Gamifying Good Habits: How to Teach Kids About Interest and Opportunity Costs

One of the most sought after and requested curriculum updates to our education system for decades now has been personal finance. If you grew up like me, the closest thing we got was a fake stock market game lasting 30 days, to essentially “teach us” one of the least important parts of personal finance (individual stock selection). The information taught at a class level is helpful but still lags behind the behavioral lessons we can teach at home.

As the new gold standard in family / parenting, and like usual, we millennials will need to put in the extra work to ensure our kids are adequately prepared in a world where terrible financial decisions have little to no barriers of resistance, are habit-forming, and are in fact, being heavily incentivized by gamified dopamine loops. Now I’ve always been a fan of gamifying things for positive benefit but unfortunately it has been turned against us, exponentially in the last 3 years.

In this post I’m going to discuss a way to teach valuable personal finance lessons at home using real world examples as an opportunity to transfer knowledge, but more importantly, reinforce good financial habits that are transferable to the real world.

As children, the “piggy bank” was a very common method of teaching us to save money but money doesn’t work like the piggy bank in the real world. In the real world, money is dynamic, it moves, it grows, and it has “opportunity costs”. What we’ll discuss below are four economic real life features you can replicate at home in fun and clever ways. Think of this as “simulating the economy at home”.

1. The Job Market (Earning)

The first step is establishing an income/earning mechanic. I’m personally not a fan of an “allowance”. In the real world, you get paid for the value you provide. Plus, you don’t want to build an expectation around some sort of payout on basic responsibilities.

• Establish a Household Currency: For example, Abboud Bucks (ABs).

• Define Baseline Duties: These are basic chores that are the expectation, such as keeping your area clean, clearing your plate, or basic hygiene.

• The Job Board: This is my preferred method of building out a reward based system. You can write up “contracts” for value added tasks that don’t fall under your basic expectation of responsibility.

  • Washing the car: 50 ABs.

  • Moving dirt for dad from pile 1 to pile 2: (common one for me, 50 ABs).

  • Learn “X” Skill/Topic: 200 ABs.

This helps reinforce a producer/value based mindset versus a consumer mindset.

2. The Marketplace (Spending)

Now how do we even get our kids to buy into this system? The same way the real world works: the marketplace. Your credits/currency are worthless if you can’t buy anything with them (don’t tell the altcoin crypto people this).

You’ll need to establish a marketplace within your home economy. This can be your pantry with “treats” assigned a cost or activities you usually limit or monitor:

• Goldfish: 20 ABs.

• Extra Screen Time: 50 ABs.

• A “Get Out of Chores” card: 100 ABs.

• A new computer: 1000 ABs.

The big ticket items should be things rarely done or consumed. We want to ultimately teach them the idea of “opportunity cost”—that buying goldfish every day might feel good, but what about the rest of the things on the list? How do I get those things?

3. The Family Bank (Interest & Savings)

This is one of the most important things to learn: the concept of interest and the rewards and consequences of compounding. Most of us learn about compounding interest via the consequences first (credit cards, student loans, etc.); let’s spare our kids by teaching the lesson in a low to no stakes environment.

• The Weekly Interest: Every Sunday night, the “Bank of Abboud” pays interest on any credits unspent.

• The Rate: I would use a round number like 5% so it’s easier to grasp.

• The Lesson: If your child ends the week with 100 ABs, they wake up on Monday to see 105.

They get to experience the effects of compound interest, which reinforces the notion that patience, in the financial world, can pay off.

4. The Exchange Rate (Real World Conversions)

Eventually, kids will want things not available at home, like a new toy or a video game. This is where you can introduce the idea of an “exchange rate”.

• Set a conversion rate: 10 ABs = $1.00 USD.

• The Transaction: If they want a $20 Lego set, they need to “wire” you the 200 ABs in exchange for the $20.

This helps connect the “game” we’re playing at home to the physical reality of the real world and the US Dollar. It makes “real” money feel harder to earn, which encourages better spending habits.

Leading by Example

As they get older you can begin expanding definitions and incorporating more and more real life examples—inflation, for example—because our kids are going to be smarter than us and save enough so that their weekly interest allows them to eat whatever they want daily. If that doesn’t work, you can always price gouge! Always a lesson somewhere.

I’m not an expert in parenting. I don’t even have a kid yet. But I’m an expert in finance and a planner. I have observed classmates, friends, colleagues, acquaintances, and elders fall victim to the same loops time and time again.

As we enter and progress through the AI era, knowledge will continue to get cheaper and behavioral processes and systems will be the premium. Don’t neglect this topic, don’t make the same mistakes as those before us; lead by example.