Opportunity Cost

STUDENT'S VERSION

This lesson printed from:
http://www.econedlink.org/lessons/index.php?lid=865&type=student

INTRODUCTION

With so many innovative and exciting products and services, you are faced with tough choices. Equally as challenging are the concurrent marketing efforts of a billion dollar industry that understands how to attract consumers. Couple this with an innate desire to want more than you can have, and it is evident why so many people make irresponsible spending decisions. Therefore, ingraining a decision making process that includes considering the opportunity cost of any spending decision is necessary to form responsible money management habits.

TASK

  • Develop a list of products or services that you currently buy, and place them on either the "In" or "Out" side. If it is on the "Out" side, that means that based on opportunity cost or your own values, you regret your original choice because you feel that your money could be best spent elsewhere. 
  • The teacher will demonstrate a financial calculator www.planningtips.com/cgi-bin/roth.p   and you will use it in your "In" and "Out" list to illustrate the opportunity cost of the "Out" list if each month is added up and multiplied by 12 months then by 30 years, and invested in the market assuming the market return is 8%. Be sure to project the results of each calculation.

PROCESS

  • Class will begin with a short video
  • The teacher will share a story or two that he or she prepared consistent with his or her values. The teacher will review the opportunity cost of each choice as well by using a financial calculator www.planningtips.com/cgi-bin/roth.pl to illustrate the opportunity cost of the choice over a period of time. 
  • The teacher will provide terms and definitions so be ready for note taking.
  • The teacher will discuss with you obstacles people face when they make spending choices. 
  • The teacher will assign a task.

CONCLUSION

The teacher has provided you with tools you need to make your own financial choices consistent with your values. Responsible spending behavior is consistent with those who (1) consider the opportunity cost before making a purchase, (2) are capable of delaying gratification to make choices, and (3) make spending choices consistent with their values.

ASSESSMENT ACTIVITY

You will prepare a budget based on your own current allowance/compensation from part time jobs with three categories: "Saving," "Sharing," and "Spending," and sub-categories determined by the individual teacher. When you have finished with your budget write a paragraph or two on why you made the different saving/spending choices and how they relate to your future plans. (Note - if you have no income, the teacher will generate a fictitious but appropriate amount of income for you to use in the preparation of your budget.)

EXTENSION ACTIVITY

Visit www.mint.com and familiarize yourself with the site. This is just one of many programs/ways that you can track your spending so you can better reach your goals. Other methods will be discussed in the future.