Suggested Target Age: Grades 5-8

Topics Covered: saving, interest rates, simple and compound interest

Time Required: 25-30 minutes

What Will the Students Learn?

• That the discipline of saving helps us achieve our goals, such as saving toward a special purchase
• The importance of starting to save early on in life
• What “inflation” is
• The “miracle” of compound interest

State Content Standards Key
California: Math grade 6-1.4, grade 7 (Career & Math) 1.2, 1.6, 1.7
Florida: SS.D.2.2 (subpoints 2,3); MA.A.3.3
Indiana: Math 5.1.1, 5.1.4, 6.1.4, 6.2.3, 6.2.8, 6.3.2, 7.2.1, 7.2.3, 8.1.1, 8.2.1, 8.2.2, 8.2.3, 8.2.4, 8.3.4; Social Sciences 5.4.8, 6.4.6, 6.4.11, 8.4.10
Virginia: Economics/Financial Literacy Objectives 1,4,5,6,14; Math 5.4, 6.1, 6.6, 6.7, 6.8, 6.22, 7.1, 7.4, 7.6, 8.3, 8.4, A.10; CE.10

NOTE: This lesson requires that students have access to computers and the Internet.

Lesson Plan:

Set-Up: Gather students into a computer lab for this mini-lesson.

[OPTIONAL START – If you have an LCD projector, go ahead and plug it into one of the computers so you can project images on the screen. Have the brief commercial “Feed the Pig” lined up to play. Visit: http://www.feedthepig.org/VideoPage.aspx -- the “TV Store” is the best commercial. Play the commercial for the students to watch. Then ask one student to explain the commercial.]

Introduction: Explain that today’s class is going to be about money, and specifically about saving.

1. Tell the story of Shawn Wright and Ana Gutierrez (below) and ask the students which person will have the most money at retirement, Shawn or Ana?

The Shawn and Ana Story

Ana decides to start saving seriously just as soon as she can. At age 21, she decides that every year, she is going to put aside $2000 of her annual income into a savings account. (For the purpose of this story, we’re going to suppose that Ana makes 10% interest.) Ana does well; for twelve years she faithfully puts aside $2000 into savings. But when she reaches age 33, she gets tired of making the sacrifices required by this plan, and decides to stop saving. So Ana doesn’t save anything from age 33 to age 65. But she does commit herself to leave all the money she has already put into her savings alone-she won’t touch it until she retires at age 65.

Shawn knows that it is important to save, and part of him wants to, but when he turns 21, he feels like there are a lot of things he wants and needs to buy—like a car, and furniture for his apartment. He also feels like while he is young, he should enjoy himself. So instead of saving, he spends his money on a great stereo system, cool vacations, eating out, and a top quality mountain bike. When Shawn reaches age 33, he realizes that he really ought to make some changes. He’s in his thirties now, and he should be more responsible with his money and start saving for retirement. So he decides that from now on, he’s going to put $2000 every year into savings. (For the purpose of this exercise, we’re going to assume that Shawn makes 10% interest.) And Shawn sticks to it. He starts putting $2000 a year, every year, into his savings account and does that faithfully for the next 32 years until he turns 65.

When Ana and Shawn reach age 65, who will have more money in their savings account?

Answer: Ana. She will have $993,306.59 while Shawn will have $442,503.09.

(You can project the Shawn and Ana power point slide with the chart displaying how much they each earn in their savings account each year. Click here for PDF.)

2. Explain that the main reason Ana had more money in the end is that her money was invested over a longer time frame. Kids need to start saving as soon as possible!

3. Another good reason to start saving is inflation. Here’s a definition:

Inflation: Inflation occurs when prices increase as time goes by. Inflation means that you can buy less with the same amount of money from one year to the next.

4. Have the students log into http://www.orangekids.com/cedric/save_st_002.htm This puts everyone on the “Savings Trail” on the page called Inflation Summit. Have them read this page and then click “click here to learn more about inflation.”

5. So it’s important to start saving – because the sooner you start, the more time your money has to make money, and because saving can help you keep up with inflation.  Once you decide to save, it’s important to choose the best savings “vehicles” or “instruments.” Two common savings vehicles are savings accounts and CDs (Certificates of Deposit).

6. Savings accounts may pay “simple” interest rates or “compound” interest rates. Explain the difference:

Simple interest: When you earn simple interest in a bank account or on an investment, it is paid only on the money that you have deposited into your account, and not on your account’s earnings.

Compound interest: When your money earns compound interest in a bank or investment account, you’re paid a percentage of the balance in your account, including what you’ve deposited, plus any interest you have earned in the past. So not only does your money earn interest, your interest earns interest, too.

7. Have the students log into http://www.orangekids.com/cedric/save_bm_003.htm . This puts them on “Interest Mountain.” Have them click “Click Here to learn about different kinds of interest.”  They should read the text and watch the little demo that shows that compound interest is superior to simple interest.

8. Now have the students log into their Economis accounts. They should click on “online finances.” Remind them that they have both a checking account and a savings account. The Economis saving account pays 3.5% interest and it is compounded. The students will see their interest “dividends” posted into their accounts every month on the first day of the month. Since students do NOT earn interest on the funds in their checking account, they may want to keep most of their money in their savings account, where it can earn more money. (Just remember that the Economis debit card is linked ONLY to their checking account. So if they have 50 credits in the checking account and 200 in their savings account, and they try to buy something in the online store for 100 credits, their debit card will be rejected. They would first have to log in, transfer 50 credits from their savings account to their checking account, and then go shopping.)

9. Let kids transfer credits between their checking and savings accounts as they wish, using the “transfer [name of your currency]” tab.

10. Have the students minimize the window that their Economis account is in and open a new window with Internet Explorer.

11. In the new window, have the students go back to Planet Orange at this link:
http://www.orangekids.com/cedric/save_bb_002.htm This puts everyone on the “Banking Pinnacle” page.  They should read this page, then click “next” at the bottom. Then they should read that page, and also click on “Click here to learn more about short-and long-term savings plans.” They should read the text and watch the little demo of the growing flowers.

12.  When everyone is done with #9, remind students that through Economis they can purchase a “long-term” savings vehicle known as a Certificate of Deposit. Review the concept of a CD and share this definition:

Certificate of deposit (CD). A CD is an insured time deposit with a bank. When you buy a CD you agree not to use the money in you deposit for a specific period of time of usually 6 months to 5 years. And, you earn the interest the CD pays.

13. Remind the students that they can purchase CDs through Economis. Review the three choices: 30- day, 60-day, and 90-day CDs. Explain that the longer the term, the higher the interest rate. But also warn them that a key rule of CDs is that you are not supposed to try to get the money out of them until the term comes due. They will face a financial penalty if they take the money out BEFORE the CD has matured.

14. Have the students maximize the window to return to their Economis accounts. They should go to online finances, and scroll down to the part of the screen where they can purchase CDs. Explain that the smallest amount they can purchase a CD in is 50 ‘credits’ [50 units of your currency]. This mimics the real world – typically you can’t purchase a CD with less than $500. If students have not yet earned enough money to purchase CDs, you can simply alert them to the fact that this is an available option for them later on when they have more money.

15. Allow time for any student (who hasn’t already done so in the previous lesson)  to purchase a CD.

16. Have the students minimize the window showing their Economis accounts.

Concluding Activity

Have the students return to Planet Orange, back to the “Interest Mountain” page where they left off before (this page: http://www.orangekids.com/cedric/save_bm_003.htm) Have them click “4. Quiz” in the far left side of the screen. This will pop up a new window with a short quiz on the topics covered in this lesson. Have them take the quiz and then ask students how they fared on it.