We all want our children to grow up into adults who make sound financial decisions and properly save, budget, and invest. This is why schools and parents should put in the time and effort to talk openly and responsibly about money. Today we want to make that easier for you, so we are presenting you with the most suitable financial concepts for every grade along with ideas for activities and lesson materials that you can use in the classroom.
Grades K – 5
How Money is Used
In order to understand what money is and how it is used we should first imagine that it doesn’t exist. How would we get what we want? We would have to exchange the items we need for some other goods we can provide. For example, if you are a mechanic who fixes cars and you want to buy some food, you would need to find a farmer who has a broken car that needs to be fixed. If the economy was based on this principle, all of our transactions would depend on finding the right people to trade with.
A long time ago the economy was based on barter, but people found more efficient ways to trade products and services. Many things were used as a medium of exchange over the years, including cowry shells, barley, peppercorns, gold, and silver. As society developed, so did our need for more sophisticated types of money. Today we use paper notes and coins to buy things in stores, instead of exchanging them for goods. For the money economy to work, everyone in the society must share a common understanding of the value and purpose of money.
Wants vs. Needs
One very important distinction in economics is that of wants and needs. Needs could be defined as goods or services that are required for living such as food, shelter, clothing, and healthcare. On the other hand, wants are good and services that are not necessary for survival but are things you desire to possess. For example, even though you require clothes to live, designer clothing is not something you need to live, but something you may only want to have. Wants are things that make our lives more comfortable and enjoyable, but if we did not have money to buy them, we could still live without them.
- University of Illinois Extension: Needs vs. Wants
The term opportunity cost refers to the value of the second-best alternative use of the resource. To better understand the definition, imagine that you have $5 that you can spend either on ice cream or chocolate, and you would like to buy both items. However, you cannot have both because you have limited resources. You are forced to make a choice between the two products. By making the decision to buy chocolate, you have forgone your opportunity to eat ice cream. In this situation, ice cream is your opportunity cost of buying the chocolate.
- Library of Economics and Liberty: Opportunity cost
Whenever there is an interaction between people who produce things that other people buy (producers) and people who buy and use things producers make (consumers) a market is created. This interaction between the two actors determines the price of the product or the amount of money people will pay for a good or service.
- Human condition: Price vs. worth vs value
Activities and Lesson Plans
For helpful lesson plans, you can visit any of the following websites:
- Learn NC: Kids as decision makers – distinguishing between needs and wants
- Take Charge America: The role of money
- Federal Reserve Education: Activities
Grades 6 – 8
Savings and Checking Accounts
A savings account is a bank account which helps you do exactly what its name says – save money for later. Savings accounts usually have higher interest rates than checking accounts (the accounts that are used for day-to-day banking such as expenses and salaries), but the downside is that you cannot get your money out as easily. You might even need to let your bank know in advance if you want to take your savings out of the account. A savings account can be very useful if you are saving large amounts of money for a longer period of time. On top of that, by putting some money into savings, you can avoid the temptation of spending it immediately.
A checking account is an account which allows you to use checks, direct deposit, or an ATM card to pay for goods and services instead of cash. A check is a written order instructing the bank to pay the amount of money to an individual or entity you specified. Your account has to already have money it for any of these payment methods to work.
- Brightside: Savings accounts explained
- GCF Learn: Managing a checking account
If you decide not to spend your money, but save it for later in a savings account, the bank will pay you to keep your money safe. You may wonder why they would do that, and the simple explanation is that this is how banks function. They use money deposited into a savings account to give loans to other clients. For every day of keeping your money on the account, the bank will give you a certain amount of money in exchange, which is called interest. Interest rates may fluctuate because they are affected by changes in the economy.
There are two types of interest:
- Simple interest – calculated on the amount of money you deposit
- Compound interest – calculated on your deposit plus any interest you have already earned
- Brown University: Understanding interest
There are three types of taxes: income, sales, and property tax. When you have a job and work to earn money, there is a certain part of your monthly salary that you do not receive, but pay to the government – this is called an income tax. Similarly, when you purchase some item at the store, you pay the sales tax, a percentage of the cost of the item charged by the store. If you had property, you would also have to pay taxes on the value of your property. Why is the government taking all this money and how is the money spent?
Taxes are the means by which government collects money for public costs. Taxes you pay to the government are used to fund salaries of government workers and pay for services such as police and firefighters, the maintenance of public roads, parks, libraries, and schools. Furthermore, it may be used to help the disadvantaged. Paying taxes is not a matter of choice, but a civic duty which is required by law. If you do not pay taxes, you can be fined or have your wages and tax refunds garnished.
- Wonderopolis: Why do you have to pay taxes?
Debit and Credit Cards
There is little difference in what a debit or credit card looks like, but they work very differently. When you use a debit card to pay for your purchase, the cost of the item you bought is automatically deducted from your account. This means that before the purchase you need to have a sufficient amount of money deposited into your account in order for the transaction to be completed. When you use a credit card, on the other hand, you are taking out a loan from the credit-card company and the bank in the amount purchased. You are supposed to pay back this money on time. Otherwise, you are required to pay an interest rate. The amount of money you can spend with your credit card is limited by the bank, and it represents your ability to handle debt.
- The Mint: Cash, check or credit?
Activities and Lesson Plans
Visit any of the following websites to find great activities and lesson plans:
- IRS: Understanding taxes
- Kids.USA.gov: Explaining taxes to kids
- Hands on Banking: Teachers guide
Grades 9 – 12
Inflation and Deflation
Inflation is the rate of increase in prices over a given period of time. It is most commonly measured by calculating changes in the Consumer Price Index (CPI) and the Gross Domestic Product (GDP). The government determines the average consumers’ costs of living by conducting household surveys to find out which goods and services are most commonly found in a consumer’s basket (it includes expenses such as food, transportation, rent, utilities, etc.). The cost of household expenses (a consumer’s basket) at a given time expressed relative to the base year represents the measure of the Consumer Price Index. Economists track changes in CPI to measure the amount of inflation in a certain time period.
Deflation is the economic process opposite to inflation, and it represents the decrease in the price levels of goods and services.
- Social Science Education Consortium: Economic Investigations – Inflation
The Federal Reserve System, comprised of a Board of Governors based in Washington DC and 12 regional Federal Reserve Banks serves as a central bank for the United States. The central bank is an institution in charge of helping the economy grow at a sustainable pace by keeping the monetary system stable and growing with low inflation. Together with Congress, in charge of fiscal policy, the Fed keeps the economy going in the right direction.
There are three main functions performed by the Federal Reserve. First of all, it sets the monetary policy of the country, then it supervises and regulates banks, and lastly it serves as a bank for depository institutions and the federal government. The Federal Reserve is very important for the economic stability of the whole country. By minimizing the risks that may arise in financial markets it helps businesses make better buying and spending decisions.
- Federal Reserve Bank of Atlanta: The Fed explains the Central Bank
Economic impacts are defined as changes to the economic base of a region as a result of the industry, event, or policy. These changes include bringing new revenue into a region that would otherwise not get it or keeping revenue in a region that would otherwise lose it.
- Bureau of Land Management: Determining Economic Contributions and Impacts
Loans, Credit, and Debt
A loan is an act of receiving money, property, or other material goods from an individual, entity, or government in exchange for future repayment of the principal (amount borrowed) along with interest rate or some other finance charges. In order to protect your rights when making this kind of agreement, make sure that you understand all the specifications of the transaction outlined in the document you are signing. Remember that interest and fees from loans are a primary source of revenue for many financial institutions such as banks.
- Treasury Direct Kids: Have you ever borrowed money?
- WiserWomen.org: Protect Your Students: Credit Card Debt 101
- North Carolina Department of Public Instruction: Financial Literacy: Credit (PDF)
- EconomicsCenter.org: College Loan Debt: Is It Worth It?
Activities and Lesson Plans
For grade-appropriate lesson plans, you can visit any of the following websites:
- State of New Jersey Department of Education: The impact of inflation
- Philadelphia Federal Reserve: Your introduction to the Federal Reserve and you lesson
- InCharge Institute of America: Lesson credit
Resources for Educators
For more information and resources, the National Endowment for Financial Education, the Federal Reserve, and MyMoney.gov offer some great material.
- National Endowment for Financial Education: Financial education
- Federal Reserve Education: For educators, students, and consumers
- MyMoneyFive.gov: My money five