# Saving Money vs. Buying on Credit: A Lesson Plan

By Anne Vize

Saving money means we can plan for the future and set goals about what we would like to buy in the longer term. Teach young people the value of saving for the future rather than spending everything now, or buying on credit.

## Saving for a Rainy Day

The concept of saving is a simple one. If we put aside a little bit of money each time we earn, we will have a bit left over to spend later. Unfortunately, as more and more people use credit as an alternative to saving, young people forget this vital life skill.

Introduce this session by bringing in a money box filled with coins. Show it to your students, and ask them how many have something similar at home. Discuss the concept of saving, and why people in the past used to have a little jar or box of money to spend on small items.

Next, ask students to think about their own personal budgets for a week. List their expenses, including transport, activities, clothing, sports, entertainment and food. Total this amount (a good refresher from the session on budgets). Then work out how much is left over as savings. Ask students to multiple the amount they can save for a week by 52, to get a yearly value. Lastly, ask them to think of five things they could buy that would be approximately that value.

## Savings in the Bank

It is challenging to teach compounding interest to young people, as the math behind it is difficult to do by hand. However, students can gain some understanding of the value of putting their savings into a bank in two ways:

1. Ask them the question 'how often do you make an impulse purchase, and what do you buy on impulse?' Then develop this into a discussion about how bank accounts can prevent impulse buying because the money is not so easily available. Money in the bank cannot be used straight away, providing young people avoid the 'credit trap' of using a card to make purchases on impulse.

2. Use simple interest math to show how \$100 invested in a bank account at the current interest rate will grow over time. Discuss key terms such as simple, compound, annual, term deposit and variable rate interest.

## Savings Tin

As a tangible reminder of the importance of saving, ask students to bring in a jam jar or some other sort of tin from home, and a coin. Provide students with a range of colored balls of wool and some colored paper. Paste the paper onto the outside of the tin, then use the wool to wrap around and around the tin to create a unique pattern. These tins can then be used at home as a savings tin. Ask students to place their coins into the tin, and then challenge them to fill their tin over time, rather than ever letting it get empty.

## Goal Setting Lesson Plan

Introduce this session by asking students to work in pairs to write a list of larger items or activities that people may use credit to purchase. Examples might include:

• flat screen televisions
• computers
• holidays
• cars
• houses
• going to college
• moving out of home costs
• appliances: fridge, microwave, dishwasher

Then ask students to write an estimate of roughly what they think each item might cost. For some items they may need to give more information and detail (for example, if they were estimating costs for a holiday, they may need to write where the holiday is to, where they might stay and how long the holiday is for).

Lastly, ask students to nominate one of the items from their list to use as their example for the rest of the activity.

## Timeline

Savings plans only work if there is an allocated timeline associated with them. A goal which has no timeline lacks meaning, and is impossible to measure in terms of whether or not the goal has been met.

Ask students to individually write a timeline for their savings goal item. For example:

Savings goal item - flat screen TV

Estimated cost - \$1200

Timeline for purchase - 26 weeks (six months)

Students then use simple division to work out how much they would need to save per week in order to purchase their savings goal item.

For example:

\$1200 divided by 26 = \$46.15 per week

Students then ask themselves if this is a reasonable amount for them to save each week, given their other expenses such as general living costs, travel, schooling costs, entertainment and so on.

The timeline can then be adjusted as needed to account for students' ability to save the nominated amount each week.

For example:

\$1200 divided by 52 weeks = \$23.07 per week

## Discussion on Debt

The last part of this activity is a whole class discussion of the alternatives to savings. Young people are surrounded by advertising which aims to persuade them that debt is a necessary part of life, and that it should be used for everyday purchases as well as larger items and activities. Focus this discussion on the pros and cons of going into debt, and encourage students to talk freely about their ideas and experiences.

Some students may find this activity challenging if they have seen people they love getting into trouble with managing money, such as in families where someone has lost a job or has lost their house due to finance problems. Tread carefully here, and avoid topics which may cause distress to some students. Remind students that they are free to talk or not talk during the discussion, and that they should only disclose non personal information which is not likely to cause harm or upset to another person.

## Lesson Outcomes

By the end of this session, students should be able to:

• write or name a savings goal of their own
• estimate the cost of reaching their goal
• calculate the time it will take them to save for their goal
• make an informed choice about the best way to reach their goal

Try these links for some further resources on saving:

http://www.understandingmoney.gov.au/content/media/releases/

http://www.practicalmoneyskills.com/english/resources/games/

There are also some great activities in my book published by Phoenix Education 'Maths Skills for Living' (Anne Vize) at www.phoenixeduc.com