What is capitalism? Practical examples for kids

As adults and parents, most of us know the basics of capitalism and how it generally shapes our society. But we also know it’s a more complicated concept in practice, and explaining that to kids can be challenging. To help them grasp the broader merits and drawbacks of this economic system and how our world operates, using practical examples of capitalism can help.  

Capitalism 101: A quick primer for parents

Capitalism is an economic system where individuals and businesses own the “wealth” or capital, and usually operate for individual profit. It differs from other systems in that it emphasizes private ownership and competition as the driving forces behind economic activity. Here are just a few foundational concepts of a capitalistic system:

• Private property: In capitalist societies, individuals have the right to own property, whether it's land, buildings, or businesses.

• Free markets: Capitalism relies on the idea of a free market, where goods and services are exchanged between buyers and sellers without government intervention.

• Supply and demand: In a free market, prices are determined in part by supply and demand. When there's high demand for a product or service, its price goes up. If something is in low supply, the price will also increase.

Contrasting example of a non-capitalist system

Capitalism is one of several different economic philosophies and systems across the globe. Though there are overlapping similarities, communist and socialist countries generally have different fundamental approaches to their economies. To better understand capitalism, it's helpful to look at a few contrasting examples.

Ownership of means of production

"Means of production" means the resources and tools needed to create goods or services. It's the factory and all its machines, for example, or the ovens and ingredients in a bakery.  In capitalism, individuals or businesses own these means of production. This is different from socialism and communism, where the government or community might own them in part or as a whole.

• Capitalism: One example could be a family-run bakery. The owners have invested their own money to open and run the business, and they make decisions about production and pricing.

• Socialism: In a socialist system, the government or society as a whole would collectively own the bakery or resource. The public owns the property and means of production, which is controlled by the government. 

• Communism: Under communism, means of production are owned by the society as a whole, but there is no private ownership, and the state or government controls overall property and wealth. 

Role of government:

• Capitalism: Limited government intervention in the economy compared to socialism and communism. The government maintains law and order and provides public goods such as infrastructure.

• Socialism: Government plays a larger role in economic planning and ownership than in capitalism. The intended goal is to distribute resources more equally among the population.

• Communism: Based on Marxism, communism The government controls the economy, aiming to create a “classless society” that minimizes socioeconomic inequity. 

Taxes:

• Capitalism: Taxes are used to fund essential government services but not heavily relied upon for income redistribution.

• Socialism and Communism: Higher taxes are often implemented to fund social programs and redistribute wealth among the population.

Explaining the pros and cons of capitalism

While there are many benefits to capitalism, it also has its downsides. Teaching kids about both can help them develop critical thinking skills and better understand global economics in the future.

Cons of capitalism might include income and socioeconomic inequality and a focus on profit over people. 

On the positive side, capitalism encourages competition and innovation, leading to economic growth and technological advancements. 

These issues may be complex for young kids to understand, but covering the basics early can help them develop a more nuanced understanding as they grow older.

Conversations about creativity, inventiveness, and innovation

One of the more profound ideas behind capitalism is the freedom for individuals and corporations to innovate and develop creative solutions to problems. This can be a fun and engaging topic to discuss with kids that can inspire questions and the opportunity to explore their own ideas and creative solutions.

Conversations about freedom, free markets, and choices

One of the fundamental principles of capitalism is freedom - both economic and personal. In a capitalist society, the ideal is for people to have the freedom to choose their careers, for businesses to produce goods and services, and for consumers to purchase what they want. 

Discussing how choices impact supply and demand

A crucial concept in understanding capitalism is supply and demand. By discussing how the choices we make, individually and as a society, can impact supply and demand in the market. Explaining this with practical examples can help kids better understand how our economic system works.

Practical examples of capitalism

Using contextual, real-world examples can help simplify more complex concepts. For example, convenience items like to-go containers or other plastic products. They make our daily lives easier but can also harm the environment. Capitalism gives businesses the right to create those products (within legal parameters), and consumers have the freedom to use them or not. It’s a practical example of capitalism that covers private ownership, profit, and how individuals and society can affect supply and demand. 

Real-life examples of capitalism

Now that we have a better understanding of what capitalism is, let's look at some practical examples to teach our kids about this economic system.

• Local businesses: Take your child on a tour of small businesses in the neighborhood. Explain how each business is privately owned and operates for profit.

• Entrepreneurship: Encourage your child to think of a business idea and help them bring it to life. This will give them firsthand experience in the entrepreneurial process.

• Stock market: While this may be too advanced for younger children, you can introduce the concept of buying and selling stocks to invest and profit as a business or individual.

• Household chores: Use household chores as an example of how individuals provide goods or services and get rewarded for their efforts. You can even create a mini economy in your household by assigning different values to each chore.

• Lemonade stand: The classic lemonade stand is a perfect example of capitalism in action. Encourage your child to think about how they can improve their profits through marketing and pricing strategies.

FAQ about teaching capitalism to kids

Q: Isn't it too early to teach kids about capitalism?

A: It’s up to each individual family when, how, or even if to discuss capitalism. But it’s a basic part of how life in the U.S. works and a common topic in school. If your kids have questions, introducing them to basic concepts and gradually building on their understanding can help them develop a well-rounded view of the economic system they will be a part of.

Q: How can I teach my child about capitalism in a fun way?

A: Introducing board games like Monopoly or Life can be a great and fun way to explain the basic principles of money and capitalism. These games encourage players to accumulate wealth and strategically invest their resources.

Q: How simple or complex should my explanation of capitalism be?

A: Match the age, understanding, and curiosity level of your child. Younger kids may only need to understand the basic concept of buying and selling, while older kids and teens can grasp more complex aspects like competition and market demand.

Q: What resources can I use to educate my child about capitalism?

A: There are many children’s books, online resources, and educational games that can help you explain the concept of capitalism. Websites like Khan Academy also provide free learning materials on a variety of subjects, including economics.

Q: How can I show my child capitalism in action?

A: Everyday activities such as grocery shopping, setting up a lemonade stand, or deciding how to spend their allowance can show children how capitalism works in practical terms.

Complex concepts like capitalism can be difficult to explain, especially to kids. Use practical examples and encourage open discussions to help kids understand capitalism and contextualize what they’re learning in the classroom.

Looking for more resources to help you navigate your child's financial education? Visit Greenlight Learning Center for practical advice and tools.