Inspired by Barbara Newhall’s post: “When Your Six-Year-Old Wants to Talk Money”
Michael and I have established a policy that we will provide what my six-year-old stepson needs, but he’ll have to earn what he wants. The trouble is that with four loving parents, seven grandparents, seven great-grandparents, and one great-great-grandmother, my stepson doesn’t usually NEED anything. In fact, besides the occasional snack at recess, he doesn’t usually WANT for much either.
On our way home from school Thursday, he and I decided we’re going to open a lemonade stand this summer. (And if it’s successful, a hot chocolate stand in the winter) As an MBA student, I was intent on teaching him the basics of economics — we pay money to someone (VONS, he decided) to get stuff (cups) and then sell the stuff to other people in exchange for money. I drew him a simple picture with a box, two people, and four arrows. I congratulated myself on reducing such a fundamental and complex idea to stick figures. My son proceeded to copy the diagram with ever-increasing size and detail for the next 20 sheets of the legal pad. When I was ready to move onto calculating expenses and acquiring capital, he was obsessed with drawing more spots on the dozenth chocolate chip cookie…
But he did get the idea that this was HIS lemonade stand. He really liked the idea that Daddy and I would be working for HIM and he could boss us around. This led his father to explain the foundational principle of modern management theory: Employees can quit at will. And I added, that they usually require payment for their services. I suggested 10% of his net profit. He decided he didn’t want to hire us after all, but he would “still need our help.”
We determined that a big can of Countryside lemonade (he spelled it “leminead”) would make 136 8-oz. cups. We’d buy cups and ice and figured we could arrange to borrow the basic infrastructure (igloo, table, chairs). Our pro forma budget suggested we’d need $21 worth of capital investment. After a lengthy discussion, Michael and I offered to loan him the money with 0% interest. I don’t think he appreciated our generous terms. Although, in this economy, he could probably get something comparable from Bank of America.
Anyway, so if we sold the lemonade at 50 cents, he’d need to sell 42 cups to breakeven (“That means you have to sell 43 cups before you even start making money. Do you think you can sell that many?” “Of course.” Of course.) If he sold all 136 cups, he’d make $47 gross profit. Then he’d have to deduct $9.40 for employee wages. Since we’re avoiding taxes and there’s no interest due, that will leave him $37.60 net income. He’ll have to tithe 10%, leaving him with $33.84.
I thought this was incredible. A 300% markup rate with a 50% profit margin!
He was more interested in his sketch: “You’re the cashier, Mae. See, this is your table and this is your chair…”
(my second leg is dangling disconnected over my lap)
“…I’ll collect the money and run it over to you and then back. That’s me there and there.”
(it really is useful as a manager to be in two places at the same time)
I tried once more to put this incredible opportunity in terms he could understand: “That’s, like, 67 snacks at recess.” He looked at me: ” So I could buy hot lunch all year!” “Well, no… unfortunately, that would only be 11 hot lunches.” “Oh.” He kept on drawing.
By this time, it was bedtime so we read “Wind in the Willows” and he went to sleep. But the next morning, he was up again, scratching away at the legal pad between bites of Honey Nut Cheerios. I don’t know if he’ll be a beverage tycoon anytime soon, but graphic artist is looking promising.
CSD
Stepmom, you are priceless, working so hard to pass on to your stepson what you hold dear — a keen business sense. I’d recommend buying the boy some nice art paper, markers, paint and pencils. Because he needs them. Barbara Falconer Newhall
This is why mothers should be young