Banking

In Budget Challenge, students are given an information packet and:

• a 'job' with a defined salary and pay schedule
• a choice of different service providers (rent, cell phone, car loan, etc)
• a choice of different types of checking accounts and bank account options
• a choice of employer 401k savings accounts and a 401k payroll deduction percent

Students are encouraged to make a budget prior to the start of the simulation.

During the Simulation

• Bill notifications will arrive (via email) as described in the information packet and students will be required to respond to them (write on-line checks) in the most efficient way (or the way that results in the least amount of total fees).  At the same time, students are also given points for savings in their 401k account, which a student can control by changing the 401k deduction percentage in their pay check.
• Students will be given a score that will be used to determine class rank.  The score is primarily based on the ability to pay bills, maximize savings and avoiding fees. Other points can be earned through surveys/quizzes.
• Students' scores will be listed on a 'Leaderboard' and class rank will be updated daily.

At the End the Simulation

• A winner is determined by the score on the Leaderboard.
• Teachers may translate a student's performance in the simulation to a grade or partial grade for a class (this is at the discretion of the school).

Activity

Students evaluate several types of investments to determine how they meet the criteria of growth, safety, and liquidity.

Evaluate the investment choices on the activity page for the four situations.

1. Which investment is best for someone who is young and wants to save for retirement?  Why?

2. Which investment is best for someone who is very close to retirement age?  Why?

3. Which investment is best for a young couple with small young children and who would like to purchase a home in 4-5 years?  Why?

4. Which investment choice is best for a single person who is 35 years old, owns a small home and does not plan to marry and have children?  Why?

Procedures     

1. Discuss the reasons for a long-term investment plan, such as education expenses, home ownership or retirement.  Establish the idea of “long-term” financial planning.

2. Review the various types of investments, stocks, bonds, etc., the advantages and disadvantages of each, and suggest how each type of investment might be appropriate for different people and in different situations.   

3. Introduce the concept of “risk.”  Discuss the factors that will affect people’s personal feelings about the potential for risk of loss of their investment funds.   Compare the risk of different investments, such as buying individual stocks vs. mutual funds.

Activity 

Students read a modern version of the fable, “The Grasshopper and the Ant.”           They answer questions and complete a writing activity to help the grasshopper make better decisions to achieve his financial goals.

Answer these questions about the fable.

1. What was the ant’s advice to the grasshopper the first time they met.

2. Why do you think the grasshopper ignored the ant’s advice?

3.  What would you have done if you were the grasshopper?

4.  Write a new ending for the fable after the ant and grasshopper meet again a year later.

 Procedures

 1. Introduce the purposes of saving, short-term and long-term goals, and various reasons to save.  Students can discuss the ways they currently save and their future savings plans.  Discuss the benefits of saving to achieve financial goals, including the various ways to save.

2. Review the “Rule of 72” and the benefits of compound interest.  Use the web page to compare a plan to save early versus saving later in life.  Stress the value of time when setting saving goals.    

Source: “What is the Rule of 72,”Investopedia, http://www.investopedia.com/ask/answers/04/040104.asp

3. After students complete the “Grasshopper and the Ant” activity, one additional activity is to have students write a new ending for the story, as if the grasshopper took the ant’s advice.

Procedures:

1.         Tell students: Write down the first word that you think of when I say the word “saving.”   

            2 or 3 words if it is a small group.

2.         Share and clarify the meanings of the participant responses.

3.         Categorize into the two groups:

             A.        Spending less to preserve income – reduce expenses.

             B.        Setting aside income for later use – achieving future goals.

4.         Explain that there are two ways to look at saving (A and B, above).  One is reactive (A) and one is proactive (B). 

5.         Introduce the “The Decision-Making Process” handout.

             Explain that this decision-making process can be used in a variety of decision-making situations –  any situation when a decision has several different alternatives and criteria.

 6.         Using the handout, ask student to write after line 1, “The Problem or Issue,” the problem or goal that motivates them to save.  Write the goal or problem in a complete sentence.

             After they have written the problem or goal, ask them to rewrite it in different words or from a different perspective.  After they have finished, ask them to rewrite the problem or goal a third time -with different language or perspective.

             Ask students to share the three ways they have described the problem or goal.  In most cases, the second or third version is the one they think more accurately describes the problem.  This illustrates the reason why we may not want to focus on the first thing or way of identifying a problem that comes to mind.

 7.         Ask students to write after line 2, “Decision to be Made,” what they must decide in order to start saving.  What is the real decision to be made? 

           Students share their ideas of the decision.  In most cases, the decision is to give up some consumption now to be able to save for the future goal.  This identifies the opportunity cost of saving as current consumption.   Help students to understand that this is the economic problem they face – are they willing to incur the opportunity cost of saving?

8.         Referring to the handout, line 3, begin a discussion of the options for savings. 

            Focus on the more basic methods or types of accounts.  See the “Teacher Resource: Savings Options” for ideas.  Elicit from the group the basic options for savings accounts

            a.         cash at home

            b.         passbook savings account

            c.         certificates of deposit

            d.         money market account

            e.         money market mutual fund.

            f.          other?

9.         Explain that each of the savings options has advantages and disadvantages.

            Participants should suggest the advantages and disadvantages (criteria).  Guide the discussion to include at least the criteria listed below

            a.         liquidity (time requirements)

            b.         transaction costs (fees, other barriers)

            c.         minimum deposit/withdrawal rules

            d.         interest rate differences

            e.         withdrawal penalties, limits, etc.

            f.          location/technology access

10.       Participants complete the grid with the alternatives and criteria developed by the class.  Rate each alternative + or – according to each criteria.

11.       Small groups discuss their individual ratings – share information and reach consensus about the advantages and disadvantages of each option.