Section 3: Expenditure
2.13 apply financial literacy skills in the preparation and evaluation of a budget for independent living
Linking Learning Outcomes
Learning Outcomes 1.7, 1.18 & 3.8
In this section students will examine expenditure as it relates to them, to a household and independent living. They will learn to differentiate between fixed, irregular, and discretionary expenditure. They will consider how to prioritise certain types of expenditure and how this might relate to needs and wants.
Students should have an understanding of the difference between needs and wants (see Section 1) and the different forms of resources available to them as individuals and to a household (see Section 2).
- Discuss the term ‘financial literacy skills’
- Recognise which financial literacy skills are required for independent living
- What is expenditure?
- Understand the terms ‘fixed, irregular and discretionary’ in relation to expenditure
- Classify expenditure into fixed, irregular and discretionary
- Understand the need to prioritise certain types of household expenditure
- Develop an understanding of ‘impulse buying’ and consider its impact on household financial planning for independent living.
Introduce independent living and discuss with the class what their understanding of it means.
As a student the majority of your time is spent in school learning and employment laws protect your right to education so your potential to earn an income may be limited. You are gradually gaining independence from your family’s income and resources and as you grow older and move from education into the workforce you will need to be able to provide for yourself.
Discuss with the class the type of skills that they believe are important for independent living e.g. cooking, home management, financial management etc.
Introduce the term ‘financial literacy skills’ and explore with students their understanding of what it means to be financially literate. Some answers may include the ability to understand how money works, how money is earned, managed and spent etc. To assist with understanding, identify with students the consequences of poor financial literacy skills e.g. debt etc.
Activity 1: Exploring financial literacy skills
- List the financial literacy skills that you believe are important for independent living.
- Create a poster/ an online word cloud to share with your class.
Expenditure is the act of spending money. Everyday living involves many transactions that require the spending of income/money e.g. travel, food, books etc.
Some expenditure is unavoidable and necessary in order to survive e.g. spending on needs, whilst other expenditure is not necessary for survival e.g. spending on wants. When looking at your expenditure it is important to know how to prioritise certain types of expenditure over others and how this might relate to needs and wants. This will allow you to make the best use of the financial resources available to you.
Introduce the idea of the different categories of expenditure and discuss the differences between each category:
Expenditure is classified into three groups:
- Fixed Expenditure: These are regular payments where the amount paid does not vary e.g. rent or mortgage payment.
- Irregular Expenditure: This is where the timing and /or amount of spending will vary. This is normally linked to household usage such as energy bills.
- Discretionary Expenditure: Non-essential spending, this is spending on wants rather than needs.
Activity 2: Expenditure worksheet
Present the lists of items in the worksheet below and ask the students to identify any differences between the types of spending involved in each group. Ask students to consider which type of spending is most important and should therefore be prioritised.
Alternatively, this may be a good opportunity for students to create a mind map to explore and present the different forms of expenditure discussed above.
Activity 3: Top three spends
In the previous sections we differentiated between needs and wants and the types of resources available to people. We also recognised the importance of income as a resource.
Begin this section by asking the student’s opinions about the three largest areas of spending for teenagers.
Also ask if they tend to spend the same amount of money on the same items each week, or if their pattern of spending tends to vary.
- Ask the class to think about how they spent money the previous week. If students say they didn’t spend any money the previous week ask them to think about money that others, such as their parents or guardians, spent on them.
- Invite each student to write down their three biggest weekly expenses in order of the amount of money spent (where number one costs the most amount of money and number three costs the least amount of money). Give the following prompts if necessary: food and drink, phone credit, clothes, entertainment etc.
- Invite students to calculate the total amount spent on their top three items. Encourage them to carry out this step individually. Sharing the amount they spent is not necessary. Students could use the spending calculator to calculate their spending.
Possible extension questions include:
- Do you plan your spending? Why / why not?
- Do you think planning your spending is necessary or important? Why?
- Do you ever find that you don’t have enough money to cover your needs / wants/ planned expenditure?
- Do you ever plan to save money each week / month?
Facilitate a whole class discussion using the following questions as prompts. You can encourage students to use free digital learning technology and apps here to gather and display information:
- What do young people spend the most money on?
- What do they spend the least money ?
- Do you think young people manage to save money on a weekly basis?
- What stops young people from saving money? What helps them to save money?
- How can young people make sure that they have enough money to buy the things they need and not spend more than they have?
Saving involves putting some of your current income aside with a view to spending it at a later date. Saving is really about delayed spending as people who save intend to use it in the future.
This future spending might be for something specific, such as a holiday or car, or for something unknown, such as an emergency or saving for a ‘rainy day’. This concept of putting money aside for an unknown future expense and building up a ‘financial cushion’ is an important one and should be fully explained to students before proceeding.
Savings should be included in your budget each week or each month and is an important part of budgeting. Fixed savings each month demonstrate to any financial provider e.g. bank etc., your ability to make steady financial commitments and this would help you in future loan applications. For example, when applying for a mortgage, a financial institution will review your ability to save positively in granting you a mortgage.
Possible Assessment: Where can I save money?
Students could create the step-by-step guide on how to open a savings account in a poster format.
If the school have a school bank, invite the students involved in running the bank to come in and talk to the class about opening a savings account and the benefits of saving. students can use the regular savings comparison tool to see what type of savings accounts are available and look at some of their features.
Discuss various ways in which students can make savings e.g. walking to school/cycling to save on public transport costs, making their own lunch instead of buying it in the shop/school canteen, swapping clothing instead of buying new etc.
To determine whether money can be saved by making your own lunch, it is important to carry out a cost comparison on a homemade and commercially available dish/food item. In order to do this you will need to be able to calculate the unit cost of food items.
Activity 4: Calculating the unit cost
Learning Outcomes 1.3, 1.7 & 1.18
Calculating the unit cost of food, ingredients and other household items is an important skill and is beneficial when planning your expenditure for things like weekly grocery shopping and it becomes especially relevant when you begin to live independently for the first time.
Ask the students to work out the unit cost of the ingredients needed for a meal using the worksheet below and afterwards facilitate a classroom discussion to explore the idea of planning expenditure this way.
Calculate the cost of a Spicy Beef Burrito and compare it to a commercially available option.
Supporting notes on unit pricing:
There is information about the rules that shops must follow when it comes to unit pricing available on the CCPC website.
Once students have an understanding of individual expenditure expand on this idea to consider the different types of household spending (e.g. mortgage or rent, running a car, groceries, gifts etc.).
Ask the students to think about how and why households plan their spending and discuss the concept of impulse buying (i.e. buying something without planning to do so in advance, as a result of a sudden whim or impulse). Discuss with the class their understanding of the term ‘impulse buying’ and any examples that the class may wish to share.
Impulse buying may involve one or two expensive items or a large number of low-cost items. Either way, these purchases will add up and may mean that you are short money to pay for more essential items. When shopping it is best to make a list and stick to it as much as possible. This will lead to fewer problems with unplanned spending
Before proceeding facilitate a whole-class discussion to ensure that students understand impulse buying and the effect it can have on budgeting.
Activity 5: Identifying impulse buying
Watch the clip from episode 1 of season 2 of the CCPC sponsored TV show How to be Good with Money.
Students will work in groups and offer responses to the following questions.
From watching the video clip answer the following questions:
- Which type of expenditure was demonstrated in the video clip?
- Was this consumer ‘impulse buying’? Discuss.
- Give one piece of financial advice to the Consumer in the video clip on how they could be better with money.
At the end of these activities students should have an understanding of what people their age spend their money on and appreciate the importance of planning their spending.
Reflection: Have you ever purchased an item that you didn’t need on the spur of the moment? What did you buy? What influenced you to buy it? Was this item a need or a want? What advice would you give to anyone who may be inclined to impulse buy?
Activity 6: Influences on expenditure
Expenditure varies from person to person.
Use the Giant Steps Role Cards from Section 1 to itemise the expenditure of each individual.
- Read the role card that you have been given and make a list of the expenditure that you think the individual might have.
- Classify the expenditure into fixed, irregular, discretionary.
- Record the amount of each expenditure on the back of the role card.
- Share and discuss with the pair beside you to compare the expenses of different individuals. Explore possible reasons why their expenditure might vary.
Planning expenditure prevents impulse buying and ensures that needs are met. It also involves saving money and being financially prepared for any expenses that may arise in the future.
Discussion & Reflections
In this section we looked at different scenarios and examined the different types of expenditure that occur. We also identified the need to plan your spending and the consequences of impulse buying
Is there anything that surprised you about the types of expenditure discussed?
How do you feel about the choices you have to make when it comes to spending your money and the planning required for this?
Can you evaluate your own spending and consumption habits? Do you buy what you need or what you want? How do you balance your spending?