Take Charge of Your Finances Advanced Level EACH FEFE LESSON PLAN IS DESIGNED AND CONTINUALLY MATERIALS

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1 Page SPENDING PLANS Take Charge of Your Finances Advanced Level RECOMMENDED GRADE LEVELS AVERAGE TIME TO COMPLETE Anticipatory Set & Facilitation: 180 minutes Conclusion/Assessment Options: minutes EACH FEFE LESSON PLAN IS DESIGNED AND CONTINUALLY EVALUATED BY EDUCATORS, FOR EDUCATORS. THANK YOU TO THE FOLLOWING EDUCATORS FOR DEVELOPING SPECIFIC COMPONENTS OF THIS LESSON PLAN. Kim Knoche, Family Consumer Sciences, Forsyth High School, Forsyth, MT Deani Goyette, Business, Forsyth High School, Forsyth, MT Tracey Newman, Family and Consumer Sciences Educator, Ste. Genevieve, Missouri NATIONAL STANDARDS For additional national standard or specific state standard alignment information, visit National Family and Consumer Sciences: 1.1.6, 2.1.1, 2.1.2, 2.1.3, 2.1.4, 2.1.5, 2.1.6, 2.1.7, 2.1.8, 2.5.1, 2.5.4, 2.6.1, 2.6.2, 2.6.4, National Council on Economic Education Teaching Standards: 3, 7 National Standards for Business Education: Economics: VI.3 Personal Finance: II.1, III.1, III.2, IV.4 LESSON PLAN OBJECTIVES Upon completion of this lesson, participants will be able to: Define financial planning Describe the benefits of financial planning Understand the components of a spending plan Review how financial goals can be met by using a spending plan Analyze the spending plan process Create a spending plan MATERIALS PROVIDED WITHIN THIS LESSON PLAN Where s My Dough? A1 The Brown Family Scenario A2 Spending Plan: Mission Home Front A3 Spending Plans A4 The Carson Family A5 Where Does the Money Go? A6 Letter of Advice for the Brown Family Rubric B1 Spending Plans Vocabulary List MATERIALS MATERIALS SPECIFIC TO THIS LESSON PLAN BUT AVAILABLE IN A SEPARATE DOWNLOAD AT Spending Plans Answer Key C1 Spending Plan Template E5 Spending Plans Information Sheet F1 Spending Plans PowerPoint Presentation G1 Spending Plans Unit Test Bank M1 MATERIALS THAT MAY NEED TO BE ACQUIRED SEPARATELY Play Dough (1/4 cup per participant) Different colored pencils or crayons per participant (~ 6 colors) Gumball machine with gumballs 2 x 4 mailing labels Material List Continued on Page 2

2 Page E1 Quiz Me Cards E2 Homemade Play Dough E3 Envelope Spending Plan System Labels E4 Spending Plan Activity Cards H1 Where Does the Money Go? Chance Cards H2 Brown Family Answer Key K1 Spending Plans Note Taking Guide L1 SUPPLEMENTAL RESOURCES FEFE RESOURCES May be found in the download free lesson plans section at Similar lesson plans at different levels and different time frames: Diving into Spending Plans Spending Plan Essentials Additional FEFE resources that may supplement this lesson plan: Life in United States Life of Video Clips Relating to Financial Education Gumball Machine OTHER RESOURCES MYLIFE Junior: lifejunior.htm Budget Doctor s Food Budget Obesity video clip: budgetdoctor/video gallery/ Free Electronic Spending Plans: o urces/calculators o Free Electronic Control Systems: o Mint: o PearBudget: CONTENT FEFE is a project of the Take Charge America Institute at the University of Arizona. All content used in FEFE lesson plans has been developed in collaboration with personal finance experts. EDUCATOR READING Reading materials are provided to help educators gain a better understanding of background information for this lesson. The educator reading Includes a complete list of references. Not available for this lesson PARTICIPANT READING Participant textbook Spending Plans Information Sheet F1

3 Page LESSON FACILITATION FEFE lesson plans are designed in a ready to teach manner that allows educators to easily customize instruction to fit their classroom needs. To assist in this process, icons are provided to help navigate the facilitation section. A description of each icon can be found at VOCABULARY ACTIVITY (OPTIONAL) TIPS Approximate time: 30 minutes prior to instruction and 20 minutes at the end 1. Print enough Quiz Me Cards E2 for each student to have one for each vocabulary word. 2. Divide participants into groups of 2 3 and instruct them to read the Spending Plan Information Sheet F1. a. While reading, instruct participants to identify vocabulary words (usually in bold). 3. Instruct participants to complete the first half (vocabulary word and definition in their words) of their Quiz Me Cards E2 using the vocabulary words on the information sheet. a. Participants will have the opportunity to complete the bottom half at the conclusion of the lesson. 4. The quiz me cards are divided into four separate categories and should be completed as follows: Vocabulary Word Graphic or Picture Definition in your words Sentence using the word Value Something that I believe is important in my life I value my family members. 5. Instruct participants to set aside their Quiz Me Cards E2 until the conclusion of the lesson. ANTICIPATORY SET Where s My Dough? Approximate time: 10 minutes The purpose of the Where s My Dough? activity is to introduce the spending plan development process and have participants identify their personal expenses and begin to think of expenses they may incur in the future. Discussion resulting from the activity can be integrated throughout various topics in the remainder of the lesson facilitation. 1. Ask participants to brainstorm a list of items that they use in their life that costs them or a caregiver money. Ask participants to share some of these items with the class. Examples may include: a. Cellular phone b. Food c. Gasoline Use index cards instead of the provided Quiz Me Cards. Use a D ring to keep the cards organized. See the Spending Plans Vocabulary List E1 for a comprehensive list of words. Sample Quiz Me Cards are available in the Spending Plans Answer Key C1. If time is limited, complete the Quiz Me Cards for a limited number of terms. The Homemade Play Dough E3 is provided for those who wish to make their own play dough.

4 Page Discuss with participants additional costly items that they use and might not be as aware of. Ask participants to add these items to their list (if applicable). Examples may include: a. Insurance b. Utilities c. Clothing 3. Ask participants to identify who paid for each of the items on their list. Ask participants to identity who pays for the majority of their expenses. 4. Have them estimate how much money is spent per item per month. 5. Instruct participants to divide the items on their list into similar categories. a. For example, snacks and groceries can both fall under the category of food. 6. Distribute approximately ¼ of a cup of play dough to each participant. The amount distributed does not need to be identical for each person. 7. Tell the participants that the play dough they are receiving represents income. 8. Remind participants that similar to real life, they have a limited amount of income and discuss why. a. Do some individuals earn more than others? (Represented in the different amounts of play dough given to each participant). b. What circumstances can provide a person with more dough? c. What are ways to increase one s income? 9. Ask participants to flatten their play dough into a pie shape and then separate it into percentages representing the amount of money they spend (or someone spends on them) for each category that they developed. Participants should use the monthly estimates developed in step 4 to develop their percentages. 10. Inform participants that they have started to develop a spending plan! Throughout the remainder of the lesson they will learn the specifics of the spending plan development process. 11. Optional: If the Spending Plans Note Taking Guide L1 will be used throughout the remainder of the facilitation, pass out one to each participant. a. Provide each participant with a variety of different colored pencils or crayons. b. Instruct participants to complete the first circular pie chart on their note taking guides indicating the amount of play dough they distributed per category in pie chart. c. Remind participants that their percentages must total 100%. d. Remind participants to write their percentages next to the category title. RECOMMENDED FACILITATION Approximate time: 170 minutes 1. Optional: Pass out one Spending Plans Note Taking Guide L1 to each participant (if they don t already have one). 2. Pass out one The Brown Family Scenario A2 to each participant. a. In small groups of 2 3, have the participants read the Brown family scenario. b. Identify that the participants are financial advisors who John and Tia have come to for advice. 3. Present the Spending Plan PowerPoint Presentation G1 a. Slide 1: Introduction If play dough is not available or feasible to use, participants can draw instead of sculpt their pie charts. Where s My Dough? A1 is provided as an optional facilitation tool for this anticipatory set. To illustrate the importance of using a spending plan, show the episode titled Theo s Holiday from The Cosby Show. Refer to the Video Clips Relating to Financial Education for information relating to this video. The answer key for the Brown Family Scenario is located within the lesson plan Brown Family Answer Key K1.

5 Page Part 1: What is a Spending Plan? b. Slide 2: Typical Spending Plan Pie Chart i. Explain that the percentages provided are the typical percentages spent in each expenditure area. ii. Optional: If the note taking guide is being used, instruct participants to color and identify the percentages in the second pie chart to create the recommendations for each of the major expenditures. iii. Ask participants to determine what variables may cause these percentages to be different. 1. Where a person lives (cost of living) 2. Dependents 3. Marital status 4. Age 5. Life Cycle Stage c. Slide 3: Having a plan i. Reinforce that financial planning is a process that is ongoing and individuals are continually evaluating and making adjustments to accommodate changes. That is why a spending plan is a plan. d. Slide 4: Everyone has a unique spending plan i. Explain that everyone has a different spending plan that is based upon their personal values, needs, wants. ii. Ask the participants to brainstorm values which may influence a person s spending: family, friends, hobbies or interests. iii. Ask the participants to brainstorm needs an individual may have: food, clothing, shelter. iv. Ask participants to brainstorm wants an individual may have: ipod, concert tickets, designer clothes. v. Discuss how a person s perception of needs and wants (or what they consider to be a need versus a want) affects their spending. vi. Working in groups, have participants identify the Brown family s values and how those values may affect their spending. 1. Family 2. Time with friends 3. Education (saving for the baby s college fund) 4. Financial security (make saving money a priority) To focus on the life cycle of financial planning concept, have participants discuss how the typical spending plan pie chart could vary for different life cycle stages. Have participants adjust their play dough pie charts created in the anticipatory set to represent spending plans at different life cycle stages. Part 2: Financial Goals e. Slide 5: SMART Financial Goals i. Ask participants why goal setting is important. Answers may include: 1. To have a plan 2. To meet future needs and wants 3. To feel more secure f. Slides 6 7: SMART goals i. Instruct participants to write one personal SMART financial goal. ii. Have groups share their goals with one another and provide peer feedback analyzing if any component of a SMART goal is missing and re write their goals. iii. Instruct groups to complete Step 1 on The Brown Family Scenario

6 Page A2 to write SMART goals for the family. Part 3: Components of a Spending Plan g. Slide 8 9: Components of a Spending Plan i. Reinforce that the gumball machine is a visual example of the financial planning process. ii. Income 1. Instruct participants to brainstorm types of income. These are represented by gumballs going into the machine. Examples may include: wages for a job, an allowance, a gift. iii. Expenses 1. Reinforce that fixed expenses often, but not always, have the same amount due each month. If the expense is contractual and not easy to eliminate, it should be considered a fixed expense. An example of this is a cell phone bill that may vary in cost each month but usually has a contract and cannot be eliminated easily. 2. Instruct participants to brainstorm expenses represented by gumballs leaving the machine. Differentiate between fixed and flexible expense examples. Examples may include: rent, food, entertainment, concert tickets. iv. Point out that when an individual does not use credit or savings, then s/he should have more income (green gumballs going in) than expenses (red and yellow gumballs going out). Part 4: Spending Plan Activity h. Slides 10 16: Spending Plan Activity i. Conduct the following activity about income, fixed, and flexible expenses. 1. Divide the participants into teams of three or four people. Give each team a set of Spending Plan Activity Cards H1. 2. List one item at a time on the PowerPoint. 3. Each team must identify if the item is income, a flexible expense, or a fixed expense by holding up the corresponding card. 4. Discuss why each item belongs to each category. Some items may fit into more than one category depending upon the individual. Therefore, remind participants that everyone has a unique spending plan. Tell participants that they should determine their answers to this activity according to what would fit in their personal spending plan and discuss within their group. ii. Ask participants to determine why this activity is important. Why is it important to distinguish between income, fixed expenses, and flexible expenses? 1. To determine how to adjust spending within a spending plan. It is important to be able to distinguish between fixed expenses and flexible expenses, because fixed expenses are not easy to adjust or cut from a spending plan (especially Refer to Gumball Machine Lesson Plan for further information regarding the gumball machine. An alternative to the spending plan activity is to have participants make a list of their own income and expenses and then categorize them. For easy recognition, color code the Spending Plan Activity Cards H1 by placing all income cards on the same colored piece of paper, all fixed expense cards on a different colored piece of paper, etc.

7 Page those that are contractual in nature). Part 5: Spending Plan Development Process i. Slide 17: How to Develop and Maintain a Spending Plan i. Explain to participants that there are five steps to developing and maintaining a spending plan. ii. Stress the importance of continually evaluating and maintaining a spending plan. j. Slide 18: Step 1: Track Current Income and Expenses i. Knowing exactly where your money is being spent is essential to developing a realistic spending plan. k. Slide 19: Tracking methods i. There are different methods a person can use to track their income and expenses. l. Slide 20: The Costs Add Up i. Have participants reflect upon their expenses from the beginning of the lesson and calculate how much those expenses add up to during a year. ii. Explain to participants that when tracking expenses it is important to take into account all expenses. The next several slides outline specific expenses for each major expenditure category. m. Slide 21: Gross vs. Net Income i. Emphasize to participants that an individual s gross salary is not the same amount of money that they will take home each pay period. They will take home their net pay which is the gross with all deductions taken out. ii. Stress that when developing a spending plan, we use net pay. However, it is important to understand that approximately 30% of pay goes to taxes and other payroll deductions. n. Slide 22: Payroll Deductions i. Instruct participants to brainstorm services they received that are paid for by taxes. Examples may include: public schools, transportation, and libraries. o. Slide 23: Saving and Investing i. It is important to factor saving and investing into a spending plan. The pay yourself first strategy helps people develop a saving habit. ii. It is recommended to save 10 20% of net income every month until a minimum of six months worth of expenses is reached. Once an appropriate amount of savings is reached, it is recommended that savings be redirected to investing in order to increase wealth. p. Slides 24: Housing i. Discuss the various expenses associated with housing. 1. Discuss with participants that the amount of money for the housing categories may differ depending upon what type of home a person lives in. For example the amount of money spent on maintenance of a home will be more than an apartment because with an apartment the landlord is often responsible for the maintenance. q. Slides 25: Transportation Have participants record their answers on whiteboards instead of using the activity cards provided. The Spending Plan Template E5 is available to reference and show participants. If the Where s My Dough? anticipatory set was completed at the beginning of the lesson, explain to participants that they already explored steps 1 3 and started to create a spending plan. Refer to this activity as the spending plan development process is discussed. Conduct The Costs Add Up slide similar to a game from the popular game show The Price is Right. Have participants guess the dollar amount. Or, give a dollar amount and have participants if the actual amount is more or less. For The Costs Add Up slide require participants to complete the math on their own to see how much money each item would cost.

8 Page i. Discuss typical expenses associated with transportation. r. Slide 26: Food i. Discuss with participants that it is usually more expensive to eat at a restaurant than to prepare meals at home. s. Slide 27: Insurance i. Have participants identify types of insurance. 1. Health, disability, life, automobile, housing ii. Discuss with participants why individuals may not have insurance and the negative implications this could have. 1. A discussion point may include that individuals do not see the rewards of insurance on a daily basis. They will pay money towards it monthly; however, until the insurance is needed it seems unnecessary. t. Slide 28: Other Expenses i. Have participants brainstorm what other expenses may be included in a spending plan. u. Slide 29: Step 2: Creating Personalized Income and Expense Categories i. The tracking from step one will be referenced to develop personalized categories. v. Slides 30: Step 3: Allocate Money to Each Category i. Remind participants that their tracking is a guide for setting up categories and deciding how much to allocate to each category. ii. Reinforce that they should consider if something unusual happened the past month of a category that is higher or lower than usual. iii. If participants would like to make a change (such as to begin saving) they must think about practices to implement that change. iv. Participants should reference goals set and allocate money in the proper categories. w. Slide 31 32: Spending Plan Template i. Discuss different types of spending plan templates. x. Slide 33: Net Gain or Net Loss? i. Explain that a spending plan should always have a zero balance. If extra money is left it should be added to savings. y. Slide 34: The Brown Family i. Have groups reference The Brown Family Scenario A2 and complete steps 2 and 3. z. Slides 35 36: Step 4: Implement and Control i. Explain that there are many different types of control methods and a person should find the method best for them. ii. Electronic control systems are becoming very popular, especially those that have a linking cell phone application. aa. Slide 37: Step 5: Evaluate and Make Adjustments i. Explain that this is an important step in the process of maintaining a spending plan. bb. Slide 38: The Brown Family i. Have groups reference The Brown Family Scenario A2 and complete steps 4 and 5. For The Costs Add Up slide have participants consider their current job (or identify they are making minimum wage) and calculate how many hours they must work to pay for that expense. During the food section, show the Budget Doctor s video titled Food Budget Obesity. Refer to the Video Clips Relating to Financial Education for more information. At slide 32, show participants the Spending Plan Template E5. Links to other sample electronic spending plans are available in the supplemental resources section. Show an example of the envelope system using the Envelope Spending Plan System Labels E4. Print the provided labels on 2 x 4 mailing labels. Sample electronic control systems are available in the supplemental resources section.

9 Page Part 6: Why is it important to develop a spending plan? cc. Slide 39: What is the long term positive impact of a spending plan? i. Now that participants have discussed the components and process of a spending plan, have them identify advantages to using one. dd. Slide 40: Net Worth Statement i. Identify that a net worth statement is an illustration of whether or not an individual is managing their spending plan to build long term wealth and security. ii. A spending plan is a daily cash management tool whereas a net worth statement indicates overall financial security. ee. Slide 41: Who is Wealthier? i. Ask the participants to identify who is wealthier, Juanita or Alexis. ii. Identify that although Juanita earns much less than Alexis, Juanita is wealthier, because she does not owe as much on her assets and does not have credit card debt. iii. Reinforce that income does not equal wealth. Wealth is created through daily cash management principles with a goal towards asset acquisition with minimal liabilities. ff. Slide 42: Gumball Analogy i. Illustrate wealth with the gumball analogy. ii. Wealth is the amount of gumballs in the machine. It symbolizes the amount of wealth/money available for future consumption. iii. The goal is to use a spending plan to keep gumballs in the machine. gg. Slide 43: Conclusion CONCLUSION OPTIONS Quiz Me Cards Approximate time: 20 minutes If Quiz Me Cards E2 were completed at the beginning of the lesson, have participants complete the cards with a graphic or picture and write a sentence using the word. Or Have participants calculate how much they are worth by creating an individual net worth statement. Discuss how a person s net worth statement changes throughout the life cycle. For additional vocabulary reinforcement, have participants gather signatures from adults on the back of the card when they use the word in daily conversation. Play Memory, Charades, or Pictionary with the Quiz Me Cards.

10 Page Letter of Advice for the Brown Family Approximate time: 45 minutes Extend the Brown Family Scenario. Have participants write a letter to John and Tia as their financial advisors. Refer to the Letter of Advice for the Brown Family Rubric B1 for instructions. Or Have participants work in teams and act out a meeting between the Brown family and the financial advisor(s). The financial advisor(s) can provide the family with the same advice outlined in the letter. Create a video of the meeting. Interview Approximate time: 15 minutes if reflection questions and a discussion are completed in class Complete Spending Plan: Mission Home Front A3 with an adult. Have an in class discussion regarding what was learned from the interviews. ASSESSMENT OPTIONS Reinforcement Worksheet Approximate time: 15 minutes Complete Spending Plans A4. Or Scenario The Carson Family Approximate time: 45 minutes Complete The Carson Family A5 individually or in small groups. Or Have participants write a letter of advice to the Carson family similar to the letter of advice for the Brown Family.

11 Page Simulation Approximate time: 90 minutes Complete Where Does the Money Go? A6 individually or in small groups. Participants create the life of an American teenager. The Where Does the Money Go? Chance Cards H2 are used in the simulation. Participants may need to complete additional research to determine realistic average expenditures for their teenager. The major expenditure choices provided in the FEFE Life in United States simulation may be used as a reference. The MYLIFE Junior website may also be a great resource. Refer to the supplemental resources section for the website address. Have participants interview an adult to obtain realistic expenditure amounts. To add an additional component to the Where Does the Money Go? activity, have participants write a story about the teenager they created the spending plan for or create a digital storyboard outline the teenager s life.

12 Page E1 Spending Plans Vocabulary List TERM DEFINITION 1 Assets Everything a person owns with monetary value 2 Check register system A control system where expenses are tracked in a checkbook register which has been divided into spending plan categories 3 Electronic spending A control system that utilizes some type of electronic software plan system 4 Envelope system A control system where an Individual places the actual budgeted amount of cash into the specific envelope labeled for the expense 5 Expense Money spent 6 Financial goal Specific objectives to be accomplished through financial planning 7 Financial planning A tool used to achieve financial success based upon the development and implementation of financial goals 8 Fixed expense Expenses that often have a fixed amount due each month, may be contractual, and are not easy to reduce or eliminate 9 Flexible expense Expenses that vary each month in the amount owed, are not contractual, and do not have to be paid by a certain date 10 Goal The end result of something a person intends to acquire, achieve, do, reach, or accomplish 11 Gross income The total amount of money earned during a pay period before payroll deductions 12 Income Money earned 13 Insurance An arrangement between an individual and an insurance company to protect the individual against risk 14 Liabilities Debts or what is owed to others 15 Need A essential item required for life 16 Net gain The positive amount of money remaining after subtracting expenses from income 17 Net income The amount of an individual s take home pay after taxes and other deductions have been taken out 18 Net loss The negative amount of money remaining after subtracting expenses from income 19 Net worth The amount of money left when liabilities are subtracted from assets 20 Net worth statement A financial statement that describes an individual or family s financial condition on a specified date 21 Savings Portion of current income not spent on consumption 22 Spending plan A paper or electronic document used to record both planned and actual income through expenditures over a period of time 23 Taxes Citizen charges by local, state, and federal governments 24 Value A fundamental belief or practice about what is desirable, worthwhile, and important to an individual 25 Want Something unnecessary, but desired 26 Wealth Measurement of how much a person or household owns once all debts have been paid

13 Page E2 Quiz Me Cards Vocabulary Word Definition in your words Vocabulary Word Definition in your words Picture Sentence using the word Picture Sentence using the word Vocabulary Word Definition in your words Vocabulary Word Definition in your words Picture Sentence using the word Picture Sentence using the word

14 Page E3 Homemade Play Dough Directions: Use these step by step directions to make homemade play dough to use during the Where s My Dough activity. Bake Play Dough This recipe will create play dough which can last approximately three months in an air tight container. Ingredients: 1/2 cup flour 1/4 cup salt 1/2 cup water 1/2 tablespoon oil 1/2 tsp cream of tartar a few drops of food coloring Directions: 1. Mix all except the last ingredient (food coloring) in a small saucepan. 2. Cook over a very low heat until it turns into dough (this process should only take a few minutes). 3. Knead the dough on a floured surface until cool enough for kids to touch. 4. Separate the dough into as many colors as you want to make. 5. Put a few drops of coloring in each ball and knead until evenly mixed. No Bake Play Dough This easy recipe works well, but the play dough will not last long. 1 cup cold water 1 cup salt 2 teaspoons vegetable oil 2 cups flour 2 tablespoons cornstarch Food coloring In a large bowl, mix together water, salt, oil and a few drops of food coloring. Mix flour and cornstarch and add 1/2 cup at a time, stirring constantly (you may need a little more or a little less than 2 cups flour so make sure you stir in until it is the right consistency). Knead for a few minutes with flour on your hands.

15 Page A1 Where s My Dough? Step 1 Step 2 Step 3 Step 1 Step 2 Step 3 Item that costs Who pays for Cost of item Item that costs Who pays for Cost of item money this item? per month money this item? per month Step 4: Divide items into similar categories Category: Category: Category: Item Cost of item Item Cost of item Item Cost of item Category: Category: Category: Item Cost of item Item Cost of item Item Cost of item Step 5: Create a pie chart representing the amount of money that is spent on every category

16 Page L1 Spending Plans Note Taking Guide Total Points Earned Total Points Possible Percentage Name Date Class Where s My Dough? Your percentages pie chart How are your percentages different from the recommended and why? Recommended percentages pie chart Housing Transportation Food Insurance Other Saving & Investing What variables may cause these percentages to be different? Financial planning is: A want is: Everyone has a unique spending plan based upon values, needs, and wants. A tool used in financial planning: A need is: A spending plan is: A value is:

17 Page L1 SMART Goals Term S M A R T Definition Why is goal setting important? A goal I have is: Revised as a SMART goal: Income: Fixed expense: Flexible expense:

18 Page L1 Spending Plan Process Step 5 Evaluate And Make Adjustments Step 1 Track Current Income And Expenses STEP ONE: Why is it important to track expenses? 1 Step 4 Implement And Control Step 3 Allocate Money to Each Category Step 2 Creating Personalized Income and Expense Categories What time frame should be used? Definition: Examples: Payroll Deductions Definition: Gross Income Net Income Is gross or net income used is used to calculate percentages in a spending plan? Why? Saving and Investing It is recommended that a person save:

19 Place a next to expenses you currently have or someone provides for you. Page L1 Examples of Housing Expenses: Examples of Transportation Expenses: Examples of Food Expenses: What is insurance? Examples of Insurance: Examples of Other Expenses not included in the major expenditures: 2 STEP TWO: Why are spending plan categories different for everyone s spending plan?

20 Page L1 STEP THREE: What are three things that should be done during this step: 3 To reach a zero balance what should an individual do if they have a: Net gain: Net loss: Why is implementing a control system important? STEP FOUR: 4 STEP FIVE: Why is evaluating and adjusting a spending plan important? 5 Why is a net worth statement an important tool? Assets Liabilities Net Worth =

21 Page A2 The Brown Family Scenario Total Points Earned 71 Total Points Possible Percentage Name Date Class Congratulations! You have been hired as a financial advisor for the Brown family. The family needs assistance creating a spending plan that fits their personal values, needs, wants, and goals. Directions: Read the scenario and underline all sources of income for the Brown family; put a box around all expenses for the Brown family. (5 points) Tia and John Brown have been married for two years and are awaiting the arrival of their first baby in two short months. John is a branch manager at a local bank which provides adequate benefits including health insurance for John, Tia, and their newborn. John s net income is $ paid monthly. Tia works part time running a wedding coordination business out of their home which provides an additional $800 net income per month after taxes are paid. In the past, John and Tia have not used a spending plan. Their expenses were tight, but they always managed to get by without using credit cards. However, they also do not have much in their savings account. John and Tia have set a short and long term goal in preparation for the baby s arrival. Their long term goal is to deposit $50 each month into a savings account for the baby s college fund. Their short term goal is to begin saving at least $150 per month for emergencies to begin building their net worth. They know that to be able to achieve these goals and get their finances organized; they must develop a spending plan. They tracked their expenses for a month and here is an analysis of their current spending. John and Tia live in a two bedroom two bathroom rented condominium in a large metropolitan area. They pay $900 per month, and this includes utilities. They know that this will become a bit cramped with one bedroom already being used as Tia s office, but will become the baby s room. However, they really like their home and seldom have overnight guests. John drives a Toyota Camry which they own without payments. Every six months they allocate $900 for maintenance, repairs, gasoline, and oil changes. Tia uses the public subway system to travel around the city when necessary. This costs the Brown family $50 per month. Tia and John love to eat out and meet on Mondays and Wednesdays at a café near John s office for a lunch date. Friday nights they also eat dinner at one of their favorite restaurants, often with friends. They spend an average of $300 per

22 Page A2 month for groceries and $350 per month eating out. They have made a commitment to themselves that once the baby arrives they will save money on food and eat out only once per week. John and Tia s family are very excited about the arrival of their baby. They have opened a savings account in John and Tia s name and deposited $1,000 to begin a college fund. To meet their previously stated savings goals, John and Tia save $150 per month in their account in addition to depositing $50 per month into the baby s college fund. In the spending plan John and Tia are developing, they also allocate, $100 per month for the baby s expenses, $100 per month on personal care including clothing, and $150 per month for automobile and life insurance. At the end of the month, if any additional money is left over they add it to their savings. John and Tia have come to you as their financial advisor. They need you to help them implement the spending plan process to develop a spending plan, analyze their expenses, and make recommendations for how they could best manage their money. STEP ONE: Track expenses. John and Tia have completed this step. Indicate one SMART short term and one SMART long term goal for the Brown family that have not been stated in the scenario. 1. What is one SMART goal the Brown family should have within the next year? (1 point) 2. What is one SMART goal the Brown family should have beyond the next year? (1 point) STEP TWO: Identify spending plan categories. Review the spending plan template below. Ensure that the categories noted are appropriate for John and Tia s income and expenses. 3. Why were taxes not included in this scenario? (1 point)

23 Page A2 STEP THREE: Allocate money to each category. Based upon the scenario, complete the following table using the information that was gathered. Remember that the amounts indicated in the table should be based upon the monthly amount. (1 point per category and total for a total of 16 points) Date: February 2011 Spending Plan Designed for: The Brown Family Income Amount Wages/salary for Tia (Net pay) $ Wages/salary for John (Net pay) $ Total Income $ Expenses Amount Fixed Expenses Housing $ Savings $ Insurance $ Total Fixed Expenses $ Flexible Expenses Amount Public transportation costs $ Transportation costs for car $ Food (Groceries) $ Food (Eating out) $ Baby expenses $ Personal care $ Total Flexible Expenses $ Total Expenses $ TOTAL INCOME TOTAL EXPENSES $ Percentage of income used for each expenditure Directions: Please complete the pie chart indicating what the Brown Family s spending plan would look like. (6 points) Housing Transportation Food Insurance Other Saving & Investing 10% Housing 30% Transportation 18% Food Insurance 7% Other 15% 20% Saving and Investing 4. Compare the two pie charts. (7 points) a. What are 2 similarities? b. What are 2 differences?

24 Page A2 c. Is the Brown family able to readjust their expenses to match the recommended amount? Support your answer with two reasons. STEP FOUR: Implement and Control 5. What control system would be good for the Brown Family? Support your answer with one reason. (2 points) 6. What is the purpose of a control system? (1 point) 7. What advice would you give to a family who currently does not have a control system in place? (1 point) STEP FIVE: Evaluate and make adjustments 8. Identify at least five expenses which the Brown family probably encountered, but did not include in their February 2011 spending plan? (5 points) 9. If their income does not increase, what are two ways the Brown family can adjust their spending to account for these additional expenses? (2 points)

25 Page A2 Following your careful evaluation of the Brown family spending plan please create a new spending plan for them for the month of March. (20 points available) Date: March 2011 Spending Plan Designed for: The Brown Family Income Amount Wages/salary for Tia (Net pay) $ Wages/salary for John (Net pay) $ 1, Total Income $ 2, Expenses Amount Fixed Expenses Housing $ Savings $ Insurance $ Percentage of income used for each expenditure Total Fixed Expenses $ Flexible Expenses Amount Public transportation costs $ Transportation costs for car $ Food (Groceries) $ Food (Eating out) $ Baby expenses $ Personal care $ Total Flexible Expenses $ Total Expenses $ TOTAL INCOME TOTAL EXPENSES $ 10. How did you determine what areas to decrease expenses in to make their balance budget? (1 point) 11. If an individual has a high income. Does this make them a wealthy person? Why or why not? Support your answer with one reason. (2 points)

26 Page K1 Brown Family Scenario Answer Key Tia and John Brown have been married for two years and are awaiting the arrival of their first baby in two short months. John is a branch manager at a local bank which provides adequate benefits including health insurance for John, Tia, and their newborn. John s net income is $ paid bi weekly. Tia works part time running a wedding coordination business out of their home which provides an additional $800 per month net income after taxes are paid. In the past, John and Tia have not used a spending plan. Their expenses were tight, but they always managed to get by without using credit cards. However, they also do not have much in their savings account. John and Tia have set a short and long term goal in preparation for the baby s arrival. Their long term goal is to deposit $50 each month into a savings account for the baby s college fund. Their short term goal is to begin saving at least $150 per month for emergencies to begin building their net worth. They know that to be able to achieve these goals and get their finances organized; they must develop a spending plan. They tracked their expenses for a month and here is an analysis of their current spending. John and Tia live in a two bedroom two bathroom rented condominium in a large metropolitan area. They pay $900 per month and this includes utilities. They know that this will become a bit cramped with one bedroom already being used as a Tia s office, but will become the baby s room. However, they really like their home and seldom have overnight guests. John drives a Toyota Camry which they own without payments. Every six months they allocate $900 for maintenance, repairs, gasoline, and oil changes. Tia uses the public subway system to travel around the city when necessary. This costs the Brown family $50 per month. Tia and John love to eat out and meet on Mondays and Wednesdays at a café near John s office for a lunch date. Friday nights they also eat dinner at one of their favorite restaurants, often with friends. They spend an average of $300 per month for groceries and $350 per month eating out. They have made a commitment to themselves that once the baby arrives they will save money on food and eat out only once per week. John and Tia s family are very excited about the arrival of their baby. They have opened a saving account in John and Tia s name and deposited $1,000 to begin a college fund. To meet their previously stated savings goals, John and Tia save $150 per month in their account in addition to depositing $50 per month into the baby s college fund. In the spending plan John and Tia are developing, they also allocate, $100 per month for the baby s expenses, $100 per month

27 Page K1 on personal care including clothing, and $150 per month for automobile and life insurance. At the end of the month, if any additional money is left over they add it to their savings. John and Tia have come to you as their financial advisor. They need you to help them implement the spending plan process to develop a spending plan, analyze their expense, and make recommendations for how they could best manage their money. 1. Answers may vary. 2. Answers may vary. 3. Taxes are not included because the amount given is net pay therefore taxes have already been removed from the income. Date: February 2011 Spending Plan Designed for: The Brown Family Percentage of income used for each expenditure Income Amount Wages/salary for Tia (Net pay) $ Wages/salary for John (Net pay) $ 1, Total Income $ 2, Expenses Amount Fixed Expenses Housing $ % Savings $ % Insurance $ % Total Fixed Expenses $ 1, % Flexible Expenses Amount Public Transportation costs $ % Transportation costs for car $ ($900/6) 7% Food (Groceries) $ % Food (Eating out) $ % Baby Expenses $ % Personal Care $ % Total Flexible Expenses $ 1, % Total Expenses $ 2, % TOTAL INCOME TOTAL EXPENSES $ 0.00

28 Page K1 11% 7% 4. Answers may vary however some examples may include: a. Housing is the most expensive in both, insurance is equal in both, insurance is the smallest amount in both of them, etc b. The second largest expenditure in the average pie chart is the transportation category while for the Brown family it is the food category, the average for transportation is more than double what the Brown family is spending, the Brown family is also spending a significant amount more in the housing category and a significant amount less in the other category, etc c. Yes, the Brown family is able to do so by decreasing their food expenses, possibly decreasing their housing expenses, and increasing the amount of money that is spent in the transportation and the other category. 5. Answers may vary; however, participants may indicate either the envelope system, check register system, or electronic spending plan systems. 6. Answers may vary, however, may be similar to helping individuals track their income and expenses. 7. Answers may vary. 8. Answers may vary. 9. Answers may vary. *Note to educator, the second table will be different for each participant depending on the amount of money that they have allocated to each category. 10. Answers may vary, however, may include participants using the average expenditure recommendations to determine a new spending plan, differentiating between needs and wants, etc 11. Answers may vary, however, may include indicating that a higher income will not make the person wealthy because they may have a higher amount of debt also.

29 Page B1 Letter of Advice for the Brown Family Rubric Name: Date: Directions: Write a one page letter to the Brown Family as their financial advisor. Utilize the answers provided on The Brown Family Scenario A2 completed during the lesson. The Brown family has asked that as their financial advisor you address the following questions in the letter: 1. Why it is important for us to develop and maintain a spending plan? 2. What changes and recommendations did you make to our March spending plan? a. Did you increase or decrease any expenses? If so, why did you increase or decrease specific expenses? b. Did you add or remove any expenses? If so, why? 3. What control system do you recommend we utilize? 4. We want to evaluate our spending plan from month to month and ensure it continues to work for us. Do you have any advice for us regarding how to best do this? (offer at least one piece of advice) 5. We want to ensure we have a successful long term financial plan. Do you have any advice for us regarding how to develop an effective long term financial plan? (offer at least one piece of advice) Your letter will be graded based upon the following rubric: Exemplary 3 Satisfactory 2 Unsatisfactory 1 Rating Weight Score Content All five of the Brown family s questions were answered in the letter. Only four of the Brown family s questions were answered in the letter. Three or less of the Brown family s questions were answered in the letter. 4 Content Accuracy Writing Skills Presentation and Completion % of the facts in the letter are accurate. Sentences are fluid and effective. Very few errors in mechanics, punctuation, and word usage. Assignment is easily read and neatly assembled. Presentation quality is excellent % of the facts are accurate. Sentences are usually controlled. There are minor errors in mechanics, punctuation, and word usage. Assignment is adequate. Presentation quality is adequate. Fewer than 80% of the facts in the letter are accurate. Sentences are generally adequate. There are lapses in mechanics, punctuation, and grammar. Assignment is incomplete. Presentation is sloppy. Total Points Earned Total Points Possible 30 Percentage 3 2 1

30 Page H1 Spending Plan Activity Cards Directions: Cut out the following cards and glue onto colored cardstock for re use. Income Income Fixed Expense Flexible Expense Fixed Expense Flexible Expense

31 Page E4 Envelope Spending Plan System Labels Envelope system Clothing: Dry Cleaning, Laundry, Purchases Amount Planned: $ Envelope System Entertainment and Recreation: Movies, Newspapers, Tickets Amount Planned: $ Expenses: Expenses: Envelope System Food: Dining Out, Groceries, Snacks Amount Planned: $ Envelope System Gifts and Contributions: Charity, Gifts for Others Amount Planned: $ Expenses: $ Expenses: Envelope System Housing and Utilities: Garbage, Mortgage, Power, Rent, Telephone, Water Amount Planned: $ Envelope System Insurance: Auto, Disability, Health, Homeowner s/renter s, Life Amount Planned: $ Expenses: Expenses: $ Envelope System Loans: Automobile, Personal, Student Loans Amount Planned: $ Envelope System Personal: Grooming, Spending Money Amount Planned: $ Expenses: Expenses: Envelope System Saving and Investing: General or for a Specific Goal Amount Planned: $ Envelope System Transportation: Gas, Maintenance/Repairs, Registration Amount Planned: $ Expenses: Expenses:

32 Page A3 Spending Plan: Mission Home Front Total Points Earned 20 Total Points Possible (10 for the interview and 10 for the reflection) Percentage Name Date Class OUR GOAL: Create a young adult that is better armed to manage their own personal finances. Dear Family Member, We are studying spending plans in class. In order for the students to see their newly gained knowledge as applicable, we are asking them to interview an adult, preferably a family member. It is hoped that this will help them understand how the family money comes and goes and gain an appreciation for the management that occurs behind the scenes. Instructions: Interview a family member or adult about spending plans and how they use them. The Italics indicate a place where students explain what they have learned to the individual being interviewed. INTERVIEW QUESTIONS: THE SPENDING PLAN PROCESS: STEP 1: SET FINANCIAL GOALS Students, briefly describe a SMART goal. 1. Do you have a spending plan? Yes No 2. Are there specific goals that determine monthly spending? Yes No An example goal is: STEP 2: ORGANIZE 3. Do you write out a hard copy of a budget or spending plan? Yes No If yes: For what period of time is it. Monthly Weekly Bi Weekly Yearly Other STEP 3: DECIDE In class, we discussed how The Costs Add Up. Students, please explain what this means and what you learned. 4. Have you ever tracked your spending? Yes No 5. How is it decided what specific items money is spent on? (Example: food, gas etc.) How: 6. Is the amount set aside predetermined? Yes No

33 Page A3 STEP 4: IMPLEMENT 7. Do you have a record keeping system for monthly spending? Yes No STEP 5: CONTROL We talked about 3 control methods: Envelope system, spending plan/calendar system and spreadsheet/register system. Please have the student explain these to you. 8. What type of control system is used to be sure there is enough to pay bills and meet expenses throughout the month in your household? STEP 6: EVALUATE We talked about the gumball machine analogy to represent income, expenses and the creation of net worth. Please have the student draw and or explain the gumball analogy to you. Do you evaluate spending at the end of the month? Yes No Why? Thank you for your time. Signature of person interviewed: Date: REFLECTION QUESTIONS: Instructions: Answer the following questions about the spending plan process. 1. When creating your own personal spending plan, explain how you will use each step of the spending plan process? 2. Hypothesize the importance of communication when developing a spending plan for a family. 3. Identify two ways you will manage your money to create wealth.

34 Page A4 Spending Plans Total Points Earned 39 Total Points Possible Percentage Name Date Class Directions: Answer the following questions with complete sentences. 1. Identify three examples of needs and three examples of wants. (6 points) 2. Write one SMART financial goal for yourself. (5 points) 3. Explain the difference between fixed and flexible expenses. Give one example of each. (4 points) 4. The spending plan development process includes steps for creating and maintaining a spending plan. Why do you think it is important to maintain a spending plan after creating it? (1 point) 5. Why are spending plans important for overall financial management? Support your answer with two reasons. (3 points)

35 Page A4 For the following questions, please indicate if the statement is True or False by writing a T or F on the line. (Each worth 1 point) 6. Net income is the total amount of money that is earned before deductions have been taken out. 7. The S in SMART Goal means specific. Place the following spending plan development steps in the proper order 1 being step one and 5 being step five. Indicate the order by placing the correct number on the line. (5 points) 8. Allocate Money to Each Category 9. Track current income and expenses 10. Implement and Control 11. Evaluate and Make Adjustments 12. Create personalized income and expense categories Match the following terms with the correct definitions. (Each worth 1 point) A Health Insurance B Disability Insurance C Net Income D Life insurance E Gross Income 13. The total amount of money earned during a pay period before payroll deductions 14. Pays a portion of health care expenses if one is sick or injured 15. This is considered take home pay 16. Provides financial support if an individual is injured and cannot work 17. Provides financial support to an individual s beneficiaries upon death

36 Page A4 Please define the following control system methods. (Each worth 1 point) 18. Envelope system 19. Check register system 20. Electronic spending plan system Directions: Label the components of the gumball machine analogy: (3 points) What would be considered more important: income or net worth? Support your answer with one reason. (2 points)