What’s one math-based life skill that students will use on a daily basis throughout their lives? If your answer is budgeting, then you are absolutely right! A recent CNBC survey reports that almost 60 percent of Americans are living paycheck to paycheck. Teaching students how to budget effectively can help them decide how best to spend, save, and share their money in the future.
When it comes to personal finance, it’s important to teach skills that students will be able to use right away so that even if they don’t have a steady income, they can start to manage the money that they do receive through allowances, gifts, and odd jobs using the strategy of creating a zero-based budget.
Some high school students have more consistent income sources than others. When I was in high school, I had to get a part-time job because my grandma was the only working adult in the household, and as a housekeeper, she could not afford to pay for anything outside the basics of food, clothing, and shelter. I had a steady income from as early as 15 years old. Even for the student who doesn’t have a steady part-time job, chances are they receive money through other sources.
You can teach students the concept of developing a zero-based budget where they allocate all of the money they’ve received to the three S’s of budgeting: saving, spending, and sharing. The goal of a zero-based budget is to assign every dollar of your income so that no money is left over.
The 3 S’s of Budgeting
1. Saving: This is the first and most important S of budgeting because it is where students learn the concept of pay yourself first (PYF). Before students pay anyone else, they must learn the discipline of the PYF rule. At Generation Wealth, we teach students to save this money for emergencies and investing by playing fun games like Cashflow 101 and exploring investment options that teenagers can take advantage of at their age.
Ideally, one should aim to save at least 20 percent of their income, but developing the discipline is more important than the percentage that they decide to save.
2. Spending: The spending category includes money that can be used for both needs and wants. Most high school students are not yet responsible for expenses like mortgages or car payments, but they may have to pay a portion of their cell phone bill or pay for their lunch two days out of the week.
If they want to buy a new outfit or go to the movies with their friends, this is a want that they will have to budget for from their spending money. Students should aim to set aside about 70 percent of their finances for spending.
This is also a great opportunity to teach students the difference between fixed and variable expenses. As high school students move into young adulthood, they will take on more financial responsibilities, such as rent, utilities, and subscription services. It will be important for them to be able to know the difference between the two, as well as how to prioritize them using the money that they set aside for spending in their budget.
An easy game to play is the Fixed Versus Variable Expense game. In this game, you share examples of expenses, and students have to decide if it’s fixed or variable. Break up the class into teams, or even limit the amount of time they have to choose the correct response to make it more exciting. Digital platforms like Nearpod and Quizlet are good resources to use when playing this game.
3. Sharing: There are few feelings that compare to what you experience when you give in service to those in need. Helping students build the habit of sharing a portion of their income is a great way to develop their sense of citizenship. Students should be exposed to various ways that they can give back to their community, and sharing a portion of their income with a charity of their choice is one of the many great ways to do so.
Students should set a goal of giving 10 percent of their income to charity, but as with saving, developing the discipline is more important than the percentage that they decide to share.
Making It Relevant
When I work with students on budgeting, my goal is to help them build knowledge by teaching the content in an engaging way while giving them the space to think about how what they are learning applies to their own lives. Providing students with case studies is a great way to prepare them to start creating budgets before they engage in the process of making their own. We use case studies like the following, of high school students who budget using the 20-70-10 rule:
Shane delivers pizza on the weekends to make extra money. Last weekend he made $150. How much money should he set aside for saving, spending, and sharing using the 20-70-10 rule?
After students have had the opportunity to work together on a few case studies, give them time to create their own budgets. Generation Wealth uses a template based on the 20-70-10 budget. You can use this version with your students or let it inspire you to develop one that better aligns to your instructional goals.