F1.3 Explain the concepts of spending, saving, earning, investing, and donating, and identify key factors to consider when making basic decisions related to each.
Skill: Determining Key Factors to Consider in Making Basic Financial Decisions
In order to have money to manage, it is important for students to understand how money can move through the economy. The connection between earning, spending, and saving, for example, cannot be overlooked. The student must understand that one day's income will become either another day's spending or saving, and that one person's spending could become another's earning. In order to properly contextualize the vocabulary related to the various ways of managing one's money, teachers should use scenarios relevant to students that will make them think about attitudes toward spending and saving.
Income
When we talk about income, we are referring to the various ways of earning money.
Students in the junior and intermediate divisions will have a variety of knowledge related to earning money. Some students may be receiving pocket money. Others may have already begun to do some household chores for their parents, neighbours or others in exchange for money. In some families, discussions about money are quite common, and students will have knowledge about investments or interest payments. In other families, children may not be involved in conversations about money. This variety becomes a richness in terms of financial discussions, as this exchange will bring out different types of income.
In addition to facilitating a discussion, a quiz could be conducted on the various types of income with examples. Concrete and relevant examples will ensure that students get the most out of the exercise. Here are some examples of situations and the types of income that would be associated with them:
|
Situation |
Type of Income |
|
You get a $5 bill in a party card. |
Gift |
|
A neighbour gives you $20 for walking their dog during the week. |
Compensation |
|
You donate $5 to a charity fundraiser. |
Donation |
This list is not exhaustive, and situations should be modified to be relevant to students.
Savings
When we keep a portion of our earnings, we say we are saving.
There are many reasons to save, and a discussion of financial goals could be a great entry point to address reasons for saving, as savings is often associated with a financial goal that represents a large expense. That being said, it is important for educators to ask students about savings to expand on the topic; for example, the educators could ask them the following questions:
- Should you save, even if you don't have a large expense planned?
Sample answer: It is important to save for unexpected expenses or emergencies.
- Is it absolutely necessary to spend all the money that is not part of a savings plan?
Sample answer: No. If there is money left over, it can be added to savings, even if it is more than the planned amount.
Sample answer: Yes, money that is not saved must be spent on daily needs.
- Are there savings strategies that are more or less effective than others?
Sample answer: Putting money in a money box or piggy bank keeps it handy, but it's not very secure, compared to a savings account which is very secure, but requires more steps to access the funds.
It is very important to direct the conversation so that it does not tend exclusively towards scenarios based on privileged positions. Students will only benefit from the discussion if they feel comfortable and safe.
Expenses
An expense is the opposite of income. The link between income, spending and saving cannot be overlooked, and it is important for the student to understand that one day's income will become another day's spending or saving. Similar to the discussion on savings, a questioning exercise could be done to highlight the reasons for spending money. The following activity will make the student think about the need to spend money and encourage questioning about this decision.
The following activity will make the student think about the need to spend money and encourage questioning about this decision.
Teachers provide students with a set of pictures and a four-box chart like this one:
|
Immediate need |
Short term want |
|
Long term need |
Long term want |
Students could be given the same images, or a different selection could be given to each student. Each student should place the images in the boxes that represent their perception of the situation.
The beauty of this activity is that the perception from student to student will be different; for example, someone who lives close to school may see a bicycle as a desire, while someone who lives further away or has to get to work will see it as a need. If the activity is carried out during a season when bicycle transport is pleasant, the need could be immediate, whereas if the activity is carried out in the middle of winter, the bicycle remains a need, but the expense is much less urgent. This kind of conversation will not only encourage students to reflect on their own perception of necessary and optional expenses, but will also make them see situations through the eyes of their peers, which helps to develop a sense of empathy. There is then a link with socio-emotional skills in mathematical contexts, namely building relationships and developing self-awareness and a sense of personal identity.
Investments
A debate or discussion could be used to identify the advantages and disadvantages of this type of savings account; for example, a savings account linked to stocks may suffer losses, but could also enjoy much higher gains than the interest rates offered in a typical savings account. This discussion can also lead to the topic of risk management, a key element in financial decision making. There are several questions that could guide the discussion, and it is the responsibility of the educator to provide unbiased information, since risk tolerance varies greatly from person to person. Therefore, there is no "right" answer: the questioning is intended to expose students to a variety of possible scenarios.
Donations
Ask students to give an example of a donation.
Perhaps the main difference is that the expense is to acquire a good or service, while the donation is offered without getting anything in return. This is a good time to discuss the intangibles that can be received in exchange for a donation. Note that the definition of a donation is not limited to money, but also consists of services or goods. This is an excellent entry point to discuss the community service required for the Ontario Secondary School Diploma. Students could brainstorm places they would like to volunteer their time, or organizations to which they would like to offer their services.
Knowledge: Expenses
Expenses are things that one spends money on; for example, most adults’ expenses include food, shelter, utilities, and entertainment.
Source: The Ontario Curriculum. Mathematics, Grades 1-8 Ontario Ministry of Education, 2020.
Knowledge: Savings
Savings are made by putting money aside for future use, for example in a savings account or a pension account. Saving may also involve reducing expenditures.
Source: The Ontario Curriculum. Mathematics, Grades 1-8 Ontario Ministry of Education, 2020.
Knowledge: Income
Income is money that an individual receives in exchange for work or from investments.
Source: The Ontario Curriculum. Mathematics, Grades 1-8 Ontario Ministry of Education, 2020.
Knowledge: Investment
An investment is a monetary asset purchased with the expectation that it will produce income or will be sold at a higher price for a profit in the future. Investments can include stocks, bonds, interest-bearing accounts, and real estate.
Source: The Ontario Curriculum. Mathematics, Grades 1-8 Ontario Ministry of Education, 2020.
Knowledge: Donation
Donation is giving a gift for charity, humanitarian aid, or to help a cause. Types of donations include money, services, and goods such as clothing, toys, and food.
Source: The Ontario Curriculum. Mathematics, Grades 1-8 Ontario Ministry of Education, 2020.