Sticking to a Budget

Set scholars up for financial success by throwing them into the hypothetical real world.

By Mollie Moore

Posted

Calculator, pen, budget

It’s inevitable. One day, our learners will be out in the real world spending and earning money. Hopefully, they will be functioning as a productive part of our economy. I can’t help but wonder, are we preparing them with a healthy financial literacy? Or, are we expecting a “you’ll figure it out eventually” trial by fire?

The Great Abyss

I can clearly recall leaving the security of my parents’ credit card, jumping into the unknown abyss of credit (I had none), overdrawn accounts (multiple times), and the unrealistic expectation that utility companies would “understand” if I couldn’t pay that month. It’s true; there are some things we just have to learn through experience. However, it can be both fun and enlightening for young economists to step into some hypothetical shoes and simulate personal budgeting without actual financial risk. To that end, here are the basics of a month-long project I do with my upper-level economics class (find the packet below).

The Simulation Project Set Up

The objective of the entire lesson is to use realistic information, some given and some chosen, to create a sustainable six-month automated budget in Excel, along with a poster presenting the extensive research and calculations that went into it. I like to introduce this journey with a little anticipation. I randomly hand each learner a job offer with a sealed envelope inside as they walk into the room. Acting professionally and a bit aloof makes this even more fun. It looks like an actual offer with a salary, job title, and signature (this is also a chance to review business letters). They will quickly figure out that they have each been offered different jobs. Of course, you could always have scholars choose their own professions and salaries through online market research, but the year I did this yielded almost all doctors and engineers…it’s up to you. At this point, you can explain that this is what they have to work with for the next six months, but they also may have some debt. The great part about assigning jobs is that you can incorporate appropriate student loan amounts to offer a realistic big picture. I strategically hand out student loan debts based on careers and have scholars randomly draw credit card debt. Expect a lot of groans here, but maintain your professionalism. The tracks have been laid!

The Hard-Knock Life

Life has a tendency to throw curveballs, and those pitches almost always impact one’s wallet. Introduce the elusive “Fortune and Misfortune Bag” on the first day. Learners choose one slip of paper from this bag for each month of their budgeting and incorporate the extra funds or costs into the spreadsheet. Have fun with these, playing off of pop culture and trends. Here are some examples:

  • You made a bet that mom-jeans would never come back into style. Looks like you owe your fashion-savvy friend $75.
  • Your dog chewed through a wall at your apartment. You owe your landlord $300 for the repair.
  • That hot date you’ve been waiting to ask out finally said yes, and you decide to split the $100 bill between you.
  • What?! You don’t even remember buying Hostess Ding Dongs, but now they are selling for $500 a bag. You sell your bag right away.

Make these drawings a fun part of each class, having scholars dramatically draw them and read their fate aloud.

The Learning Journey

The great part about a personal budgeting simulation is that you can include as many facets of finance as is appropriate for your class. My small group of seniors calculated taxes and net pay, living expenses, car payments, credit card payments, student loan payments, entertainment estimates, retirement plans, short-term savings, personal hygiene costs, groceries, and budgeting toward one fun trip. That’s why the simulation took over a month. However, this isn’t just an assessment project; I found it best to teach these concepts as we went along. There were always parts of the learning that pupils could fairly independently jump right into- such as finding an apartment, buying a car, or planning a trip- but some aspects really need to be taught. For example, we spent one day reviewing the differences between an IRA, Roth IRA, and 401k. This is a great chance to inspire long-term saving by showing yield graphs based on various plans. Consider spending several days discussing compound and simple interest, completing practice problems together. Taxes will also take a few days to cover depending on the depth you want to take. Each class meeting consisted of a lesson on one aspect of the project and often a review or question time on previous concepts. Again, this can be whatever you need it to be, but I encourage you to make an assignment like this a community learning journey and not the end product of a unit’s study.

The Benchmark Budget

Take at least a full day, preferably in the computer lab, to show budgeters how to create their automated spreadsheet. You can find simple instructions online, but practice it yourself a few times before you demonstrate it to the class. Kids should end up with a six-month budget that adds up their income and subtracts expenses in various categories. They will also end up with a monthly savings, which can be averaged to determine a personal savings rate.

The Final Financial Summary

The final step for each learner is to create a poster demonstrating their simulated lifestyle choices and the calculations that accompanied them. Encourage them to personalize the poster with pictures of their hypothetical lives. Were they able to live within their means? What sacrifices had to be made? Was this a livable salary? What steps do they need to take to earn this salary? What would they need to do to earn a larger salary? What sacrifices had to be made?

Here is the packet I handed out on the first day of this project. Learners filled it out as they went, using it as a guide to inform their final posters and budgets. I must also credit the Grossmont Union High School District Teacher Exchange. I got the original assignment from this exchange and then modified it for my students.

More Budgeting Resources on Lesson Planet:

7 Ways for Gen Xers to Help Secure Their Retirement

Help scholars better understand their retirement options and the reasons it's never too early to start saving. They begin thinking about the type of retirement they want and compare low and high-risk strategies. Keep in mind the calculator link may not work. 

Somebody Has to Pay for It: 16th Amendment and the Income Tax

After seeing much of their gross income go to the government, learners will be eager to understand the reasoning. Explore the history behind income taxes through the Constitution and the Sixteenth Amendment. Is the modern federal income tax as relevant today as it was when it was first enacted?

My Bank, My Budget, My Decisions!

For younger learners, this is a great way to introduce personal budgeting and incorporate a service project as the class focuses on philanthropy and donations.

Buying Cars/Financing Cars Compound Interest

Practice with compound interest scenarios including car and retirement payments. Learners apply exponential growth to real-world concepts and complete practice worksheets.