Teaching Entrepreneurship to Kids

A Star is Born

It is never too early to encourage and foster entrepreneurship.

A few months ago, it was a rainy day and the girls were bored. They had just finished another game of Monopoly and they were desperate to find something else to do. That's when my significant other's 7-year-old daughter remembered that she had a collection of Perler Beads in a craft box, and she suggested that we try our hand at that.

To the uninformed, the craft involved carefully placing small cylinder-shaped plastic beads on a pattern, then using an iron to fuse them together. It is quite fascinating to see just how creative kids can be with something so simple.

After a while, we had several stars, peace sign circles and hearts to show for our efforts. That's when my 10-year-old daughter, who is always eager to cook up money making schemes, asked if they could go door to door selling the bead creations. Both girls, who are participating in the Bank of Dad concept, were ecstatic about the idea of making some extra spending money.

The parents agreed, feeling quite impressed with their initiative. My significant other, who also has an MBA, had the bright idea to use this endeavor to teach the girls about being entrepreneurs. This is one of the rewards of being in a relationship with another business school graduate (she was also the catalyst for our highly successful Bank of Dad initiative).

Let's begin with a basic understanding of what it takes to be an entrepreneur. The Merriam-Webster Dictionary defines an entrepreneur as "one who organizes, manages, and assumes the risks of a business or enterprise."

We decided to involve the girls in all the aspects associated with starting up a business. The girls were allowed to use the initial beads to make their first items for sale. After that, however, we made it clear that any additional beads or patterns would have to come out of their revenue. Thus, the girls would be assuming any future risk for the enterprise.

What about organization and management? We asked the girls how much they wanted to charge for the hand-made crafts. They collectively shrugged their shoulders. "Maybe a dollar or two?" one of the girls responded with some hesitancy. So we got out a notepad and began making calculations, getting both the girls involved in the math.

A starter kit costs about $5 and includes 2,000 beads. A standard star-shaped pattern, as seen above, requires roughly 150 beads. So our aspiring entrepreneurs would be equipped to make about 13 crafts with that kit, more or less. Based on those numbers, it was going to cost about 39 cents in materials to make one item. They girls decided to charge $1 for each craft, netting 61 cents profit for each sale. Even if they got bored and only sold half of the crafts, they realized that they would come out slightly ahead.

To quickly placate finance and econ students, we realized that our daughters were also devoting time and labor to the business. We opted against getting into the concept of opportunity costs, given their limited options to raise money elsewhere (and playing Monopoly unfortunately deals in fake cash). So we'll save the discussion on opportunity costs for their next venture.

Let It Snow!

Finally, we encouraged the girls to brainstorm about any practical uses for their bead creations. Sure, they're cute home-made crafts, but we thought the girls might have better luck with sales if people found use for them.

The girls experimented with making "sets," or a collection of similar themed items to sell as a group. My significant other glued magnets on the back of their crafts to display on the refrigerator, but she was quick to note that magnets are expensive and would have put a major dent in profits.

Another idea that eventually proved useful: tying strings to the top of the star-shaped crafts to make Christmas ornaments, which were sold at a premium during the holidays.

To recap; it is easy to teach kids how to be thoughtful entrepreneurs. Using the definition of an entrepreneur and our own personal experience, there are three key takeaways.

• Assuming Risk: Get your kid involved in the actual funding of the project. Make it clear that he or she will use revenue from the endeavor to buy new materials, advertise, etc.
• Organization: Have them build a business model. Help them gain an understanding of fixed and variable costs, and use those projections to develop a reasonable pricing structure.
• Management: Teach your kid to always look to innovate. Find new uses for old products. Sometimes it can expand the customer base. It can also help the entrepreneur justify a slight higher price, and thus higher revenue/profit.