MANAGING YOUR LIFE | MANAGING YOUR FINANCES

MANAGING YOUR FINANCES 1

LESSON

AGENDA
Starter

Understanding Deductions

Bank Accounts

Your Credit and Credit Score

Conclusion

Student Assessment

Objectives

Students will identify the information included on a paycheck and check stub.

Students will understand how bank accounts work.

Students will learn about credit and their credit score.

Materials Needed

“Words to Know in Finance” activity sheets for each student (Parts I, II, and III)

“Paycheck” activity sheet for each student (Part I)

Internet access (Part III)

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Starter (5 minutes)

Display the following quote where everyone can see it: “Financial education is more valuable than
money.” Ask students what they think this means and have volunteers share their thoughts with the
class. Explain that one of the most important aspects of managing your life is financial literacy—the
ability to understand how money works and how to manage it effectively.

Distribute copies of the “Words to Know in Finance” activity sheets to students and say, “Today, we
are going to start developing a greater sense of financial literacy. These sheets will provide you with
definitions of common financial terms.” Instruct students to refer to the activity sheets during the
lesson. (All words and phrases that appear on the “Words to Know in Finance” activity sheets are
displayed in bold throughout the “Managing Your Finances” and “Making a Budget” lessons.)

Part I Understanding Deductions (15 minutes)

Purpose: Students understand the deductions on their paycheck.

1. Students identify the difference between “net” and “gross” pay.

Display a copy of the “Paycheck” activity sheet where everyone can see it. Say to students, “Rose
Arrington has a full-time job where she works 40 hours each week and earns $20 for every hour she
works. If she is paid every week, that would make her weekly salary $800. However, her paycheck is
for $625. Why do you think that is?” Allow students time to respond and then ask, “Does anybody
know the difference between ‘net pay’ and ‘gross pay’?” Remind students to refer to the “Words to
Know in Finance” activity sheets. Explain that gross pay is the amount of money a person has earned
prior to any taxes or other deductions, and net pay is the final, or “take home,” amount of someone’s
paycheck.

Clarify for students by saying, “For the hours she worked, $800 was Rose’s gross pay and $625 was
her net pay, which means she had $175 deducted from her paycheck. Some of these withholdings
are voluntary, meaning she gets to decide whether they are withheld each pay period. Others are
mandatory, which means they are required to be withheld.” Tell students they are going to learn more
about voluntary deductions and mandatory deductions.

2. Students learn about mandatory deductions.

Distribute copies of the “Paycheck” activity sheet to students and draw their attention to the “Taxes
and Deductions” section. Say to students, “Each pay period, part of what you have earned is
withheld to cover various expenses, and these are either voluntary deductions or mandatory
deductions.”

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Have a volunteer read the definition of “mandatory deductions” out loud. Then, ask students to put a
check mark next to all of the mandatory deductions on the paycheck. Students should identify the
following:

FICA tax
Federal income tax
State income tax

Ask if anyone knows the purpose of these deductions. Give students time to respond, then say, “The
money that is withheld from your paycheck is used to support many services, from government
programs like Social Security and Medicare, to public resources like libraries and schools.”

Point out to students that while many of them will have their pay deposited directly into their bank
accounts—known as direct deposit—they should still receive a physical copy of their pay stub for
their records. Emphasize that it is important to always check the information on their pay stub as
companies can make mistakes when calculating payroll. Advise students that if they don’t understand
the purpose of a deduction, they should ask their supervisor or the person in charge of payroll.

3. Students discuss the value of voluntary deductions.

Ask students what they think voluntary deductions are. Lead them to understand that voluntary
deductions—unlike mandatory ones—are optional. Offer examples such as medical coverage, life
insurance, and retirement benefits such as a 401(k) and SIMPLE IRA.

Tell students why it is important that they understand and consider the benefits an employer offers.
Health insurance and retirement accounts are two of the most common. Remind students to make
sure that their decision to join or forgo these voluntary deductions takes into consideration their long-
term goals (for example, choosing not to contribute to a 401(k) until later in life would result in
their having less money when it comes time to retire).

Part II Bank Accounts (15 minutes)

Purpose: Students learn about bank accounts.

1. Students understand what a bank account is.

Ask students to describe a bank account. Lead them to recognize that a bank account is an
agreement between a depositor and a bank that says the bank will keep their money in trust until it
is withdrawn.

Ask students what a bank does with the money it keeps in trust. Lead them to understand that banks
hold a portion of the money, invest a portion of it in bonds, and lend a portion to other people and
businesses as loans for attending college, buying a car, purchasing a home, and more.

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Explain that there are many types of bank accounts. Two of the most common are checking
accounts and savings accounts. A checking account is primarily used to cover deposits and
withdrawals and is where most of their expenses will come from, while a savings account is used to
keep—or save—money for a longer period of time. Add that, since checking account holders access
their funds regularly, banks usually provide them with a debit card. This card allows them to make
charges directly to their account and withdraw funds from automated teller machines.

2. Students understand the value of bank accounts.

Ask students to suggest reasons for keeping money in a bank. Write student responses on the board.
(Student responses may include safety, convenience, and the ability to earn interest.) Explain to
students that there are some things they need to consider when making a decision about opening a
bank account. List the following questions where students can see them and elicit responses:

How often will you need cash? (Both checking and savings accounts will generally allow for
withdrawals of cash. Savings accounts are designed to keep money with a bank for a longer period
of time, so the number of monthly withdrawals may be limited or account holders might lose
interest or be given a service charge if they exceed that amount.)
How are you planning to pay your bills? (If you are planning to pay your bills by check, you will
need a checking account.)
What is the minimum balance your bank requires? (Some banks require you to keep a
certain amount of money in your account and will charge a fee if you drop below that.)

Point out to students that banks vary greatly in the services they offer and that it is always a good
idea to find the one that best fits their needs. Add that many banks offer accounts specifically for
students.

3. Students learn to manage their bank accounts.

Tell students that a bank account is a major responsibility that will have financial repercussions if not
managed properly. Say, “If you make a purchase and don’t have enough money in your account to
cover the charge, your account will have a negative balance. This can lead to overdraft fees.”

Point out to students that one of the best ways to avoid overdraft fees is to make sure they keep track
of their income and expenses. Say, “Most banks provide an app that allows you to view the amount
of your available funds as well as any posted and pending transactions. There are also many free
apps that help you categorize your spending and set savings goals.” Tell students that not everyone
has access to a banking app, then ask volunteers to suggest other ways to keep track of spending.
(Student responses may include viewing their account activity online, using a checkbook, and
keeping receipts.)

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Add that, in addition to helping track spending habits, these apps can also help identify incorrect or
fraudulent transactions. Say, “It’s possible for another person to obtain your banking information
and make unapproved charges. By checking your account activity regularly, you can catchsuspicious
charges and report them to your bank.”

Part III Your Credit and Credit Score (25 minutes)

Purpose: Students develop an understanding of credit.

1. Students understand how credit works.

Say to students, “I’m going to ask you a series of questions. If you agree with what I say, raise your
hand.” Then, ask students the following questions, pausing for a brief moment between each to give
them time to respond.

Say, “Imagine there is something you really want that costs $50, but you can’t afford it right now.
What if I told you I’d lend you money so you can purchase it today? Would you accept it?
What if you have to pay 20% more than what I lent you if you take longer than 30 days to repay
me? For example, if I give you $50, you’ll owe me $60 if you don’t repay me in 30 days, and then
$72, and so on.
What if I said you didn’t have to pay me all back at once? Instead, you could pay me as little as $10
each month.
What if I said that, even if you agree to a $10 per month payment schedule, you’ll still be charged
20% on your remaining balance each month? So, if you owe $50 and pay me $10, the next month
you’ll owe me $48 instead of $40?”

Tell students that this is similar to how credit works. Lead students to understand that credit is the
ability to borrow money to make purchases that you will pay back at a later date. Point out that one of
the primary ways people make purchases using credit is through a credit card. Say, “Credit cards
are an agreement between you and an issuer where you promise to pay back whatever they have
lent you, plus other agreed-to charges.”

Emphasize that these other “agreed-to charges” are important to keep in mind when using a credit
card. Tell students that credit cards can seem like “free money,” but they are not. Explain that every
credit card has different terms, but generally, if cardholders pay the full amount of the credit card
balance due every month, they will not have to pay interest. On the other hand, if they pay only the
minimum payment amount, or anything less than the full balance due, they will pay interest.

2. Students learn about credit scores.

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Divide students into three groups and say, “While it could make sense to delay a purchase until you
have enough cash to cover the cost, there are times when that may not be possible. I’m going to
present each group with a scenario in which someone wants to make a large purchase or is faced
with a large expense, and your job will be to research the costs and the options to pay for it.” Then,
assign groups with one of the following:

A couple is looking to buy a two-bedroom house in your neighborhood.

A high school graduate wants to attend college and is trying to determine whether to stay in-state
or go out of state.
A mother of three young children wants to purchase an SUV.
A person needs knee surgery.

Inform students they have 10 minutes to gather as much information as possible. When doing their
research, have them consider things such as what options are available to the purchasers, what the
standard interest rates are, and how much (if any) cash they might need upfront. After 10 minutes
have passed, ask volunteers from each group to share their findings with the class.

After each group has presented, stress that there are some purchases or expenses that may not be
possible without receiving a loan. Say, “However, financial institutions will not just loan money to
anyone. Banks and other institutions want to make sure that you have the ability to repay the money
you borrow, and they determine this using your credit score. I’m going to play a video for you that
shows how your score is calculated.” Then, play the “What is a Credit Score? Kal Penn Explains |
Mashable” video at the following link: www.youtube.com/watch?v=f2ortkJfTKw.

Tell students that their credit score is a number that will be associated with them for their entire lives
and can determine what they are able to do in their future. Then, say, “Your credit score can go up or
down depending on your financial decisions, so it’s important to manage and spend your money
responsibly. Always remember, good credit can help us receive loans, which can allow us to obtain
things we may want, such as a house, or to accomplish things, like attending college, that may be
cost-prohibitive otherwise.”

3. Students learn what to do if they have a credit problem.

Tell students to suggest some things that may happen if they are irresponsible with their credit. List
student responses. (Student responses may include, their credit card gets revoked, debt collectors
may repeatedly call, they can damage their credit score, and it will be difficult to get loans in the
future.)

Ask students, “What do you do when you have a problem that you can’t solve?” Suggest to students
that they should ask for help. Explain that if they get into a situation in which they can’t make
payments on their debt, the best thing to do is to talk to the people or companies to whom they owe
money. Explain that sometimes, those companies will help develop an affordable payment plan to
pay off the debt.

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Have students consider what they discussed regarding credit cards and offer ways to avoid some of
the drawbacks. List student responses. (Student responses might include: never put more on a credit
card than you can pay every month, save money until you have enough to make a purchase, make
sure you are comfortable with the minimum payment for loans, understand the terms associated with
the money you are borrowing.)

Tell students that regardless of whether they get a debit card or a credit card, it is essential to
avoid overspending. While money charged to a debit card is removed directly from the user’s
bank account, you can still get into trouble by depleting your funds. As mentioned earlier in
the lesson, many banks will penalize account holders whose funds go below a predetermined
amount. Remind students that it is important to monitor their checking account balance and
credit card activity regularly in order to stay on top of their finances and avoid potential issues.

Conclusion (2 minutes)

Explain to students that the best way to avoid financial trouble is to manage their money carefully.
Remind students of the following key points that were taught in this lesson:

Paychecks show not only the gross amount earned but also all the mandatory and voluntary
deductions made.
Credit cards have strengths, such as ease of use and safety, and drawbacks, such as annual fees
and the danger of excessive debt.
Establishing good credit is essential in order to make larger purchases in the future.

Student Assessment

1. List two mandatory and two voluntary deductions from a paycheck.

2. Name three ways to track your bank account activity.

3. Identify three scenarios in which a person might purchase something using credit.

4. How is a credit score determined?

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LESSON EXTENSIONS
Using Quotations
“Never spend your money before you have it.”

Discuss the meaning of this quote with your students. Then, have them write about how it could apply
to bank accounts as well as debit and credit cards, and when this quote may not be sound advice (
for example, home mortgages, student loans, and car financing).

Writing in Your Journal

Have students write about their financial goals, making sure to include what they would like to
purchase someday, what portion of their income they would like to put into savings, if they would prefer
to use a debit or credit card (or both), and the rules they will lay out for themselves to avoid financial
trouble.
Have student volunteers present their journal entries and discuss as a class.

Homework
Have students research local banks and determine, based on fees and requirements, which one
provides the best services for their needs. Tell students that most banks have different types of
checking and savings accounts. Encourage students to learn the differences between the accounts
banks offer and the steps they need to take in order to open an account. Have volunteers share their
findings with the class.

Using Technology
Explain to students that being patient and doing research on pricing trends can save them money. Tell
students that there are several apps, websites, and web browser extensions whose purpose is to save
them money by automatically applying coupons to purchases or tracking an item’s price. Have students
identify three ways they can use technology to save money (for example, Honey, Mint, Keepa).

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Homework
Have students track their spending habits for one week, writing down every expense no matter how
small. At the end of the week, have them review their spending data (you can also encourage them to
categorize their expenses into “essential” and “nonessential purchases”) and write about what surprised
them and what they learned.

Additional Resources
Have students read “Money Tips For Teenagers: Your Future Self Will Thank You” at
https://www.listenmoneymatters.com/money-tips-for-teenagers/. Ask students to comment on the
article and share their favorite tips with the class.

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WORDS TO KNOW IN FINANCE

401(k) – a retirement plan offered by some employers that allows employees to save and
invest in their retirement
automated teller machine (ATM) – a machine that allows people to complete basic transac-
tions, such as checking their account balances, withdrawing or depositing funds, or trans-
ferring money between accounts
bonds – loans to a company or government that pay a fixed rate of interest to the lender
over time
checkbook – a book of blank checks
checking account – a bank account that allows deposits and withdrawals; funds can be
withdrawn through checks, debit cards, and more
credit – the ability for someone to borrow money and pay it back at a later date
credit card – a plastic or digital card that allows people to make purchases on credit
credit card balance – the amount of money owed to a credit card company
credit score – a number assigned to a person based on factors such as their ability to make
payments and the amount of money they owe; the higher the score, the more likely a bor-
rower is to be able to repay loans
debit card – a plastic or digital card that deducts money directly from a checking account to
make purchases
deductions – items withheld from a person’s pay, usually relating to benefits such as health-
care or retirement funds
deposit – the placement of money into a checking or savings account
direct deposit – an electronic payment directly to an employee’s account by an employer
fraudulent transaction – a transaction that was unauthorized by an account holder
gross pay – full amount of pay received before withholdings and deductions
interest – a charge incurred for borrowing money, usually as a percentage of the money
owed
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issuer – a company that provides credit cards

minimum balance – the minimum dollar amount a bank requires its customers to keep in
their bank accounts; dipping below this amount can result in fees

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WORDS TO KNOW IN FINANCE

(continued)
minimum payment – the lowest amount of money required to be paid on a loan or credit
card balance each payment due date
negative balance – an account balance of less than zero, indicating that more money has
been spent than was available in the account
net pay – amount of pay remaining after deductions from a person’s gross pay
online banking – known as internet banking or web banking, an electronic payment system
that enables customers of a bank or other financial institution to conduct a range of finan-
cial transactions through the financial institution’s website or app
overdraft fee – a fee incurred when a bank covers a payment that is greater than the avail-
able funds in a checking account
pay period – the recurring schedule that determines how frequently a person is paid
paycheck – a check or payment for salary or wages
payment schedule – a schedule of when repayment is made between a borrower and a
lender
pay stub – a piece of paper accompanying each paycheck that lists gross pay, withholdings,
deductions, and net pay
pending transaction – an approved transaction that may be reflected in your account bal-
ance but has yet to be fully processed
posted transaction – an account transaction that has been fully processed
savings account – a bank account that earns interest and is meant to hold funds for an
extended period of time
SIMPLE IRA – a retirement plan designed for small businesses that allows employees to
save and invest in their retirement
state and federal unemployment taxes – amount of pay withheld to cover unemployment
taxes
union dues – regular payments made to labor unions (which are organizations that repre-
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sent collective interests of employees) to cover the cost of membership

withdraw – to take money out of an account
withholdings – mandatory items withheld from a person’s pay, such as income taxes, Social
Security taxes, and unemployment taxes

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PAYCHECK
Burke Food Supply Company Dolores Lopez Check number: 7207869
123 Avenue Q 714 Ivy Road Pay period ending: 8/14/20XX
Los Angeles, CA 90019 Los Angeles 90018

Hours and Earnings Taxes and Deductions

Description Amount Description Current Y-T-D

Amount Amount

Rate of pay Reg. 15.00 FICA Tax 22.95 757.35

Hours Worked 20 Fed. Income Tax 23.43 773.19
. State Income Tax 2.82 93.06
. State Disability Tax 3.00 99.00
Union Dues 2.00 66.00
Gross Pay 300.00
Net Pay 245.80
Total Gross Y-T-D 9,900.00 Total 54.20 1,788.60

Statement of earnings. Detach and keep for records.

Burke Food Supply Company 7207869

123 Avenue Q
Los Angeles, CA 90019
Date: August 14, 20XX

Pay to the Dolores Lopez $***245.80

order of 714 Ivy Road
Los Angeles, CA 90018

Two Hundred forty-five And 80/100 . . . . . . . . . . . . . . . . . . . . . . . . .DOLLARS

City Savings & Loan

23 Sebastian St. Joseph W. Burke
Los Angeles, CA 90230

❘ : 61777 ❘ : 614728066 ❘ ❘ . 7207869

© 2021 Overcoming Obstacles

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