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.
