‘How Much Does That Cost?’: How to Teach Kids the Time Value of Money


time value of moneyYou’re in your favorite store, trying on sunglasses, and you’ve finally found the perfect pair.

The glasses look great on you—they’re the perfect shape, color and size. But it’s summer, and unfortunately all the new arrivals are full price. Do you say, “I have to have them!” or think, “These glasses are just what I’m looking for, but they cost the equivalent of three full days of work—maybe they’ll go on sale soon.”

Instant gratification usually wins out with kids, and unfortunately with a lot of adults. But teaching the time value of money when they’re young gives children tools to cope with that primal urge we all experience to “buy now.”

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How do you start making a connection between those trendy boots they want, and the number of weeks of their lives it would take to earn them? Let’s start by playing a game.

The “What If?” Game

This is a very simple exercise in thinking about money and its time value, and one you can play over and over with your children. Just ask the question …

  • What if you had $1,000? What would you do with it?
  • What would you do with $10,000, or even $1,000,000?
  • Which charity would you choose if you had $1 million to donate?

Have your children map out a plan for each sum. What would they save? What would they buy? How much would they give to charity? Why did they choose that particular charity?

You can even keep a record of your children’s answers in your family journal, and play the game again a year later to compare the results of how they’d spend their windfalls.

RELATED:  What to Do With a Financial Windfall 

An Imaginary … Salary

Here’s another variation on the “What If” game that will teach kids about the connection between earning power and buying power: Let them figure out how long it would take to earn different amounts of money.

The ‘What If’ game will teach kids about the connection between earning power and buying power.

First, have them assume they are making $5 per hour and working 40 hours per week. Then have them assume they’re earning $10 per hour, $100 per hour, etc. At each salary, how long would it take them to earn $1,000, $10,000, $100,000, etc.? Or for a real eye opener, ask your children to figure out how long it would take them to be as wealthy as Bill Gates.

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“Spending” Time: How to Teach Kids Its Value

How many times have you heard, “Mom, I would have picked my clothes up off the floor and put them in the laundry, but I just didn’t have the time?” This is the perfect opportunity to teach your children that time, like money, is a finite resource—it has to be budgeted too.

Just as there are fixed and variable expenses in a budget, the outlay of time can be fixed and variable too. A good way to illustrate these concepts to your children is to have them keep a log of everything they do and how much time they spend doing it for a few days.

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Make a list of all the activities and the amount of time they spend on each one. (Your children can use their math skills to determine what percent of their total time each activity represents.) You can even split the total time they spent on each item into fixed and variable amounts. For example, hours spent at school are “fixed,” but time spent at sports practice would be considered “variable.” Another way to look at it is that fixed time is required, while variable time is “spare time.”

Sample Categories:

  • School and Homework
  • Sleeping
  • Chores
  • TV, Computer and Phone Time (instant messaging, email, social media, video games etc.)
  • Grooming and Shopping
  • Sports and Extracurriculars
  • Hanging out with friends
  • Religion/Worship

Finally, help your children decide whether they’re “spending” their free time in the best ways they could be. This activity is simple: Ask them to list their favorite activity, then calculate what percent of their total spare time they spend doing it. This will help them see ways they can make changes in how they spend the time that’s up to them—a lesson we could all stand to revisit now and then.

  • JenInBoston

    Great ideas! You can mix this with math and life lessons, too. I give my 2nd grader little chores she can do for a timed earning rate or a per-chore earning rate. She has to figure out what she’s owed. If she errs on the low side, I give her that mistakenly low amount, then tell her how much of her wages she lost by not being on top of her earnings and looking out for herself.

  • Ingrid

    There are some nice ideas here but I think you are referring to the concept that “time is money”. “Time value of money” is more about investing and present and future value of money. I don’t see what the “what if” game has to do with either of these concepts since in the example the money is not earned but just “appears.”

  • CrankyFranky

    time value of money – good stuff – I know nobody who talks about this, but I’ve done some calcs – based on my disposable income (after fixed spending), adjusted for hours of sleep and work (when I won’t be spending) – I came up with between $2 and $14 an hour.

    Result – pause for thought when it comes to running the dishwasher (cycle cost say 20c – if I spend 20 mins washing up that cost me at least 70c of my spare time value) and a more considered perspective on the value of experiences and DIY vs. paying a professional.

  • http://www.yuthink.blogspot.com William Medina

    Great idea, I use games as a method of teaching my children this valuable lesson. We play monopoly, the game of life, city monopoly and the cash flow game for children. I love the cash flow game, my ten year old plays this game and without realizing it he is learning financial basics necessary to live a better life.
    One of the things he learn without realizing it was how to invest even when everything you know says – keep your money. he was playing an he had an option to buy a business but he did not want to part with his 1,000 bill “I don’t want to lose my money”. He soon realized that if he purchased a business he could earn more money and quickly surrendered (purchased) the business and happily received an extra $200 every payday. He went from “No horde, don’t spend” (fear) to thinking outside the box and managing his money (investing) so that his money can work for him. It was great to see him smile when the light went on and he realized how he could make it work in his favor.
    Author of: for children how to become Rich Successful and Do well in school