Money Management

Activity 

Students work through the real cost of purchasing a DVD player with a credit card to determine the total paid with interest over a period of time.

So you want to buy that great new DVD Player and Surround Sound System with your new credit card?  It seems so easy?  Let’s see if it’s worth it.  Unfortunately, you do not have enough money to pay off the entire balance.  You decide to make payments of $50.00 per month.  Determine how much it will finally cost for the new DVD Surround Sound System.  It sounds great!

After you make a payment of $50.00, what will be your balance next month?  The next month, you again make a payment of $50.  Now what do you owe?  The next month, you again make a payment of $50.  Now what do you owe?  About how much do you think your total of all interest payments will be after you finally pay off the total balance with $50 payments each month? 

How long do you think it will take you to pay off the total balance (original purchase price and accumulated interest) with payments of just $50 per month? 

Procedures

1. Review the reasons for using forms of credit, especially credit cards.

2. Use the chart in “Choosing the Right Card” to illustrate the ways credit card offers differ and the advantages of each.  If possible, collect credit card application forms or make copies for students.  Review the application process and the required information.

3. Discuss the responsibilities and rights of credit users.  Contact the local office of the Consumer Credit Counseling Service, a non-profit agency, to talk to the class about credit use, problems and solutions.

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.

Activity

 Students create a budget for a class trip to New York City.  The decisions require trade-offs and opportunity costs.

Your task is to create a budget for the class trip to New York City.  You have a total of $18,000.  You have some choices to make.  You can’t do everything you want to do   with the income you have.  There are 60 students and 10 chaperones.  You do not have to cover the chaperones’ costs, except transportation, hotel and the celebration dinner. 

The trip will take four days and three nights.  You have two full days in the city and time to schedule four daytime activities and two night activities.  The budget will cover all meals. You must schedule one “celebration” dinner.  Students will not be allowed to spend any additional money for trip activities.

Procedures     

1. Discuss the purposes of a budget - connecting income to spending, making spending (prioritizing) decisions, and planning for future financial purchases and goals.

2.   Review the key terms: budget, assets, liabilities, income, and expenses.

3.   Discuss the difficulties people might face when trying to live within a budget.  Elicit the students’ ideas about the importance of goal setting, putting the budget in writing, and self-discipline.  Stress the need to begin thinking long-term to achieve future goals.

4. Discuss the ideas  “trade-offs” and “opportunity costs” in the context of a budget.  Trade-offs require choices from among competing goals.   The opportunity cost of a decision is the value of the next best alternative that is given-up.

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.