Opportunity Cost Doesn’t Always Mean Dollars Paid Out

People often confuse the opportunity cost of a decision with the direct dollar cost of that decision. If you’ve ever missed a sports practice to take a make- up exam after school, you’ve experienced an opportunity cost that doesn’t involve money at all. And even if you’re not Ben Kaufman, the opportunity cost of attending

college includes more than the cost of tuition.

College students also give up the best alternative to attending college, which is typically going straight to work. Suppose you would earn $25,000 a year in the best available job right after high school. Then the opportunity cost of attending college would be the tuition cost plus the forgone income of $25,000 for each of four years, or $100,000. Although it isn’t actually paid out, that money you would have earned is part of

the cost, too.

The first step in making good decisions is to understand that the true cost of any decision is the opportunity cost, and not just the amount of money spent as a result of the decision. This applies to life’s big decisions, such as whether to attend college, and to everyday decisions, such as whether to make up an exam.