Extra Credit (Fall 2005)

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Financial Education Matters

Making budgets real for your students

A budget, as you know, is a plan for spending. It’s the foundation for managing one’s consumption over time to allow for the wise use of credit and for savings that lead to the buildup of net worth. It’s important for individuals and for the economy as a whole.

A successful budget takes commitment. It’s a money diet. By definition, a diet is regulated eating; likewise, a budget is regulated spending. There is no enforcement of “limits” or “don’ts.” Both are simply plans.

Looking at a budget as a plan for what we can do rather than what we can’t do with our money makes the task more appealing. We like to spend, and, with a plan, we can spend more wisely.

Teaching students about a budget often fails because budgeting is too abstract from their daily lives; it’s fiction rather than fact. That’s why the first step in teaching about a budget is to take a bite of reality using a two-week plan. During two consecutive weeks, have students write down every cent they spend and where they spend it. While most of us have a good idea of what we spend on the big items, we often underestimate the impact of the nickel and dime daily spending that adds up to big chunks of our budget.

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Next, have kids do the same with income. Remind them that income takes many forms and comes from many sources. It’s not limited to wages. It includes birthday money or lottery winnings as well as the $20 a friend finally paid back or the $20 borrowed from a friend. Urge students to write it down because it’s all income (even if it’s negative), it gets spent, and it must be in their budget.

While the two-week plan provides a snapshot of basic spending and income over a typical month, this picture helps build a more accurate budget and increases students’ chances of budgeting successfully.

By Claire A. Loup, economic and financial education representative, New Orleans Branch