Thursday, February 11, 2016

Teach Your Kids Fuzzy Fun Money Math

Today’s fantastic family finance article is:

Fuzzy Fun Money Value Equation

Warren Buffett describes the difference between price and value this way: “Price is what you pay, value is what you get.”

The price part is simple. But what determines value? That’s far more subtle.

Sometimes it’s “the market.” In other words, if you turned around and sold the item to someone else, how much would you get?

Other times, it’s just you. How much do you value the thing relative to a substitute? How much joy does it bring you personally? A lot? Then it’s valuable — no matter what others think. Sometimes things that are pricey simply aren’t that fun for you. Conversely, sometimes things that are dirt cheap (or even free) are tons of fun. Those are called fun bargains! Tip: fill your life with them.

Now here comes the math. Next time you’re with the kids, try doing some “fuzzy fun money math” to decide what your family truly values. Find two “wants.” Estimate the rough amount of fun that each represents — aka “fun units.” You get to make up the scale. Is it a 10? An 8? Divide the estimated fun units of each item by their respective prices to come up with a measure of fun per dollar spent. Compare. Discuss. Carl Richards walks through some examples in today’s article. (Note: Carl’s formula is the inverse — the price per unit of fun — but it serves the same purpose.)

The math might seem a bit fuzzy, but the value of the conversation will be clear — perhaps even priceless.

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