Teaching children about Money – profit and loss….

Welcome to this week’s teaching children about money post.  This week it’s all about profit and loss which probably sounds a bit complex and a little unnecessary for children to know about but actually it’s really relevant to them and we had fun learning all about profit and loss together.

My aim at the end of these exercises was to help them understand the basic idea that a business needs to sell something (either a service or good) and make a profit in order to stay in business.  If a business doesn’t make a profit then it’s unlikely to be able to pay it’s bills and may have to close.

From understanding this, it’s very easy to link this principle to our household finances which means they have a basic understanding of income and expenditure.  They will start to learn that expenditure needs to be less than the income otherwise they’ll have a loss each month and ultimately, this will cause money problems.  Obvious to some of us but it’s something a lot of adults struggle with so in my opinion, the lesson can’t be taught too early.

The first thing we did was let the kids set up a pretend restaurant for the night – Miss Frugal made menus and did the cooking and Master Frugal was the waiter (and not a good one as he kept stealing my drink).  The first version of the menu had some very cheap prices on it as they wanted their pretend business to be a success and they thought that the lower prices would mean more people would come.  We then sat down and talked about the fact that as a business, they would have had to have bought in the food to sell so if they were buying a pizza for £1.00 and selling it for 50p they would be losing money.  A second version of the menu was made and the prices were bumped up a bit more to reflect the fact that they wanted to make a profit.

They had so much fun running the restaurant that they’ve even taking bookings from some of our friends to come round to eat there and it gave them a great understanding of making a profit.  The food was nice too and as I helped with the menu, I knew that Miss Frugal could safely cook everything on there apart from a couple of things that were added on to pad it out – she planned to say she’d sold our if we ordered the salmon or the banana split!

You could do this sort of thing in lots of scenarios – from a picnic lunch to a pretend sweet shop or you could even set up a pretend car boot sale where you can be the stall holder and sell things to your child.  Once you’ve agreed on a price, you can swap over and try and buy it off them and see if they can sell it back to you for more money than they paid for it.

In case you missed last week’s post all about pocket money, you can find it here.