Tuesday, April 12, 2016

Pitch Savings As Profits To Kids

Today’s fantastic family finance article is:

Boring Savings Versus Cool Profits

Try the following conversation with your kid:

  • “Guess how much it costs Apple to make an iPhone?” About $225.1
  • “Guess how much people pay for it at the store?” About $649.
  • “So, how much does Apple keep on every iPhone?” About $424. Wow!
  • “What’s that extra money called?” Profit.
  • “What fraction of Apple’s price is profit?” About 65% since 424 / 649 = 0.65.
  • “What’s that percentage called?” Profit margin.
  • “What do you think Apple does with all that profit?” Banks it. Builds new stuff. Sends some to stockholders. Whatever they want!
  • “Does profit make Apple stronger?” Indeed.

How’d your conversation go? Pretty good, huh?

Most kids find profit naturally interesting. Apple is piling up some serious cash. Pretty impressive. Pretty powerful.

Now, pivot the conversation while the iron is still hot.

  • “How much money did you spend last week?”
  • “How much money did you earn?”
  • “So, how much money did you keep?”
  • “What’s that extra money called?” We could call it savings (boring), or we could call it profit (cool).
  • “What fraction of your earnings did you keep?”
  • “What’s that percentage called?” We could call it savings rate (boring), or we could call it profit margin (cool).
  • “How does your profit margin compare to Apple’s?”
  • “If you have a healthy profit margin too, what can you do with your growing cash?”

The answer to the last question might be: whatever you want.

And that’s the key point to drive home. Running a personal profit week after week means freedom. Freedom from debts. Freedom to make your own choices.

Freedom is cool.

1Source for iPhone figures here.

No comments:

Post a Comment