Financial literacy: income and decisions (lesson 1)  (Page 6/9)

Step 9.- Present Visual 3 , which have some guidelines to consider for how much of your take-home monthly income you might budget for various expenses.

Step 10.- Present Visual 4 , to decide whether a purchase is necessary.

Step 11.- Have students participate in a decision-making activity . Refer to Activity 3 . Students may participate in this activity either individually or in groups.

Explain to students that people usually can’t have everything they want and must make choices. To make a choice, they evaluate the benefits and costs of their options. The “opportunity cost” is what people give up in exchange for what they get.

Explain to students that we make choices every day. Ask them to consider their goals and then follow the steps in Activity 3 to make thoughtful decisions that will lead them to their goals.

Visual 3.

Here are some guidelines to consider for how much of your take-home monthly income you might budget for various expenses:

• Housing (rent or mortgage) 20% to 35%
• Utilities (electricity, water, telephone) 4% to 7%
• Food (at home and away) 15% to 30%
• Family necessities (laundry, toiletries, hair care) 2% to 4%
• Medical (insurance, prescriptions, bills) 2% to 8%
• Clothing 3% to 10%
• Transportation (car payment, gasoline, insurance, repairs) 6% to 30%
• Entertainment 2% to 6%
• Savings 10% to 15%
• Try to limit your installment debts (car loans, credit card bills, other loans) to 10-20% of your monthly budget.

Visual 4.

To decide whether a purchase is necessary, ask yourself these questions:

• Do I really need it?

• Do I really need it today? What would happen if I don’t buy it now?

• Can I meet this need less expensively?

Activity 3: decision making

Define the problem . Offer students examples of problems with alternatives choices:

1. What to do this Friday night?
2. What next after graduation day?
3. How to spend the coming summer?
4. Whether to buy a car?

Consider the alternatives for each problem. For example:

Problem 1: Study, watch TV at home, get together with friends, go on a date.

Problem 2: go to graduate school, get a job.

Problem 3: Summer school, work, volunteer in the community, relax and do nothing.

Problem 4: New car, used car, continues to use public transportation, bike, or walk.

Identify the criteria (goals/values) that are important to you. Example: (good grades, fun, relaxation).

Evaluate each alternative in terms of your criteria.

Make a decision by choosing the best alternative.

To extend this activity, ask students to identify the “opportunity cost” of their decision. The opportunity cost is the value of the next best alternative, i.e., what they had to give up.

Assessment worksheet

NAME: _____________________________________________________________

1. Match the following words with their definitions:

• E. An expense that stays the same each month, such as rent or a car payment.