Spending Decisions

Introduction: Explain that this is an exercise to help you think about your wants and choices you may have to make as you attempt to achieve your financial goals.

 1.         Participants draw a circle on a sheet of paper (approx. 6 inches in diameter).

 2.         In the circle, write as many things as you can that you would like to buy in a      month.  Allow no more than 5 minutes to complete the lists.

 3.         Allow 2-3 minutes to have participant put a monthly price next to each item on their lists.  A large item can be put in a monthly payment amount.

 4.         Briefly have participants identify the items on their lists and the monthly prices.

            Summarize the types of things people want to purchase and why.

            Identify that these items satisfy wants.  Generalize about influences on wants.

 5.         Allow five more minutes for participant to add to their list the things they must pay for each month (rent, utilities, car, insurance, etc.), with their prices.

 6.         Each participant should total the cost (monthly prices) of their list.

 7.         Generally discuss the relationship of the two types of items on the lists.

 8.         Participants multiply the total cost of their lists by 80%.

 9.         Tell the participants that they can only have 80% of the net income required.

 10.       Participants should cross-out things on their list that they will have to give-up to

            reduce the total cost of the list to 80% of the previous total.

            Introduce the concept of opportunity cost.

 Opportunity cost:  The value of the next best alternative when a choice is made.  Example: if you have a choice between and apple and an orange and you can only have one of them, the one you do not choose is your opportunity cost – what you give up.  If you choose the apple, you cannot have the orange (its value).  The value of the orange is your opportunity cost.

 11.       In a large group or small groups, discuss how they decided what to give-up.  How      did they prioritize their wants?  What factors were more important?

 12.       Ask the students to suggest other financial situations where they are required to        make a choice and give up some other alternative. 

             Examples:

             •  Choosing a job.

            •  Choosing an education.

            •  Choosing any good or service.

            •  Choosing a retirement plan or investment.