Most important lesson you can teach your kids about money.

[welliamwallace]

Of all the things you can tell your kids about money, the most important thing might be what they experience, AKA "learn the hard way" about opportunity cost, and choosing to spend their money on one thing instead of another.

Video explaining the concept: https://www.youtube.com/embed/pF9HCj0PKVc

Do you feel like this was true in your life, or in the live's of your friends? How do you teach your kids to fundamentally feel the value of money?

[zolotiyeruki]

I agree that opportunity cost is one of the most important lessons a child can learn, when it comes to economics and finances.  Another way of putting it is: "TANSTAAFL" - There Ain't No Such Thing As A Free Lunch.  When our kids ask "can we get <SHINY THING>?" we don't say "We can't afford it," because usually that's not strictly true.  So instead, we say something like "well, we *could* buy that, but it costs $x, so we'd have to give up <MORE IMPORTANT THING>."

So far, the 10- and 8-year-old seem to have internalized the idea pretty well.

[LiveLean]

How do you teach your kids to fundamentally feel the value of money?

I unwittingly taught our 11-year-old this today. We recently sold his bunk set furniture on Craigslist and took the proceeds and bought full-size bed frames for him and his older brother from Craigslist. Older brother already had a full mattress (no headboard), but we needed a mattress for the 11-year-old.

Before we went shopping, he asked what our budget was for this. I threw out a number -- $200 (we didn't need a boxspring). We went to Macy's, JC Penney, and Sears. (Mattresses are one thing I won't buy used.) Everything was far beyond $200, plus we had to wait 7-10 days for delivery, which was an additional $50 to $100. Still, I had my son lie on everything. He said he couldn't feel much difference between any of them unless we jumped up to the $4,000 mattress. We also went to a Mattress Firm and it was then that he noticed that he liked the hard foam mattresses over the coiled. I talked the Mattress Firm guy down from $389 to $289 (Labor Day sale.)

Mattress store guys are worse than car salesmen. So before I pulled the trigger, I suggested we go next door to KMart, which carries Serta just like Macys. I didn't expect to find anything suitable, but my guy sprawled out on a mattress. He knew he loved the mattress but got up, checked the price tag (Labor Day sale) and announced, "This is the best value we've seen all day, Dad."

A K-Mart associate got one from the back, helped us to the cash register and then to our minivan. Out the door for $285. I've never been a mattress snob, having slept on everything from park benches to crappy hotels to $5,000 mattresses in the homes of wealthy friends.

But after we set up his bed, I laid down for a few minutes.

I had to give him credit. It felt like more than a $285 mattress.

[little_brown_dog]

Opportunity cost is critical. If you don’t understand that resources are finite and that things have to be prioritized accordingly, you will constantly end up in precarious spending situations. Not to mention the fact that you will never be happy with your finances because you will always feel shortchanged somehow.

Beautiful real-life parable/fable: An older family member often harps on the bad economy, greedy bankers, and the unfairness of his retirement savings situation despite the fact that he has a very high income and mismanaged his money and spending in the past. Recently he used a hefty windfall to pay off some outstanding debts, eliminating some of his required debt payments each month. Awesome! But then he immediately turned around and financed a luxury vehicle with a 400/mo payment rather than continue to drive his paid off, perfectly good car because "he deserved it."  Now, just a few months after the purchase of the car and the elimination of the other debts, he is back to his usual complaints and whining about his insufficient retirement accounts. Even though he experienced a huge boon with the windfall, absolutely nothing changed for this man - he is still in debt, still saving less than he should/wants to be, and most importantly, he is still very very unhappy.

This is a classic example of how the inability to fully comprehend and internalize the lessons of opportunity cost can negatively affect you despite extremely lucky financial circumstances like high incomes, windfalls, etc. I plan on using stories like these to try to teach my kids about money. Fables are great learning tools, and they have a tendency to stick with you your whole life. People may not remember an intellectual powerpoint presentation on opportunity cost, but they will remember the story of the sad man who squandered his good luck and remained unhappy.

[AMandM]

The difficulty with opportunity cost is that only some situations make it concrete, and not usually the really important ones.  It's easy to see with small amounts of spending such as birthday money from Grandma: you can get the pocket knife or the flashlight, but not both.  What's harder is to feel the pull between buying the pocket knife/flashlight, on the one hand, and being 5% closer to a week of summer camp.  What's hardest of all is to feel the pull between the pocket knife/flashlight and 0.01% of a college education.

[Miss Piggy]

What's hardest of all is to feel the pull between the pocket knife/flashlight and 0.01% of a college education.

I think this is our adult equivalent of feeling the pull between [insert your "poison" here] and 0.01% of retirement. Some days, my "poison" consumer good wins, some days my retirement wins.