Saturday night, when you only get to go to the movie because you spent $10 on concessions.

It doesn't mean that any of the decisions were "BAD", though they may be "SAD", OR maybe that buttery popcorn, or those jeans that look great and fit perfectly were worth it.
It's not about making decisions that please mom and dad, it's about teaching children how to make decisions that align with their values and goals. 
It's about making sure that the lost opportunity is a price they're willing to pay. 

If you found this post interesting, you might also enjoy 

I also highly recommend the book Piggybanking for more ideas on how to teach kids about money, it's a quick easy read and quite entertaining.

January 16, 2015


Have your read Wonder?

I've been meaning to read it for over a year.
I heard it was really good.
I heard it was about bullying.

I finally decided to look for it when I was at the library with my 3-year-old last week for story-time.

It's about bullying,
It's about so much more.
It's about kindness, strength, compassion, empathy, and forgiveness.
It's about integrity.
It's inspiring, thought-provoking and heart-wrenching.
It's a book I will require my children to read when they're a bit older, probably more than once.

On Amazon it's less than $10 for the hardcover, and less than $8 for the Kindle Edition.
It's worth EVERY penny.

January 5, 2015

Three Ways to Protect Your Identity and Your Finances in Less Than an Hour

1. Take a look at what's in your wallet

One time a college professor (you can visit her blog here) told us to pull out a piece of paper and write down EVERYTHING in our wallet. When we were done with our list we were then to pull out our wallet and compare the contents to our list, the point being that if we didn't know it was there it shouldn't be there.
That store credit card you signed up for 3 years ago to get a great deal, but have only used once or twice since? Imagine if your wallet got stolen and you forgot that card was in there because you've forgotten you have it. You responsibly cancel all your other credit cards, but the thief can still max that one out.
If you don't know you have it, perhaps reevaluate whether or not you should have it.

2. Cancel cards you don't need and relocate items you need but don't use regularly 

Place infrequently used items in a safe-deposit box, a safe, a locking drawer, or some sort of safe place.
These might include an HSA or FSA card, a debit card for a second account, a credit card you only use for large purchases, a store card, etc.

AND if you're still carrying your Social Security card in your wallet, STOP IT!
You're making yourself an easy target for identity theft.

3. Pull a copy of your credit report here.

Not your credit score, they're two different things.

A Credit Score is basically a grade of how you use credit that is available to you, it's only important to know your credit score if you're considering borrowing money.

A Credit Report is a record of your financial dealings.
It will show all the lenders who have extended credit or loans to you.
It will show whether you pay on time, the amount of your payments, the total amount of your loan or credit limit.
It may show current or previous employers.
It will show short-sales, foreclosures, bankruptcy and other matters of public record.

Federal law entitles you to one free copy of your credit report from each credit bureau every twelve months.
There are 3 credit bureaus
Equifax    and
So that's a total of 3 reports per year.

If it's your first time pulling your credit report, the recommendation is to pull all 3 at the same time.
Look over all of them and make sure there are no errors.

If you've looked at your report before then it's a great idea to pull one report every 4 months, start with one credit bureau now and then in 4 months pull the next, and so forth until you're back to the one you started with, this allows you to regularly monitor your credit for errors or signs of identity theft, for FREE.

Many websites will give you access to your "Free" credit report and "Free" credit score, but you end up paying for credit monitoring.
AnnualCreditReport.com is actually free. It is set up by the 3 credit bureaus to provide you with your Federally Mandated FREE access to your credit report.