Lesson 2

Topic: How do we get money? (40-50 minutes)

Goal: Introduce students to some of the different ways people earn money and the different methods of getting paid.

Lesson Overview:

1. Class discussion – What do they know about how money is earned?

2. Background Information – The categories/types of income

3. Video – Middle School Money Matters Video #2 – Earning Money?

4. Paper activity – Categorize the list of jobs into income type

5. Discussion – review paper activity

6. Wrap-up or Extension activity

Class discussion:

• What do they know? Begin by having the class come up with a list of 20-30 jobs and make a list on the board. (ex: teacher, lawyer, waiter, actress, plumber, cashier…)

• Then ask the class the question “Are there other ways people get money other than working a job? Make a new column with these (ex: investing, landlord, gambling, inheritance/trust fund…)”

• Ask students to think about how they might categorize these income methods. What would the categories be?

Write down all the answers provided on the board then ask the class how they think they can be organized? Below are some examples (not every way of earning money is listed of course) and then some ideas for how to categorize them. Have the students come up with the examples and categories, try not to prompt too much.

Categories of ways people earn money:

Wages - getting paid for your time, usually by the hour. This is where the majority of the Canadian workforce falls. Includes jobs like : minimum wage fast food worker, cashier, retail employee, babysitting and most other service employees. Tend to be lower paid, but not always as some high level professionals may charge $100s of dollars per hour for services.

Salary – getting paid a specific amount for a longer unit of time (usually a year). Tends to include mid-range office and managerial positions as well as government jobs. Tends to be higher overall income than hourly wages.

Piecemeal/By the job – Getting paid a certain amount for completing a certain job. This includes contract work as well as commission sales. Examples are building contractors who bid a specific amount to complete a job, overseas factory workers who are paid per unit produced, a paper delivery person paid by the paper, actors paid by the film, real estate agents paid a commission for selling a house and many more.

Owning a business – Getting paid profit from a business that earns money. Different from a sole owner small business where the owner is paid as an employee of the business, this is where someone owns a business that pays them money, even if they don’t work there.

Investment income – Owning assets that pay the owner. This would include landlords who own buildings and collect rent, investors who own stocks or other investments. Assets that pay the owner money and are worth something are called capital assets.

Royalties – A type of asset that pays the owner fractional payments based on sales. This is where people own something and collect income each time a sale is made. Examples include owning a patent or copyright that pays the owner money (like an author, musician or inventor) it can also include social media influencers and YouTubers who own/produce online content and get paid ad revenue based on views.

** These are just some examples of categories that could be used. Also, other ways that might come up that people get money: Winning money (the lottery/gambling) , Endorsements (this is getting to be big with the ‘Social Media Influencer’ group, celebrities and athletes but really this is in the last category and the asset that earn money is a person instead of a thing.

Background Information/Lecture: ‘Earning/Getting’ money

*This section includes a more detailed look at income categories that were listed above.

Since the invention of money people have devised ways of earning it. Today, hourly work (where a person exchanges their time/labour for money paid by the hour) is still the most common way people earn money with roughly 60% of the workforce falling into this category. Most jobs that pay by the hour tend to be service based jobs such as retail, building/repair, food service and clerical just to name a few. While jobs that pay by the hour tend to be lower paid than salaried positions, there are jobs that pay by the hour where the hourly rate can be very high (ask students if they can think of high paying jobs that pay by the hour.) Examples include lawyers, accountants and other professionals and can also include skilled trades people, dangerous work such as oil rigs or mining etc.. can have very high hourly wages associated with them.

Salaried positions are much the same as time based work but the time is generally monthly or annually. Workers earn a specific amount per month or per year from their employer for the job and sometimes this might involve more or less hours. An example might be a banker who may have a salary based around working 7.5 hours per day but during tax season they may work into the evening to accommodate clients and end up working more hours, then perhaps the following month they leave a hour early for a few days to sort of make up for it. Teachers may receive an annual salary for the job under the realization that most teachers spend many more hours working than just the school day. Salaried positions tend to be a little more flexible around timing of work as long as the required work gets done. These are the least risky ways of earning money – you work, they pay you.

Being paid by the job or piecemeal is another way people earn money. This can work in a worker’s favour if they work in a factory and are very fast at their job they can earn more in the same amount of time than someone else doing the same work, it rewards productivity. Many factories in Asia pay workers this way (has anyone seen some of the amazingly fast factory workers videos on YouTube? Look some up for interest.) Being paid by the job for a bigger job can be referred to as ‘contract work’ when not relating to factories. Perhaps your parents needed a new roof for their house, they may have a roofing contractor come over and offer a quote to reroof the house, a specific price for the job. The contractor bases their price on the size and complexity of the roof and materials chosen and then gives a price drawn from past experience of how much it costs to pay labour and buy materials for this type of job. In general the contract price is the agreed upon price, if the contractor ends up completing the roof faster or with fewer materials, then they get to keep that savings as profit. But if it takes much longer due to constant rain interruptions, then that extra labour cost might actually cause them to lose money on the contract. So with contract work there is the ability to earn more money by completing a contract efficiently but also a risk that is taken on as well.

Owning a business – this category is so broad, you could have pages and pages explaining it. This goes all the way from a sole owner company where the owner is the only employee, up to huge multinational corporations with thousands of employees. But we will use the idea of medium to large companies with several employees where the owner doesn’t necessarily work at the company. If you own say a restaurant and you have a manager and employees and essentially the business runs itself, but you as the owner collect the profit, then you own a business that earns you money. If you had several restaurants or businesses all running nicely, you might be able to just spend a few hours a week managing details and then just sit back and collect the money, but you as the owner are also accepting the risk if anything happens to the business or, for example, if something like Covid-19 comes along and shuts you down, essentially removing all your customers so you are no longer able to earn profit from your restaurant, it is you as the owner who loses out (not to mention all your employees who count on you paying them). So again, for that extra earning potential, comes extra risk.

The idea of having capital assets that earn you money can be traced back to early land owners who would have farmers work their land in exchange for a percentage of the harvest. And to this day, owning and renting out real estate is one of the most common ways people end up in this category, whether it is your parents renting out a basement suite in their home, or owning an apartment building or commercial property, many people earn money and generate wealth by being landlords and charging rent. The other most common capital assets that can earn people money are stocks, bonds and interest bearing investments such as term deposits. Discussion of these types of investments can be complicated and will be revisited in the grade 8 lessons and further into high school.

Royalties or fractional payments. This is money you earn by selling something you created over and over. It used to be predominately for artists such as musicians or writers who would create an album or write a book once, but be able to sell it over and over and make a little bit of money on each sale. This would also be where if you held a patent for something you invented, you would get paid over and over each time your invention was produced and sold. Think of pharmaceutical companies spending millions of dollars developing drug treatments so they can sell those treatments over and over. This is actually also the category where we have seen a lot of growth recently online in terms of online content providers. The new ‘Social media Influencers’ as they are called, produce online content once, which is viewed by millions of people which then lends these influencers to tap their asset (themselves) and have companies pay them as advertisers, it is really the next generation of celebrity endorsements which also fall into this category, think of actors and sports heroes being spokes people for a variety of brands all the while earning big money for spending a few hours filming a commercial.

Video: Middle School Money Matters Video #2 – How People Earn Money

Key review points from the lecture/video:

The categories

• Working for wages, salary vs, hourly wages

• Piecemeal or commission based income

• Owning a business

• Asset-Based or investment income: (real-estate, interest income, stocks/capital gains, dividends)

• Fractional income/Royalties/Advertising and Social Media Influencers

*Active vs. passive income – what is the difference and which categories are active income and which are passive? Active income is where work is exchanged for money either for time or by the job. Passive income is where your money or investment or creation/invention is earning you money and keeps earning you money without you having to put more work into it.

1. Working for wages and piecemeal and commission jobs are considered ‘active income’ earning.

2. Owning a business can be both active and passive depending on how much work the owner actually does, or does the business pretty much run itself.

3. Asset-Based and investment income as well as royalties and advertising income is considered to be mainly passive income, the asset does the work and earns the money.

• Are there any other ways of getting money? Ex. Winning $: Lottery, gambling, poker (isn’t it still work just without a guaranteed paycheck?)

Paper Activity: Active vs. Passive income

On the sheet provided, have students organize the jobs they listed earlier on the board into the different income categories (Active vs. Passive income and the sub-categories listed on the worksheet). When they are finished, go over the jobs and have a class discussion around which jobs or ways of earning income they put into which categories and why. Some may be in more than 1 category.

*Final question: “Which category or categories do they think the world’s richest people earn most of their income from?” (They mostly earn passive income from investments.)

Extra Activity Ideas/options:

Simple: Counting Money (Mental math strategy) – Speed money counting. Find sets of plastic coins and bills (or print them off and have students cut them out so then you can have a class set of ‘cash’ and have students count out differing amounts and then share which coins and bills were used to reach the total. Or place amounts of money under a document camera and students can race to call out the total.

Intermediate: Hourly wage vs piecemeal math calculations. Have students work out money earned. There is a worksheet supplied in this package with some basic questions, it is located in the back of this booklet. Do some practice questions on the board first to show students how the calculations are done.

Extension: Debate- Set up the class and debate whether there should/should not be a minimum wage. Have student look up the history of minimum wages in Canada, are they the same in every province? Why not? How long has it taken for the minimum wage to double in Canada? Why does it keep going up? Why do we even have a minimum wage? What is the political history around the adoption of the minimum wage. Does having a minimum wage help?

In-class/Homework Assignment:

Think of 3 jobs/careers you are interested in and write them down. Write down next to each career what credentials/education you think you need for the job and how much money you think each one pays. Then look on-line to see if you can find this info. Share with class if time.