A Really Really Simple Way to Explain Supply & Demand to Kids

 Supply and Demand

By Jayne Berkaw, One of my blog posts last month was about seizing teachable moments in your child’s early money-making ventures (lemonade stands, etc.) to drive home important business concepts like planning, marketing, pricing, etc.  An integral part of your child’s business education is an introduction to the power of Supply and Demand.

Why does your child need to know about supply and demand?  Because unless you live on a deserted island, it affects practically everything in your life!  From the price of lemonade to how many Beanie Babies you can collect, to how many summer helpers the pizza store needs.  The forces of supply and demand are everywhere - so kids need to understand the concept early in order to live a reality-based existence.

Start out with supply. If the toy store has 10 Johnny Racer Glow-in-the-Dark Water Slides, that is their supply.  Then there’s demand.  If 15 people want Johnny Racer Glow-in-the-Dark Water Slides right now, then that is demand. Now ask your child how they would feel if they really, really wanted one of those water slides and they couldn’t get one because the store ran out of its supply. Would they maybe pay more for one at a store that had some left?

Since the store knows that this summer’s hot toy is Johnny Racer Glow-in-the-Dark Water Slides, and people really, really want them, they will also pay more for it.  And they will have to keep paying the higher price until something cooler comes along and demand comes down along with prices, OR until the store orders enough slides to meet the demand. Of course if they order too many, they will be in the uncomfortable position of owning too many slides and having to lower the price just to get rid of them! Here’s where you can actually talk about the job of buyers for stores and the skill it takes to match supply with demand in order to make money and stay in business.  Is this a job they might want someday?

You can also note the role of the Dollar Store in reselling goods that other stores have lost sales on by misjudging demand.

To get your kids thinking about supply and demand, play “what if” games with them.  If they love peaches, ask what they think would happen if there was a frost in Georgia and it wiped out the early peach crop. What would happen to the peach supply at your grocery store?  Would the price go up?  Why?

If your family takes a summer vacation, bring the kids into the discussion of your own financial planning by talking about the cost of vacation homes or resorts, and how the finite supply of lake houses and hotel rooms and the increased demand during peak seasons leads to…What?

Daily life presents us with innumerable examples of the power of supply and demand. Out of this come lessons on the importance of saving for things you really, really want, the distinction between want and need, being a smart consumer, etc.  Kids get lessons in basic economics in most grade levels, but there is no replacing the lessons that you can provide with a quick, “Hey did you know…” or “What do you think about…”  The goal is to help kids navigate this complex world, so be their mentors just by living it with them!