Consumers are faced with tough choices because so many innovative and exciting products and services are available. Therefore, engraining a decision-making process that includes considering of opportunity cost is necessary to shape future consumer behavior.

KEY CONCEPTS

Benefit, Budget, Choice, Consumers, Costs, Decision Making, Interest, Interest Rate, Investing, Money, Opportunity Cost, Save, Savers, Saving, Savings, Wants

STUDENTS WILL

  • Define values and be encouraged to make spending choices consistent with their own values.
  • Define opportunity cost and apply the concept to spending decisions. 
  • Define delayed and instant gratification, and how each influences current and future spending choices and opportunities.
  • Correlate how the choices they make now affect future opportunities.

INTRODUCTION

With so many innovative and exciting products and services, consumers 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 your budget allows, it is evident why so many people make irresponsible spending decisions. Therefore, ingraining a decision making process that includes consideration of the opportunity cost of any spending decisions is necessary to shape future consumer behavior.

RESOURCES


PROCESS

Hook
Story Telling
  • Share a story or two, which best illustrate financial choices that you have made, and how these choices are consistent with your values. 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. An example would be to show the students what how much money would accumulate if you were to invest $500 a month (car payment + insurance) over the course of 40 years, earning the market average of 8%.  
  • Define Values – The beliefs and practices in your life that are very important to you Define Opportunity Cost - By choosing one option you are giving up another.

The goal is for each student to understand the importance of spending money consistent with his or her values, and always considering the opportunity cost of spending choices to ensure he or she is making the best choice.

Classroom Discussion
  • Discuss what obstacles people face when they make spending choices. 
  • Point out the Marshmallow Study and define instant and delayed gratification.
  • Define Instant Gratification – An unwillingness to give up something now in return for something later
  • Define Delayed Gratification – A willingness to give up something now in return for something later
Classroom Activity
  • Have students develop a list of products or services that they 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 their own values, they regret their original choice because they feel that their money could be best served elsewhere. 
  • Using the students ‘In’ and ‘Out’ list and the financial calculator www.planningtips.com/cgi-bin/roth.pl 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.

ASSESSMENT ACTIVITY

Students will prepare a budget based on their own current allowance/compensation from part time jobs with three categories: "Saving," "Sharing," and "Spending," and sub-categories determined by the teacher. Ask students to write a paragraph or two on their individual budget. Have them identify why they made their saving/spending decisions and how it relates with their future plans. (Note - if students have no income, the teacher generates a fictitious but appropriate amount of income)

Assess whether or not students can (1). Define values and identify their own values relating to spending. (2). Define opportunity cost and identify how they have used it in spending choices. (3) Define delayed and instant gratification and how it has affected their current spending and how it can influence their future spending. (4) Correlate how some choices they have made have influenced future opportunities for them.

CONCLUSION

As educators, it is important that we not tell our students how to spend their money. Rather, we need to provide them with the tools they need to make their own financial choices consistent with their values. Responsible spending behavior is consistent with those who consider the opportunity cost before making a purchase, are capable of delaying gratification to make choices, and make spending choices consistent with their values.

EXTENSION ACTIVITY

Visit www.mint.com and familiarize yourself with the site. This is just one of many programs/ways that students can track their spending and reach their goals. 

EDUCATOR REVIEWS

  • “I like it! Very easy to implement, not too many materials to use besides an internet connection, helps students think abstractly about their personal choices, gives them skills they can use regularly, and addresses North Carolina standards. I will be demonstrating this lesson to teachers in Fayetteville, NC in mid-February.”

    Stephen D., Raleigh, NC   POSTED ON January 17, 2012

  • “Both my class and I loved the TED TV video, Don't Eat the Marshmallow". It led to a very lively and thoughtful discussion about the choices we make in life. Thanks!”

    Michael M., Hanover, MA   POSTED ON January 19, 2012

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