Kids Money

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Your kids will already be familiar with the concept of a retail store. It's easy to expand their awareness with a few well-timed comments and questions, and have them start to appreciate the business model underlying retailing.

When you are shopping for clothes, read the labels and point out the "Made In" location. If the item was made overseas, ask your child "So, if this was made in China, how do you think it got from there to here?"

This will open up a discussion about shipping costs, and why businesses would choose to sell things that come from so far away. You can talk about different wage rates for the people who make things, based on where they live.

You can then ask why a business would want to get things made more cheaply, and from there you will arrive at the notion of a profit margin.

With an older child, you can bring in discussions about the roles of importers and wholesalers, and their profit margins, and maybe have a discussion about why each boutique owner doesn't just buy those clothes directly from China so they can make more profit.

You can guide your child to considering communication difficulties, building up trust with a supplier, travel costs, the time it would take, and the fact that any one individual retailer would sell such comparatively small quantities that the manufacturer might not even allow them to buy direct.

If you have time, or on the next shopping trip (I have teen and tween girls, so ours are frequent!), you can look at the difference between gross profit and net profit. You have established that the retailer puts a mark-up on the clothes, even if they are buying from a local wholesaler. Now you direct your child's attention to the outgoings that mark-up needs to cover.

Just looking around the room will give many, many examples - wages, rent, electricity, replacing carpets and fixtures, point of sale promotional materials, price tags, bags, and so on. Remember to suggest other less visible costs, such as advertising, insurance, shrinkage (losses due to theft), accounting and legal fees, and so on. If the store owner works in the store at all, he or she will need to be paid a wage, too, for that time.

And, of course, remind your child that the government will take a chunk of the profits as taxes.

Pull it all together by asking your child to consider what would happen if the mark-up (gross margin) was not enough to cover all the overheads.

Every routine shopping trip is a rich field of educational opportunity!

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Jenny Ford is an expert in educating children about business and wealth creation. She is one of the founders of Cash-Smart Kids, and her blog can be seen at Raising Entrepreneurs.

She holds an Honours degree in Psychology, a Diploma in Training and Assessment Systems, and an Advanced Diploma in Business Management. She is the mother of three young entrepreneurs, all of whom started successful businesses when they were nine to twelve years old.

Article Source: Ezine Articles Expert Author Jenny Ford

Image Source: Jennie R.F.