As educators, one of our fundamental goals is to teach our students the importance of financial literacy. One crucial concept that students need to learn is the idea of total cost. Whatever profession students decide to pursue, understanding total cost will be an essential skill throughout their lives.
Total cost can be defined as the overall expense of a product or service, including both direct and indirect costs. Direct costs are costs that are directly attributable to the product or service, such as the materials and labor involved in producing it. Indirect costs are those costs that are not directly attributable but still affect the total cost, such as rent, utilities, and marketing expenses.
There are many ways to teach students about total cost. One approach is to start with simple examples, such as the cost of a cup of coffee. Students should be shown that the price of coffee includes more than just the cost of the beans and the barista’s salary. Rent, utilities, marketing, and other expenses must be factored in, which all contribute to the total cost.
Another helpful strategy is to emphasize how total cost is different from the stated price or cost. For instance, buying cars on loan looks much cheaper on the surface, but the interest rate increases the total cost. Similarly, renting an apartment may seem affordable initially, but factoring other costs such as utility charges and the purchasing of furniture may greatly influence the decision-making economically.
Alternatively, using real-life scenarios where total costs are calculated within the restaurant industry, when making products, or buying goods can be an effective teaching approach. This way, students can see how businesses need to consider both direct and indirect costs into their prices, making it a practice that is key to any profitable venture.
Finally, assessing total cost also means looking at opportunity cost. Opportunity cost is the cost of the best alternative that the student or the business rejects. It’s important for students to understand that choosing one action over another has an opportunity cost; that means, for example, that if a business chooses to manufacture product X over product Y, the opportunity cost of production is the price the business could have received from the production of product Y.
Teaching students about total cost not only equips them with valuable financial literacy knowledge but also encourages critical thinking, decision-making, and analytical skills that are transferable across all aspects of their lives. By making students aware of the broader total cost picture, they are better prepared to make informed decisions as consumers, employees, and entrepreneurs in a highly dynamic and competitive marketplace.
