Why This Matters Now
Understanding our own spending patterns and learning to budget are fundamental to effective money management. A new year – often fresh off a season of spending — is a great time to provide high school students with a lesson or two in financial literacy. It’s a chance to get them thinking about their relationship with money today and into the future, when school loans and increasing expenses could tempt them to spend beyond their ability to pay back. Last summer, KWHS readers met Daniel Drake, a recent college grad who admitted that his bank balance often dips below zero – risky financial behavior that he said was very common among many of his classmates in college. “I’m a spender,” said Drake. “I need to save more.” Budgeting strategies could help Drake and other young spenders make better choices. As Doug Young, director of the HSBC National Center for Economic and Financial Education at the Council for Economic Education, says, “Budgeting is important to get finances straight, to get people out of debt and to get them to a place where they feel financially capable to save.” He adds that it helps you “find money within your money.” Earning, spending, saving, budgeting – they’re all related and are the power center of smart financial decision making.
Budgeting Basics: Spending Less Than You Earn
At its most basic level, a budget starts with a record of money earned versus a record of money spent. In this KWHS article, students meet Nicholas Bakke, a U.S. teen from Georgia who recently started budgeting and saving for an important purchase. Through his story, students are introduced to wants vs. needs, income tracking, and other concepts like frugal fatigue, which can entice us to touch money we really shouldn’t. It is a quick and basic way to begin a discussion on spending and budgeting that can set the stage for deeper learning through a lesson plan that provides further discussion and budgeting-related activities. Note: High school students around the world face similar money-management challenges. Explore an international perspective on spending with this student essay from the United Arab Emirates published in the KWHS Business Journal in January 2018. Facing taxation for the first time, this teen from Abu Dhabi talks about the rise in the cost of living and what that means for family budgets.
Budgeting and Spending Money
Math and finances are the dynamic duo in this comprehensive lesson plan that will get students talking and calculating. With the help of a linked worksheet, students discuss saving money, spending money and budgeting. In small groups or pairs, they work through answering questions about spending patterns and use graphical representations to model and better understand spending. Students examine a sample family budget plan, calculating total annual expenditures including savings, and then calculate their own monthly expenses. The plan incorporates patterns, functions and algebra, as well as problem-solving and valuable class discussion on how earning money, saving money, spending money and budgeting are all related to one another. Too math-heavy? Try this KWHS lesson plan: Develop a Plan for Spending and Saving, complete with a Teen Spending Plan worksheet. We encourage educators to mix and match any resources you find on KWHS. Also, you will need to sign up for KWHS (it’s free) to access the full lesson plan content.
Since most high school students have little experience with certain real-world expenses, it would be useful to help them understand where all that money goes. In groups, have students estimate their income and the percentage of their salaries that they spend on the following (Note: it is okay if the students do not pay for some of the items, just have them list that as 0%):
- Utilities (Water, Electricity, Trash, Gas, Internet, etc.)
- Apparel and Services
- Health Care
- Everything Else
In groups, also have students estimate what percentage the average American allocates/spends on each of the categories. As a whole class, discuss the figures/percentages that the students come up with. Consumer Loan, a financial education website for consumers, keeps record year-to-year of how the average consumer in the U.S. spends his/her paycheck, which you can find here: How the Average Consumer Spends Their Paycheck. See how students’ figures compare, and get them talking about money.
Provide an extra layer of learning for your students with our video glossary. Here, Wharton professors define terms: Budget, Buying Patterns, Compound Interest, Fixed/Variable Cost, High-income Household and Low-income Household
KWHS Quote of the Month
“If you’re anything like I was in high school, then your fallback strategy when it comes to money issues is simple: ‘I’ll worry about that later.’ One of the best gifts you can give yourself in high school is to understand and follow a budget.” – Zima Kumok, Personal Finance Blogger and KWHS Contributor
Learning how to budget early will help you a lot during your life. If you list everything that you spend on that is necessary and what you do not spend will help you control your money. It will also help you to spend less than what you earn, this means you will be able to spend what you can afford while knowing it.