Share the Wealth: Teaching budgeting builds life skills

Educators can help teenagers develop the skills necessary to become sound managers of their money by introducing them to the basics of budgeting . Teens need to understand that a budget serves as a guideline for them in saving and spending their money. They also must be able to distinguish between needs and wants to prepare a manageable budget.

To begin preparing a budget, students should identify all of their sources of income, including such sources as their allowances, wages from a part-time job, and savings. Then give students a spending tracker and have them list all of their daily expenses for two weeks, even the dollar used to buy the Coke from the vending machine after school. Next, have them subtract their expenses from their income. Ask students to share their observations. Did they spend more than their income, borrowing from a friend, a parent, or a sibling? Did they have savings by the end of the second week? If not, what are ways they can increase income or cut spending so they can build savings?

Teaching young people the importance of being financially prepared will help them achieve their short- and long-term goals. Two Georgia educators share their suggestions for teaching budgeting.

Developing a lifelong skill
Sherilyn Narker, an AP macroeconomics teacher from Druid Hills High School in Atlanta, believes budgeting is a skill we continually refine throughout our lives. She emphasizes that for most high school students, their first experience designing a budget occurs in an economics classroom. Many are shocked at the number and cost of different expenses adults face.

If most of your students have an income source, Narker recommends requiring them to keep a weekly or monthly budget for their income and expenses during your course as the best way to have a long-term effect on their financial behavior. She helps them design a template with their specific income sources and expenses, guides them in the allocation of their income, emphasizing different types of saving options, and assigns a weekly/monthly reflection paper to determine how well they are sticking to the budget they designed.

In addition to working on a current budget, students will also need to practice budgeting for the expenses they will incur as an adult. To simulate the budget of an adult, Narker tells her students that the monthly median household income in Georgia was $4,238 in 2008. She lets students know that they will use this income to support their family and pay all necessary expenses. Narker then passes around two boxes. One box has slips of paper that say "married" or "single." The other box has numbers from 1 to 6, referring to the number of children each student will have in his or her household. Narker encourages you to make sure to have more 1s, 2s, and 3s than the higher numbers. She then has each student pick from each box. Students are given a list of expense categories that most households incur and the average percent of income spent on each. She suggests, if you have time and computer access, you can have the students research the expenses themselves. Be sure to have them calculate their tax withholdings and savings before allocating any other funds. After students have completed their budgets, she pairs them with a classmate and asks them to compare and contrast their budgets. Some students will not be able to pay all the expenses at the percentages listed. Ask these students what kind of tough choices they had to make. Ask students to discuss how income and expenses might change when people get married and/or have children.

Preparing for adult responsibilities
Mark DeCourcy, an AP macroeconomics teacher at Starr's Mill High School in Peachtree City, Ga., shares his variation on a budget project used by a number of teachers in the Fayette County school system (modified slightly here for more general use). DeCourcy has students pick a salary out of a hat that would fall in the reasonable first year out of high school or first year out of college range (approx. $19,500 to $37,000). The students then calculate their federal, FICA, and state tax deductions based on a chart (posted on the wall) containing the correct deductions. While DeCourcy allows his students to have a fictional roommate so they may cut their mortgage or rent and utilities in half. (His colleague, Michael Melvin, instead gives his classes a slightly higher salary to compensate.)

With their disposable income, students are expected to complete a monthly budget for all of their necessities and a few luxuries with no perks. Even if their parents work for the military and can shop at the commissary and have more affordable auto insurance, they may not use any of that help; however, both DeCourcy and Melvin recommend that students get their parents' assistance in completing the assignment.

Categories the students must address when completing the budget are retirement/savings, housing, utilities, automobile payments, gasoline and routine car maintenance, auto insurance, food, entertainment, clothing, personal hygiene, cleaning supplies, laundry, student loans, and miscellaneous.

In addition to budgeting for all of these expenses, students must find what the percentage of each spending category is as it relates to their net monthly income. Other activities associated with the project include preparing a monthly grocery list and researching the pros and cons of financial instruments such as stocks, U.S. Treasury bonds, certificates of deposit, and savings accounts.

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By Amy Hennessy, economic and financial education specialist, Public Affairs
January 27, 2011