My eight year old son had his first lesson in economics the other day when he became painfully aware of a little thing called currency exchange rates. He came to me with tears in his eyes and the following conversation ensued:
Him: Mommy, Grandma said that if I give you 300 shekels you will only give me back 80 dollars.
Me: Yes, that's true.
Him: But that's not fair! You should give me 300 dollars if I give you 300 shekels. 300 doesn't equal 80! 300 equals 300!
Me: Yes but each dollar is a little less than four shekels.
At this point the tears are getting bigger but he's trying to keep them back so he's not blinking. Blink son! You must blink! You can see that his brain is starting to throb as he tries to compute that last bit of nonsense.
Him: But you said you would give me 300 dollars if I give you 300 shekels! You promised!
Me: No, I would never say that because I know that one dollar equals four shekels. I'm sorry if you misunderstood.
Him: But how will I buy my iPod?
He is now sobbing. He can't help it. He's been saving for a year to buy an iPod. He gets five shekels a week allowance and he tries to pick up extra doing bigger jobs here and there. He saves his Hanukkah money and his birthday money. It's all in his piggy bank. It's actually all in his red cash box safe because his ceramic piggy bank broke after he took his money out for the hundredth time to count it and his little brother threw it off the bed. This little piggy went to garbage. The magic number for him is 299 (but he knows a little about rounding up) because that's what he saw on the Apple store website. No one told him about currency exchange, poor guy. He still doesn't get it so I try to explain better.
Me: You can either buy your iPod with the $300 you have in your American bank account or you can keep saving your shekels but you will need 1,200 shekels.
I don't bother telling him about import taxes and other factors that make the iPod outrageously overpriced here. Anyway, we order everything on Amazon and have our frequent visitors bring us items of this nature hidden in their luggage.
Him: ONE THOUSAND TWO HUNDRED! I'll NEVER have that much. It's not fair! [sobbing].
Me: Honey, it's like this. Suppose no one had any money and we paid for everything in apple pies.
Me: How many apples does it take to make an apple pie?
Him: I don't know.
Me: Let's say four. We need four apples to make an apple pie. Now let's say you want to buy a Star Wars action figure and it costs two apple pies. But you don't have any apple pies, you only have the apples. Assuming the person at the store will accept just the apples instead of the pie, how many apples do you need to equal two apple pies?
Me: Right. So two apple pies equals eight apples. And how many apples to equal 200 pies?
Him: Eight hundred.
Me: And three hundred pies?
Him: It's too many apples! I'll never have enough apples!
Me: If you keep saving your apples, one day you'll have enough apples to go to the Apple store and buy your iPod. Maybe you can really buy them with apples. Why else would they call it Apple?
Him: That's ridiculous mommy.
Him: Whatever. I'll use my money in America. Can I have desert?
Me: Sure. Apple pie?
That got a grin. Next week I'll teach him about arbitrage.