Revisiting Value Cost Ratio #illumedati 1


Hey everyone, it’s Finance Fridays again. Today, I’m going to talk about “Revisiting Value Cost Ratio.

Revisiting Value Cost Ratio
Revisiting Value Cost Ratio

Revisiting Value Cost Ratio

I’ve talked about Value Cost Ratio a lot before. I’ve also talked about “My Currency“. However, today we’re going to revisit both concepts… but not for me. Today, we’re going to talk about my daughter Kylie.

Like I’ve said before, my wife and I have set aside a certain amount of money per month for both Lucas and Kylie for their 529s. It’s not a lot, but it’s what I’m comfortable with currently. The likelihood is that also that when my wife and I pass away we will leave money and assets to our children. It may not be much, but it could potentially be a lot, depending on how long we both live and how things go in retirement.

However, the most important thing I would like to impart to my children is the true value of money and how important saving is. I would like them to understand it at a very high level before they leave for college. Ideally, I would like them to understand in in middle school or high school.

That said, it’s hard to teach things like this to them when they’re so young. The concepts don’t really apply to them so it’s difficult for them to understand. As such, I am trying to teach Kylie in “chunks” of real world value. I’ve talked about The Magic Box as well as Chuck E Cheese Token Economy. These things were really just the “primer” for what I consider to be Kylie’s first real lesson:

Establishing her own value cost ratio and “currency”

It’s taken some time, but she is finally learning what a dollar is and what it can buy. Now, let’s remember that my own internal currency is a “Gen”, meaning All You Can Eat at Gen BBQ. This is basically the equivalent of $16.

My daughter recently went to Gen with me (again) and really liked it. She can just eat brisket and their brisket sauce all day long, just like a mini me. It’s times like this where I really know she’s my daughter.

Luckily for her, at 6 years old, she’s half price. She only costs $8. Think about that: $8 for all you can eat brisket… THAT’S A STEAL.

So an idea came to me, and I placed that $8 Gen currency in the back of my mind to pull out later.

So then, a little later on, she asked me to buy some little toy, and it was like $10. Now then, I buy her too many toys, this I fully admit. However, I felt this was a good time to make a lesson of it. Rather than say “no”, I wanted her to come to the conclusion that we shouldn’t buy it.

The conversation went something like this:

“Kylie, what would you rather have: This toy or get Gen with Daddy some other time? You can only chose one.”

The answer came pretty quick.

“Gen!”

And I said, “Why? They cost about the same amount. Why did you choose Gen over the toy?”

“Gen with Daddy is the best! So yummy!”

AH HAH!

“So then, from now on, when you think about buying things, you need to remember that for $8, you could get Gen with Daddy.”

It was like a light bulb came on in her head.

“Yea, this toy is not worth it.”

Exactly.

While it may seem like common sense, I think it’s very difficult for children to understand the value of something unless it’s real and concrete.

Did I “lead” her a bit by providing an example which is an exceptionally good deal?

Yes.

However, this is just the first step in establishing her own value cost ratio. From now on she has a benchmark with which to value things against everything else:

Gen with Daddy

And to be honest, that’s a tough benchmark to beat. She will learn math and reading and all that from school, from people much better suited to teach her than me. However, when it comes to finance at this age, I think it is my duty to teach her the value of money as early as possible.

TL;DR

Helping my daughter establish her value cost ratio and her currency.

Finance Fridays Sensei

-Sensei

Agree? Disagree? Questions, Comments and Suggestions are welcome.

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