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.)

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.”

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).

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.

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.)

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 catch suspicious charges and report them to your bank.”

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.

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.

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.

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.