How I Teach My Kids About Money Using a Lemonade Stand
Every business, no matter how large or small, can be compared to a lemonade stand. This simple concept has been the foundation for teaching my son, who is now 7 years old, about money.
Ever since he was 4, he has been setting up his lemonade stand, and over the years, it has grown more complex and sophisticated. Through this experience, he has learned valuable lessons in math, the cost of goods sold, the concept of value, and the fundamentals of money.
Here is how I teach my kid about business, by using a lemonade stand.
Table of Contents
Teaching About Math: Addition and Subtraction
Running a lemonade stand is a practical way to teach kids basic math skills. From the moment he started, my son has been involved in every aspect of the business, including handling money.
Counting Money
One of the first lessons in math is counting. When customers pay for their lemonade, my son counts the money to ensure it’s the correct amount. This simple task reinforces his addition skills.
He learns to add up the various coins and bills, ensuring that the total matches the price of the lemonade. This hands-on experience with money helps him understand numbers in a real-world context, making math tangible and relevant.
Giving Change
Another important math skill is giving change. When a customer gives him more money than the cost of the lemonade, my son has to figure out the correct change to give back. This practice helps him improve his subtraction skills.
For example, if a customer pays with a $5 bill for a $1.50 lemonade, he needs to subtract $1.50 from $5.00 to find out that the change should be $3.50. This real-life application of subtraction is much more engaging than traditional classroom exercises.
Tracking Sales
At the end of each day, we count the total earnings together. We add up all the money made from selling lemonade, teaching him how to sum a series of numbers.
This process also introduces him to basic bookkeeping and the importance of tracking sales. By keeping a daily record of earnings, he learns to monitor his business performance over time, seeing the direct results of his efforts.
Teaching About Cost of Goods Sold
Understanding the cost of goods sold (COGS) is crucial for any business, and a lemonade stand is no different. We go through the process of calculating the costs together, giving him a clear picture of what it takes to produce and sell a product.
At first I left this alone. But as he has grown older (he is seven now), I expose him to more.
Ingredients
We start by listing out all the ingredients needed to make lemonade, such as lemons, sugar, and water. This helps him understand that there are costs involved in making a product.
Each time we purchase ingredients, we note the prices and quantities. This exercise teaches him to keep track of expenses and understand that these costs need to be covered by the sales revenue.
Supplies
In addition to ingredients, we include the cost of supplies like cups, napkins, and any other necessary items. By including these costs, he learns that running a business involves more than just the raw materials for the product.
The cost of supplies adds to the total expense and needs to be factored into pricing and profit calculations.
Calculating Costs
We add up all these costs to determine how much each cup of lemonade costs to make. For example, if we spend $10 on ingredients and supplies and make 20 cups of lemonade, the cost per cup is $0.50. This calculation helps him understand that not all the money earned from sales is profit, as a portion must cover these costs.
Profit Calculation
He learns to subtract the COGS from his total earnings to find out his profit. For instance, if he sells 20 cups of lemonade at $1 each, making $20, but the COGS is $10, his profit is $10.
This lesson teaches him that profit is the money left over after all expenses are paid, reinforcing the importance of managing costs effectively.
Teaching About Value
The concept of value is another critical lesson. It’s important for him to understand why customers are willing to pay for his lemonade and what factors contribute to the perceived value of his product.
Quality
We talk about the importance of making good lemonade that people enjoy. Quality is a key factor in customer satisfaction and repeat business. By using fresh ingredients and ensuring the lemonade tastes great, he learns that providing a high-quality product can justify a higher price and attract more customers.
Customer Service
Customer service plays a significant role in the perceived value of a product. He learns that being polite, friendly, and attentive to customers can enhance their experience and make them more likely to buy from him again. Simple gestures like greeting customers with a smile and thanking them for their purchase can go a long way in building a loyal customer base.
Perceived Value
We discuss how things like cleanliness, presentation, and little extras (like offering a free cookie with a lemonade) can add value for customers and justify a higher price. For example, setting up a clean and attractive stand with well-designed signs can make his lemonade stand more appealing.
Offering a small treat or a special promotion can create a positive impression and increase sales.
Teaching About Money
Handling real money gives him a practical understanding of its value and use. Through his lemonade stand, he learns essential financial skills that will serve him well throughout his life.
Earnings and Savings
Over the years, he has made over $1,000 with his lemonade stands. Remarkably, he has saved almost all of it, understanding the importance of saving money for future use.
We talk about the benefits of saving, such as having funds for bigger purchases or emergencies. This lesson instills the habit of saving rather than spending all his earnings impulsively.
Paying Employees
He also pays his younger twin sisters for helping out. This teaches him about payroll and the value of teamwork. By compensating his sisters for their efforts, he learns that employees need to be paid for their work, and that teamwork can help achieve business goals more efficiently.
This experience also introduces him to the concept of labor costs and how they impact overall profitability.
But despite what he thinks, this isn’t all about him! This also parlays into an opportunity for me to teach them about money. What is even better, it gives him an opportunity to teach them!
Taxes and Costs
I’ve explained the concept of taxes and other business expenses. Although I’ve been soft on him by donating these costs to the cause, he understands that in a real business, these are important factors to consider.
We discuss how businesses need to pay taxes on their earnings and how other expenses, such as licenses or permits, can affect profitability. This knowledge prepares him for more complex financial responsibilities in the future.
Making It More Complex
As he has gotten older, his lemonade stand has evolved, becoming more sophisticated and complex. This progression has allowed him to learn advanced business concepts and apply them in real-world scenarios.
3D Printer Purchase
With his earnings, he bought a 3D printer and started making plastic juicers, which he now sells for $10 each. This new venture expands his business skills, teaching him about product diversification and manufacturing.
He learns that investing in new tools and technology can create additional revenue streams and enhance his business offerings.
This particular piece is so beautiful. What I didn’t tell you is HE bought the 3D printer when he was 5. How? He sold things from around our house at his “lemonade stand”. Over a few months he would go outside and setup his “store”.
Then at his store he would sell from a pile of things we wanted to get rid of. (This was hard for me. He sold bobble heads that were worth 2 or 3x what he sold them for. I had to deal with it as a cost of his learning. He also had people pay him several times what things were worth, to help him out. I didn’t set any pricing. This was his project. I just coached.
Pricing
Through this process, he has learned about setting prices that cover costs and provide a profit margin. For example, he calculates the cost of materials and time needed to produce each juicer, then sets a price that ensures a reasonable profit.
Many people search for how much to charge at a lemonade stand. This is silly. Let the kid figure out how much to charge. Not the adult. Then explain to your little entrepreneur how if they charged more they might make more (or less), and why.
This exercise teaches him about pricing strategies and the importance of balancing costs and competitive pricing to attract customers.
The 4 P’s of Marketing
Lately I’ve taught him the basics of marketing through his stand, helping him understand the 4 P’s of marketing:
Product: The lemonade and the juicers he makes. He learns to focus on creating high-quality products that meet customer needs and preferences.
Placement: Where to set up his stand for maximum visibility and customer traffic. He understands that location is crucial for attracting customers and that setting up in high-traffic areas can significantly boost sales.
Pricing: Setting the right price for his products. He learns to consider costs, competitor pricing, and customer willingness to pay when determining prices.
Promotion: Using signs, balloons, and even hiring his sisters to attract more customers. He explores various promotional techniques to increase visibility and drive sales, learning the importance of marketing in business success.
What is really cool is then when we are at different places I quiz him on the 4 P’s of marketing. For example, we were at Six Flags yesterday. He asked me why ice cream cost more there. I asked him which P. He said pricing. I said, nope, it is the opposite. Then he said “placement”. I asked why and he explained it.
Bam! He gets it.
Interacting with Customers
Interacting with customers is a valuable skill that he has developed through his lemonade stand. These interactions teach him essential social and communication skills that are important in both business and personal life.
Customer Service
He has learned to be polite, friendly, and attentive to customer needs. Providing excellent customer service enhances the overall customer experience and encourages repeat business. He understands that positive interactions can leave a lasting impression and build customer loyalty.
Marketing Techniques
He uses balloons and eye-catching signs to draw attention. He has also learned the importance of location and setting up his stand where there is high foot traffic.
These marketing techniques help him attract more customers and increase sales. By experimenting with different promotional strategies, he learns what works best in different situations.
Feedback
Recently I had him create a survey. It was a tally of whether people thought the lemonade was too sour, just right, or too sweet. This one backfired. The halo affect happened, and everyone said it was perfect. (I call bull$hit!)
Real-World Experience
Running his lemonade stand has given him real-world business experience that many kids his age don’t have. This hands-on learning opportunity has provided him with a solid foundation in business principles and financial literacy.
Practical Learning
He has learned about managing money, handling transactions, and understanding business expenses. These practical experiences teach him the value of money, the importance of budgeting, and the realities of running a business.
Entrepreneurial Spirit
This experience has fostered an entrepreneurial spirit in him, encouraging him to think creatively and explore new business ideas. He learns that entrepreneurship involves innovation, risk-taking, and perseverance.
This mindset will serve him well in future endeavors, whether he pursues further entrepreneurial ventures or applies these skills in other areas of life.
Turning Lemons Into A Learning-Aid
In conclusion, a simple lemonade stand has been a powerful tool for teaching my son about money and business. From basic math skills to complex marketing concepts, he has gained a wealth of knowledge and practical experience that will serve him well in the future.
But more than anything I hope you walk away from this article realizing the most important thing you can do is engage with your child. That is really the point. Just be present.
The lessons learned from this small venture are invaluable, proving that every business is indeed a lemonade stand.
