Have students track their expenses for a week prior to starting this module. Several discussions and activities will refer to this data.
Prior to starting this module, it might also be productive to have the class play a free online budgeting game, Groove Nation, developed by the D2D Fund. Groove Nation focuses on the key aspects of budgeting, including the importance of planning for unexpected expenses and paying off debt. Students' experiences with playing the game could provide a basis for an initial classroom discussion.
Have the students watch the video followed by a discussion about budgeting.
Discussion questions
What do you think this family's budget is going to look like?
What are students' personal experiences with budgets?
What is their sense of a need for a budget?
Students should be asked to sort their expenses into the same categories as the U.S. Department of Labor has done on this slide and compare their personal situation to the U.S. average.
At this point students should be invited to begin creating their own budget based either on their existing income or on income projected for their profession upon graduation.
Average incomes for different professions can be found at the Bureau of Labor Statistics.
An online salary paycheck calculator, such as PaycheckCity.com will allow students to compute take home pay based on their salary.
This slide presents an opportunity to discuss what one might want to set aside for future expenses or savings. Topics like, a rainy day fund, retirement, emergencies, a mortgage payment, a car payment, children's college education etc.
This slide is a good place to begin the discussion of needs versus desires. For instance everyone needs a place to live, but not everyone needs to live alone.
Students could look at the list of expenses that they constructed at the start of this module and categorize them as needs versus desires.
Based on their personal experience and the expenses they tracked in preparation for this module, students can construct a list of items that should be included in a household budget.
There should be a discussion about which of these expenses are needs and which are desires. Some expenses fall somewhere in between.
Students will need to know the comparable costs for each of these items in their own area and should be asked to do the research to provide this information using newspapers, the Internet or other sources.
For each of these items it is better for students to provide a range of costs rather than a single number because these initial decisions will frame the rest of the budget.
The fact that Thomas has decided to purchase renter's insurance is by no means an endorsement of this insurance product. You might want to have a class discussion about the circumstances where renter's insurance might be a good idea.
What are the comparable estimates for these items in your area? Student can do some research to find these things out. These particular budget items are necessities for Thomas, but they come in a wide range of costs and we want students to be aware of the wide range of options and the associated prices.
A cell phone comes with a contract and once the price is decided the user can be stuck with it for quite a while. Similarly the decision to purchase a car commits the purchaser to future expenses.
These things are smaller expenses than the apartment rent but there can be more flexibility in choosing a rate.
Based on the expenses the students tracked, what would their estimates be for these items?
You may ask students to provide these numbers anonymously and the data could be graphed. For example a free applet, by Professor Arsham of the Merrick School of Business at the University of Baltimore, will produce a histogram of the results.While food is important, dining out consumes a large portion of some household budgets. The student's data will help put Thomas' budget for this item in perspective.
How do you count food that is prepared elsewhere but consumed at home? An extra budgeting assignment could compare the cost of these two options.
How do Thomas' expenses here compare to those that the students tracked at the start of the module?
A histogram would be a good way to look at both the average expense and the spread.
An interesting class discussion or Internet research project could identify forms of entertainment that are free or nearly free.
The miscellaneous category is the most difficult to estimate because it is hard to foresee what it might include. A class discussion based on the tracking exercise suggested at the start of this module will reveal a large variety of miscellaneous expenses.
Notice that Thomas' budget does not include money set aside for emergencies or saving for future large expenses such as a down payment for a car.
Notes to future teachers
Constructing a budget requires facility with basic arithmetic and estimation skills. These are part of standards for mathematics education in every state. Students who are preparing to be teachers should be invited to design lessons based on budgeting suitable to the age group they are preparing to teach. The following videos might lead to good ideas. Alternatively children could plan a budget to save up for something that they want.
Lemonade:
Youtube:
How to start a lemonade:
Hunter and Gunnar's lemonade:
Learning business through Lemonade:
This pie chart is just an example. The students should create using Thomas' actual expenses and another using their own tracked expenses.
For the future teacher:
Students should download this spreadsheet and follow along for the next few slides.
The ability to program and use a spreadsheet is a basic life skill. Asking the students to grapple with spreadsheet software will allow you more flexibility later when considering more difficult scenarios such as loans, credit cards, saving and investing.
The next few slides ask students to learn how to use a spreadsheet. If you don't plan to use spreadsheets, provide them with a worksheet or budget sheet and skip to slide 17.
Students should experiment with changing this number (rent) and see how the total at the bottom changes.
The instructor might want to have the spreadsheet open on the projection screen in order to demonstrate how to do this for students. Note that the formula bar does not appear on the screen shots in these slides, but will appear when you open a spreadsheet on your computer.Notice that formulas appear in the formula bar. Ask students how to adjust the formula for lower or higher rates of insurance.
At this point students should add some categories such as savings and adjust the sum function to include them. Draw the student's attention to the help menu so that they can learn to use other functions.
Have students work in groups to explore how Thomas could reduce his expenses and present their solutions to the class.
Writing assignment: Students could play the role of Thomas' financial advisor and write an essay outlining their recommendation for rectifying Thomas' budget.
This module should culminate in students creating their personal household budget based on their expenses and income, real or projected.
The theme of budgeting is revisited in most if not all of the other modules in this series. It would be profitable to continue the exercise of tracking expenses and maintaining a personal budget for the duration of the course. Students can then be asked to consider issues such as car loans or savings in the context of their own personal financial situation, using their budget as a tool to reach future goals and understand the implications of their financial decisions.
The case study for this module assumes students will use a spreadsheet, which is provided. Instructors may choose to redesign the case study if they are not using spreadsheets.