Using a Lemonade Stand to Teach Financial Literacy
Summer's coming, and with it, those ever popular events; Lemonade Stands! You know them, you love them, you often stop just to marvel at the budding entrepreneurs in your neighborhood. No? Just me?
Well, you should. You should stop at every Lemonade Stand you see, purchase a cup of refreshing delight, and compliment the owner on his or her ingenuity to earn a little cash this summer.
Being an entrepreneur is hard! It takes guts, bravery, and grit. You have to be able to weather defeat, discouragement, and hardship in order to survive and thrive as a business builder. Now ask a 9 year old to sit all day in the sun, peddle their product, watch cars carelessly drive past without even making eye contact, and maybe make a few bucks for their trouble. Most of the kids I know would laugh at you and go play on the playground instead. But that small percentage that get a little glimmer in their eye when you get to the part about making money…those are the natural entrepreneurs. The ones who wake up on a snowy morning and see dollar signs instead of back aches. The ones who willingly stand on a highway intersection with a giant Car Wash sign and never flinch or quit when 99% of the cars drive right on past. The ones who hear that yard sale weekend is coming and start putting price tags on all their old toys.
We want to celebrate these scrappy kids. The ones with dreams of making a name for themselves, owning their own business, and turning their dreams into reality. So how can you help your child when he or she comes to you and says, "Mom, Dad, I want to open a Lemonade stand this weekend."
Today, we'll go over how you can coach your child about the importance of having a plan, and how to execute it for maximum results.
Are you ready? Let's get started.
Let's talk about the plan first, because it's the most important thing you can do to help prepare your child for what they'll face in the days to come. Here are the 5 parts of a miniature business plan that you'll want to go over with them first.
Basic Business Plan for Kids:
#1 Product
#2 Place
#3 Price
#4 People
#5 Promotion
Let's hit each of them one at a time.
#1 Product
This one's pretty simple - you're serving lemonade. But what KIND of lemonade? Pink lemonade, yellow lemonade? Both? Maybe you want to have lemonade and fruit punch, just to give your customers the option. Decide what you'll be serving and write it down.
#2 Place
Where will this lemonade stand take place? If you don't live on a busy street, you might not get much business. If you're in a cul de sac, walk down to the house on the end of the street and ask if they'd mind if you set up on their corner for a few hours that Saturday. If that doesn't work, try the other corner. If that doesn't work, try the next corner, or go down the street a little. Keep in mind that kids have to use the bathroom often, so don't venture too far from a friendly neighbor who will let you use their facilities if your own driveway isn't a prime selling spot. Once you've decided on a location, write it down.
#3 Price
How much will you sell your lemonade for? Fifty cents? A dollar? I've known lots of people to tip generously when the price is reasonable. Decide what you think is the best price point for what you're offering.
#3.5 Profit
Let me pause here for a minute to discuss profit. Take your child to the grocery store. Price out solo cups and powdered lemonade. Figure out how many cups they can make per bucket of powder. You'll also have to factor in any poster materials you'll want to use to make signs. Figure out if you make 30 cups of lemonade, how much does each one cost? What about 10 cups? What about 50 cups? Know what your profit margin per cup is likely to be, and this can help inform how much you should charge for each cup of lemonade. I'm linking a great spreadsheet I made with my daughter last summer when we did this exercise. Use it with your kids to see how things shake out. Explain what a loan is, and that you're going to purchase the supplies for them as a loan to their business, but that at the end of the day, they'll have to pay you back for the supplies before they can count their profit. This gets into Gross Revenue vs Net Profit, which is really important when they start making real money at a job, but they have to pay taxes, a car payment, car insurance, etc. What's in their paycheck isn't exactly what they get to splurge on.
#4 People
Will your child employ their siblings or a neighbor kid or two? If so, decide what a fair wage or profit split would be. If your 4 year old wants to help, you can expect them to "want to help" for about 5 minutes, and then get bored. So throw them a dollar or two just to make them feel good about the experience and don't expect to get a whole lot of help from them. But if your neighbor kid who is about the same age as your entrepreneur wants to go in 50/50 with your child, and they actually do the work, that's great! Every entrepreneur should have a partner. It helps keep them accountable, they get to share the experience with each other, and they'll ultimately have more fun too.
#5 Promotion
If your neighborhood has a group Facebook page, take a photo of your child and their lemonade stand first thing and post it up on the group page, detail the hours, products, location and price, and watch those neighbors pop over to help support your budding business owner! If you're in a Mom's group in your local area, post it there! You never know who's driving past you that day and they might swing in to help out. Have your child employ their siblings to go door to door (with an adult, of course), and promote the lemonade stand so they know to come on down.
Supervision
Of course, you always want to supervise your child whenever they're outside, so this is an all-day commitment for you too. If your neighbor kid is helping, you can probably split the day with their parents and lighten the load. And you don't have to hover. Clean out the garage, weed the garden, trim the roses, just be around in case they need anything, and to ensure they don't get themselves into trouble.
Basic Bookkeeping and Saving
After the day is over, help them clean up and put away all their supplies. Then go back to the spreadsheet and put in how much money they earned, figure out how much they pay you in supplies, how much they pay their "employees", and then tell them what their Net Profit is - this is the amount they get to keep.
After that, you can impress upon them that since it's "earned income", they should put some aside for retirement in their Roth IRA, and keep a little to buy themselves something nice. If you're not sure what a Roth IRA is or why a child so young can have one, revisit my episode on my Five Favorite Ways to Save for Minors, or my Roth IRA video. I'll link them below so you can study up before your child asks you what you're talking about.
Take your profit earning entrepreneur to the store with their net profits and let them pick out a toy or experience or treat to celebrate the fact that they did it! They successfully stood up a store front, purchased materials, promoted their product, sold plenty of yummy drinks to happy neighbors, and made a profit!
It doesn’t have to be Lemonade!
There are so many other activities your child can do if they aren't interested in Lemonade. Etsy is a wonderful platform for kids who make things like Loom bracelets, art, jewelry, or crafts. If you live where it snows often, help your child set up a snow shoveling business and market to the neighbors BEFORE it snows. If your child loves to garden, offer their services to the neighbors as a gardener to help weed, mulch, and trim the flowers. If your child is into animals, encourage the neighbors to let him or her walk their dogs once or twice a week for a dollar or two. The list is endless. The important thing is to nurture this urge to make money on their own, encourage them to learn about how a business runs, and help them to find early success, which will lead to good feelings about working hard. And that skill of working hard will serve them well for the rest of their lives.
I hope you'll try one of these with your children over the coming months, and show them that working is fun, and that when you're done, don't forget to put some of those earnings away for a rainy day, or a future goal. Because saving money, not matter how little, will lead to greater wealth overall.
Keep saving, and have a great day!