Description
What our Financial Literacy: Making a Budget lesson plan includes
Lesson Objectives and Overview: Financial Literacy: Making a Budget teaches students all about budgets and how to make one of their own. At the end of the lesson, students will understand why managing financial resources is essential to personal maturity and independence. They will also gain a basic understanding of financial terms and apply them to their financial situation. This lesson is for students in 5th grade and 6th grade.
Classroom Procedure
Every lesson plan provides you with a classroom procedure page that outlines a step-by-step guide to follow. You do not have to follow the guide exactly. The guide helps you organize the lesson and details when to hand out worksheets. It also lists information in the blue box that you might find useful. You will find the lesson objectives, state standards, and number of class sessions the lesson should take to complete in this area. In addition, it describes the supplies you will need as well as what and how you need to prepare beforehand.
Options for Lesson
Included with this lesson is an “Options for Lesson” section that lists a number of suggestions for activities to add to the lesson or substitutions for the ones already in the lesson. Before teaching this lesson, use the Learn Bright lesson “Financial Literacy: Needs, Wants, and Opportunity Costs” to introduce the basic concepts for the need in practicing sound financial management. Then, in the Practice activity, extend the lesson by having students earn classroom money that can be used to donate money to a charity. Students will enjoy making money and seeing their donations used in a practical, real-life situation. Having an expert speak to the class is always a great option! Have a financial planner come in to talk with the students. You could even have a debt specialist come in and talk about how they counsel people who have spent more than they have made and what it takes to get out of debt.
Teacher Notes
The teacher notes page includes a paragraph with additional guidelines and things to think about as you begin to plan your lesson. This page also includes lines that you can use to add your own notes as you’re preparing for this lesson.
FINANCIAL LITERACY: MAKING A BUDGET LESSON PLAN CONTENT PAGES
What is a budget?
The Financial Literacy: Making a Budget lesson plan includes five content pages. A budget is a plan for managing your money. It is created based on your estimation
of income (money you earn), cash from gifts, and expenses (money you spend). Usually, people make monthly or yearly budgets or both. A budget helps create financial stability because it lets you track how much you spend and how much you can save. Knowing this information will help make paying bills easier, allow you to build an emergency fund, and enable you to save money for large expenses.
Adults have different types of expenses than kids! But, it’s still good to know what they spend their money on so you can understand how expensive things are. It also helps us appreciate that when we earn our income, we help our family with some of the household expenses. Common types of expenses include housing, investments, school, and healthcare.
One of the main reasons to create a budget is to help spend within your means. Spending within your means is a way to say that you don’t spend more money than you have. The principle of spending within your means is the foundation for all budgeting and spending decisions. You will go into debt or won’t have enough money to pay for the things you want to do or buy if you spend more than you earn. Debt is money you borrow from someone that must be repaid. Having a budget will help you stay out of debt.
Creating a Budget
To create a budget, first determine how much you expect to earn, such as what will get from gifts. For instance, if you know you get $50 from your allowance and $20 for pet sitting each month, you will have an income of $70. When you get a job, your salary or income is the amount you are paid to do your job.
Next, determine how much you think you will spend. There are two types of expenses: fixed and variable. Fixed expenses are things for which you pay the same amount each time. Think about your lunch at school. It costs $1.50 each day you buy lunch. Your lunch is a fixed expense because it does not change daily. A variable expense does the opposite—it varies or doesn’t stay the same. One month you might want to buy a video game, and the following month you might want to buy a new pair of pants. The items and price vary. These expenses are hard to plan for.
Always remember to pay for your needs before purchasing your wants. A need is something you can’t do without. For example, food is a need. If you don’t have food, you won’t be healthy. A want is something that you would like to have but can do without. The newest cell phone is a want. Your current phone works. Replacing it for a new model only makes sense if you can afford the new model and your present phone is not working. Another example is fashion clothing. You might want to wear the latest styles, but what you are wearing now is fine!
Making Choices
Frequently, we have to choose the best alternative when we have little money to spend. We call this situation opportunity cost. When we spend our money or time one way, we eliminate other choices. For instance, you are invited to a party on Friday for your best friend. The night before the party, your parents tell you they are planning a surprise trip to Disney World on the same day. What do you do? If you choose the party, you eliminate the trip to Disney World. But, if you decide on Disney World, you miss the party and probably hurt your best friend’s feelings. Making financial decisions works the same way. We have choices in how we spend our money. The choices have consequences.
You may want to buy a new video game, but you might need the money to pay for gas for the lawn mower you use to cut the neighbors’ lawn and earn income. Unfortunately, if you buy the video game and do not have any cash left to pay for gas, you probably won’t make any money that month for lawn cutting. One other thing to remember is that income and expenses are often estimated. Sometimes unexpected expenses occur, and you don’t make the income you need. So, your budget has to be flexible. You want to save for these unforeseen changes. Unexpected changes are called contingencies.
Once you find the sum of your expenses, subtract the expenses from the income. In this case, subtract $65 from $70 to get $5. This means you have five dollars left at the end of the month, even after buying the video game! You can save the extra money for a contingency next month or spend it! But what happens if your expenses are more than your income? Let’s say the video game was $40. An unexpected expense!
Now your budget would show that you are at a negative $10 instead of positive $5. In other words, you would not have enough money to cover your expenses, and choices must be made. When that happens, you must decide what to cut back from your budget because you are over-spending. You may have to wait and save monthly money to afford the video game. Remember, when balancing your budget (making your income and expenses equal zero or come to a positive number), it is crucial to determine which expense is a need and which expense is a want.
Importance of Budgeting
People will often adjust their budgets each month or each year depending on their circumstances. Let’s say you get a raise and can increase your income, or you adopt a dog and end up with extra expenses. Many things happen in life, and you should reflect those changes in your budget.
Besides allowing you to figure out how much money you have or need each month, a budget also helps reduce stress levels by ensuring all of your bills can be paid and you can save for the future. Money is one of the primary causes of stress, and making a budget can assist you in figuring out how to solve almost any financial problem. Budgets can also help you prepare for an emergency. Adults know the problems that result from a change in jobs, an expensive car repair, or damage to the house. Having a budget lets them save so they have money to cover the unforeseen added expense or loss of income.
In addition, budgeting helps you reach your financial goals. It allows you to see if you have enough money for your daily spending and for the long-term goals you are saving for. Using a budget can also help you increase your credit score, which is the score banks and lenders use to determine if they will give you a loan for things like a house or a car. By following your budget, you pay your bills on time, increasing your credit score. A budget puts you on a firmer financial footing for day-to-day and long-term planning. And there is a certain amount of satisfaction in knowing you can earn income, manage expenses, pay for the things you want, and still have money left each month. So, let’s budget!
FINANCIAL LITERACY: MAKING A BUDGET LESSON PLAN WORKSHEETS
The Financial Literacy: Making a Budget lesson plan includes three worksheets: an activity worksheet, a practice worksheet, and a homework assignment. You can refer to the guide on the classroom procedure page to determine when to hand out each worksheet.
CLASSROOM CHARITY ACTIVITY WORKSHEET
The activity worksheet asks students to come up with a charity that they could raise money for to help their classroom. They will make a budget for how the class can earn income that they can donate to the charity, making sure to consider any expenses they might have.
MAKING A BUDGET REVIEW PRACTICE WORKSHEET
Students will test their understanding by answering 10 questions regarding what they learned in the content.
COST OF LIVING HOMEWORK ASSIGNMENT
For the homework assignment, students will use an online calculator to determine how much money they would need to earn to live the lifestyle they want. They will learn how much money they would need to make an hour and what kind of job they could have.
Worksheet Answer Keys
This lesson plan includes answer keys for the practice worksheet and the homework assignment, though they both note that students’ answers will vary. If you choose to administer the lesson pages to your students via PDF, you will need to save a new file that omits these pages. Otherwise, you can simply print out the applicable pages and keep these as reference for yourself when grading assignments.
