Bank at School - Lesson 7                     Previous Lesson      Next Lesson
Now That You're Earning Money, What Will You Do With It? 
                                                                                                                    
Introduction
All too often, we spend money as soon as we get it. Only after spending it all do we question or look at how we used our money. Money is a resource, of which we all have a limited supply. In order to make the most of what we have, it's helpful to have a map or plan handy to guide us. Today we will look at budgets .

Objective
Introduce students to a basic principle of money management - budgets.
Help students become aware of how they use their money.
Show students how to prepare their own budget.

Lesson Material
What is a budget? A budget is a money map which shows us how much money we have available to spend and how we should spend it. Budgets are used by adults, businesses and governments alike. Even kids make budgets. A budget makes it easy for us to see ahead of time what expenses we will have so that we can be prepared. Budgets make it easy for people to see clearly how they are spending their money.
 
How do you make a budget? The first step is to write down daily how you spent your money. If you bought something for lunch, how much did it cost? Did you buy a comic book or loan some money to a friend? By keeping a daily record of how we spend our money, we will be able to see over a week's time where our money goes. Once we know where we're spending our money, we can decide what areas we can afford to spend less on and therefore save money. Now we're ready to make a budget.

In making a budget we look at three things: how much money we have, what expenses we must meet, and what things we would like to buy. Budgets highlight those expenditures which must be made, as compared to those which we would like to make. Another way to say this is: budgets illustrate needs and wants. A need is something we must have to survive. Food, shelter and clothing are three primary examples of needs. Vacations, bicycles and video games are wants. Wants are things we would like to have which would make our daily lives more enjoyable or pleasant, but are not necessary for our survival. Sometimes people or businesses get into trouble by spending too much money on the things they want. Because we all have a fixed amount of money to spend, if we overspend in one area, we can come up short in another area (for example, using the rent money for a vacation...). Therefore, for our own protection we should always try to distinguish between a need and a want. The good news is, budgets can help us make a clear distinction.

Let's suppose you receive $3.00 a week as an allowance. From your $3.00 you know you will have to use $2.00 for milk money at lunch. That leaves $1.00. You might want to spend it all on candy. However, there's a video game you would really like to have. Suppose your parents have agreed to get it for you as long as you contribute $2.00 of your own money. What should you do?

Since your budget shows you have $1.00 left over each week from your allowance which can be freely spent, you could save that dollar for two weeks. Then you would have the $2.00 necessary to buy the video game. But that might mean you couldn't buy any candy for two weeks. So instead, perhaps you could save 50 each week. You will still have 50 with which to buy candy, but you will have to wait four weeks before you can buy the video game.
 
Now you might ask, what's the point of making a budget and saving if I have to wait a whole month before I can get what I want? Why shouldn't I just give my parents $2.00 immediately for the game from my weekly allowance? You could do that. However, where would the money you know you need every week for basic expenses come from (remember your lunch money)?

At some point you will need to make a choice. Had you not prepared a budget, you probably wouldn't have been aware of your lunch money expenses. You also might find yourself half-way through the week with no money left to spend. That's not a good feeling.

By making a budget, you will be able to allocate where your money should be spent for maximum reward. While that means you may need to wait a little longer for something you really want, it also means you will still be able to enjoy more of the activities your accustomed to doing (like buying a treat at lunch everyday or ice cream after school).
As Neale Godfrey says in The Kids' Money Book "Managing money can be very simple once you understand that what you have to spend is all you have to spend."

Suggested Activity

Suggested Homework 

• Make a weekly budget.
• Prepare a savings plan for the rest of the school year.
• Ask your parents how they use budgets.

Glossary 
Budget - A plan which looks at how much money an individual, business or government has and charts where and how all money should be spent.

Need - Something necessary for survival.

Want - Something which is desirable but not critical for survival.

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