Once kids begin to notice the impact that money has on nearly everything that happens around them, it’s time to introduce economics for kids. It’s as important as learning about social groups, family dynamics, and ecosystems, because economics affects these relationships as well as others around the world.
We’ve talked about answering kids’ questions about money. We’ve talked about how kids can be educated to be responsible and make wise decisions about money. We’ve even talked about the ways in which a kid can make money. But forget all that. There are some issues that are a little broader than just basic financial education. As your kids grow, they may want to gather more knowledge about money and how it works.
Simplifying Economics for Kids
In short, your kids may want to know about economics. But how do you teach your kids about advanced notions such as society, wealth, production, or consumption? How do you simplify economics for kids? Well, the answer to this is to relate it to things that the kid already understand. Thus, we need to transpose notions involving economy at a nationwide or global level, to a smaller scale. And this scale, more often than not, is the kids’ own home.
So how do we explain economics for kids? Well, in the actual science, researchers talk seriously about the differences between what different peoples want, how they can acquire their needs, and which of these needs are actually paramount to their existence. Obviously I’m oversimplifying. But the basic principles are there.
Therefore, we’ve decided to start with the basics:
Explaining Needs and Wants Economics for Kids
One of the first things that kids need to understand about economics is that it’s not only a question of money. More complex concepts enter the arena. Two of these ideas are those of need and want. The basic concept is that a need is something that a person requires in order to survive, while a want is not necessary.
Demonstrating the Difference Between Needs and Wants
To explain these two concepts better, give your kid examples. Pick up things that he uses in his daily life. The first example, obviously, should be that of water. Ask your child about it. Is it a need or a want? The answer should be obvious to you, but don’t be surprised if the child doesn’t answer the same at first. After all, you’re the tutor and he’s the student.
You should continue the lesson with a random toy, or something that is most definitely a want. After a few examples, your child should have gotten the basic principle of the equation by now, and will answer accordingly. However, when you get the feeling that he’s understood what you’re trying to say, give the kid a more complicated question. For example: what is cake? Or what is juice? Are these two basic things needs or wants? Of course – they’re wants, but could be easily confused for needs.
At the end of this small lesson, make a larger list – either on the computer or on a piece of paper – of other intriguing things that are somewhere in between the two. You can also add services to spice it up a bit. See what your kid will answer. If you feel like one of the answers is strange, ask for an explanation. Be prepared as kids can surprise you with their smarts.
Explaining Services and Goods Economics for Kids
This one is another big and important part of economics. And it’s relatively easier to understand than the previous one. Services are things that are offered to people by other people. They’re immaterial things such as teaching, waiting tables at a restaurant, or just about anything that involves another person. Goods are (mostly) the things we’ve already talked about. These are material things that can be consumed or used. Make it fun: you can eat an apple, you can wear a tie, but you can’t eat teaching, or wear it. It’s as simple as that.
A Simple Activity to Demonstrate Goods and Services
As with the previous category, make a list divided in two sections. The examples in the beginning should be easy to define. The latter ones shouldn’t be as easy. A good idea is to mix the profession with the goods that the respective profession deals with: vegetables vs. farming, books vs. bookkeeping, or even a football vs coaching a football team.
Finally, the child should understand that both goods and services cost money. So, if he wants to open a football team, he’s going to need money to pay for all the incredibly important members of the staff and their services. To this extent, it’s probably for the best if you limit that to a basic vinyl football.
Explaining Opportunity Cost for Kids
This one is a little more complicated. Why? Because opportunity cost is not necessarily represented by something material. To make your kid understand this basic concept of economics, you have to make sure you yourself first understand what it means. Opportunity cost is, basically, the opportunities you give up in favor of doing other stuff. Now, to transpose this into a concept in economics for kids, you’ll need to think like a kid.
Demonstrating Opportunity Cost
Ask your kid what he wants to do tomorrow. Depending on his or her answers, see if some of the activities clearly overlap. Or better yet: use school. Ask the kid: “What would you rather be doing instead of going to school?” The answer to this should be overwhelming. Now explain to your kid that playing video games represents the opportunity cost that going to school implies.
Now, you may use the school example only and only if you’re ready for the next question: “Why do I need to go to school?” That’s one of the most common questions that kids lock their parents with. Don’t hesitate, as it will show that you don’t really care about school.
As with the previous two, give the kid a list of activities that he has to choose from. Ask the child which of each set of activities he would prefer, and then have the kid indicate the opportunity cost for that one. So, from a group of playing football, playing video games, going out with friends, and watching a movie at the cinema, your child may choose going to the movies because a specific movie is out.
Economics for kids is not an easy subject to teach in your home. But as your child grows up, these concepts may prove key to his understanding of money. Remember that these lessons alone will not make your kid a billionaire. If you want your children to have a better chance at financial prosperity, browse through our bigger guide to kids and money. We hope that this article has enlightened not only your kids, but you as well. Please feel free to suggest interesting topics to us – we’re sure to give it a try!