Lesson 6

Lesson Topic: Basic Budgeting – How to save up for something you want to buy. This lesson includes multiple ideas for activities and could be expanded into several lessons.

Goal: For students to dive deeper into the process of personal budgeting

Lesson Overview:

· Class discussion – What to students remember from last year about budgeting?

· Video – May choose to re-show the Grade 6 videos on budgeting or show other good YouTube budgeting videos

· Classwork / Student work - Completing a budget for themselves based on a fictitious job or their choosing. What will they spend their money on? How much with they save?

· Wrap-up or Extension activity

Class Discussion: What do they know? What do they remember about the concept of budgeting from grade 6? Start by asking the following questions: What is a budget? What is budgeting? How is the noun different than the verb? Where have you heard the word budget before? Why do people and businesses and governments have budgets? We have talked about how people earn money and some of the things that people need to spend their money on to survive like food and shelter, but what about luxuries? What about buying something you want? Like a phone or an XBOX? Is it better to save up and buy the item later or buy the item now on credit (using a credit card) and then paying for it over time?

Video – Middle School Money Matters: Basic Budgeting 1

This video explains what a budget is and why people and businesses and governments use the idea of budgets to manage their finances. Refer to Junior Acheivement/ Coast Capital budgeting video as well.

Background Information/Lecture

Budgeting is something that permeates most aspects of our society but it is generally something that happens under the surface. We often hear the word budget when governments are talking about how to spend tax dollars. Essentially budgets look at how much money there is and allot how that money will be spent to assure that the person (or govt) does not run out of money.

Personal budgets operate much the same way, people calculate their income coming in and decide how it gets spent and the central idea is not to spend more than you have. **Life Tip Alert!!! This phrase could possibly be one of the most important keys to successful personal finance so we will repeat it: If you can manage to budget (arrange your finances) in a way where you are always spending less than you earn, you will never run out of money!

Let’s look at a sample personal budget (supplied) Go over the example in detail showing money coming in and going out – at the end point out that this person has an extra $200 per month not being spent. What happens to this money, well this is called ‘savings’.

Now we are going to look at some math

1)Activity/In-class work

Creating a personal budget/savings plan to save up to buy something that costs $500. Students start with a very small number of expenses (1 or 2) things like buying candy at the store, buying presents for family. They have income from a source (allowance, paper route, baby sitting, chores, odd jobs…) They have to calculate how long it will take them to save up. Then redo the calculation as if they had a credit card, they now buy the item up front and pay for it over time, but must calculate the interest costs and then determine which option they would choose buy now and pay a bit more, or save up, and pay less but defer gratification, this is also one of the central consumer choices that adults make all the time.

Wrap-up

Government Budgets: You often hear about government budgets on the news, especially around election time, what does it mean if the government has a balanced budget or runs a deficit or surplus?

2)Activity/In-class work

Come up with a list as a class of 10 things that most families spend money on. Split the class into small groups and each group has to come up with how much they think a family would spend each month on each item, calculate the total, then have them decide how they are going to pay for these items. Do they have one parent or two? If there are two parents, are both working, how much are they each earning, how did students come up with these amounts. Have groups present their decisions to the class and say why they came up with each amount. Afterward, look at some samples of budgets (included or find more example online). Have a class discussion about how their ‘estimated budgets’ are the same or different from the samples. Are there expenses they forgot? What about something like childcare? Have them factor in $1000/month for childcare, what does that do for their budget? Do any of the students have siblings under 5 years old? Are they in daycare? If a parent only earns minimum wage, is it worth putting a child in daycare? All these questions will have them thinking about their budget.

Create a basic budget for living on your own. What kind of things do you need to buy to survive?

Rent, phone, internet, utilities, food, clothing, entertainment, transportation, miscellaneous (why do we have misc?) How do you know how much to budget for each one. We will be using the amount of money someone would make working full time for minimum wage.

Wrap-up/Extension ideas

· Have students present their sample budget to the class and rationalize why they picked the different amounts for each section.

· Talk about the standard percentages that are sometimes used such as 30% of income for housing, 10% for food etc..

· Look at the sample pay statement supplied, what are the common deductions (Income tax, EI, CPP) what are they as a percentage of the total gross pay? Have students look up the income tax brackets on the CRA website, what did they find?