Teach your children well

The latest Dollar Stretcher newsletter had a story in it I thought might be appealing to parents who read this blog: "A Frugal Money Lesson." The summary is that when this mom's two kids (ages five and eight) started asking why they didn't have enough money for some activity they wanted to do, the mom decided it wasn't too early to teach them a lesson about budgeting. She asked them to think of a job they'd like to do when they grew up, and then she wrote down the monthly salary for it, along with a list of expenses that would have to be paid out of that income. Then she showed them how spending more money in different categories (e.g, renting a big apartment instead of a small one) left less for other things. (The eight-year-old did the sums to see how each decision affected her budget, while the five-year-old counted out his expenditures from a stack of Monopoly money.) The outcome: both kids learned a vital financial lesson, and as a bonus, "my five-year-old learned to count by 20s."

This struck me as an incredibly useful exercise. It would be especially handy for home-schoolers, who can use it to combine a math lesson with a life lesson, but really, I think all parents could make use of it. I suspect that many American adults have never really learned to grasp the concept of opportunity costs (i.e., "doing x means you have less money for y"), and would be much better off if they'd been exposed to the idea while they were young and impressionable. Parents who teach their kids this lesson would be doing them a lifelong favor—and they would benefit themselves in the short term, as their kids might stop pestering them for goodies that don't fit into the budget. (Or at least, if they do, they'll have to accept the logic of the answer, "Buying you a new toy will leave us less money for food, remember?")