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Students use the concept of opportunity cost to make effective and responsible personal finance decisions related to spending.
Overview
Middle school students begin to understand the concept of scarcity because they cannot have everything they want. They make choices among alternatives because of scarcity. They possess a natural desire to be mature which makes them eager to know about the financial world they are entering. The Leap into the Future activity is designed to provide middle school students with a dose of reality through hands-on experience, by balancing careers, families, and finances. The project encourages students to consider seriously the courses they need to complete in high school in order to prepare for the careers and lifestyles they want in the future.
Teaching Activity
Introduction
This lesson plan is designed for a middle school grade level, and instructions apply to each participating class. Choose one teacher to be the coordinator who organizes activities and sends letters (see Exhibit 1) to local businesses and parents requesting volunteers. Schedule an organizational meeting with volunteers before the project begins. Appoint a chairperson, usually someone with a correlating occupation, to manage each reality booth. Ask each chairperson to make a work schedule for other volunteers, make posters to exhibit different levels (low, moderate, high) of prices for goods or services, design an attractive booth (table), and construct any other necessary items.
Day 1
Opportunity Cost
Begin by teaching the concept of opportunity cost to the class. Define opportunity cost as the next best alternative that is given up when a choice is made.
Tell students that they have $25 to spend on one item. They may buy a CD by their favorite musical group, a DVD of their favorite movie, or a new shirt. Write the first, second, and third choice of a student on the board. Ask the class to identify the student's opportunity cost. It is always the next best alternative that is given up when a choice is made. Discuss the opportunity cost of the student's decision.
Discuss the importance of investing in human capital, especially education. Investment in human capital is an action taken to increase the productivity of workers. These actions can include improving skills and abilities, education, health, or mobility of workers.
Ask students to consider what occupation they hope to be in when they are 30 years old. Discuss the different levels of education needed to perform specific jobs. Ask students to raise their hands if the occupation they chose requires a college degree.
Ask students what they think a college education will cost. Briefly discuss. Then write the following information on the board or on an overhead transparency:
View the chart and discuss the accuracy of earlier estimates. Explain that the opportunity cost of additional education is the income that a person could earn if they worked rather than attending school.
Ask students to estimate how much more the average college graduate earns than the average high school graduate. Write the following information on the board or on an overhead transparency:
Explain that the chart represents average incomes for persons over age 18. Ask students if they estimated incomes correctly. Estimate and compare a high school graduate's annual income after 35 years in the job market with the income of someone who did not graduate from high school. Make the same type of comparison with college graduates and individuals with graduate-level education.
Review the concept of opportunity cost. Point out that the opportunity cost of additional education is the income a person could earn while working rather than attending school. Ask students if furthering their education is worth the cost of attending school and not working. If class time permits, discuss marginal benefit and marginal cost. Define marginal benefit as the additional benefit that could be obtained from one more unit of a good or service. Marginal cost is the additional cost of obtaining one more unit of a good or service.
Leap into the Future
Next, explain to the class they will participate in the Leap into the Future activity and learn what it is like to be a sole provider for a family. Explain that people make different salaries in real life. In this activity, students will be given different occupations with appropriate salaries, and they will incur expenses associated with supporting a family. (An option would be to let students choose their occupations and research appropriate salaries.)
Distribute the Leap into the Future Brochure, Handout 1, to the class. Explain the procedures for the activity while students look over the brochure.
First, explain that students should visit Uncle Sam's Tax Office to receive their paychecks and brochures. (Uncle Sam's volunteers will have prepared paychecks, minus taxes, based on each student's occupation/salary.) Next, students should visit the Leadership Bank to deposit their paychecks, open a checking and/or savings account, and obtain a Transaction Form, Handout 2, for balancing their accounts. Once students record their balance, bank workers should initial the transaction. Then students should visit all the reality booths listed on the brochure; they should visit the SOS booth only if needed. (Explain to students that they must contribute to a nonprofit organization, and grandmothers may not take the place of day care.)
When visiting a booth, students should write the name of the booth in the transaction column and the purchase price/payment in the debit column of their Transaction Form. Students should deduct each payment from their balance before they proceed to the next booth. Students should ask workers to initial their brochures to prove they visited each booth.
After reviewing the simulation, prepare reality boxes for the class drawing. Create paper slips and place them in a box for each category. Be sure you have enough slips for each student. The three reality boxes should contain (1) occupation names and appropriate salaries, (2) number of children students must support (ranging from no children to three children), and (3) a driving record (either a good record or a bad record — bad records might include speeding tickets, traffic accidents, etc.).
Instruct students to draw paper slips from the three reality boxes. Ask students to choose gender and ages for their children, from birth to six years old. They should then write the information in the appropriate spaces on the brochure and return it at the end of the period. Teachers should give the brochures to volunteers working in Uncle Sam's Tax Office.
Day 2
Conduct the Leap into the Future simulation. Reality booths can handle approximately 60 students in 90-120 minutes. Students may use a calculator during the activity.
At the conclusion of the activity, distribute a wide range of prizes contributed by local businesses to the class. At North Marshall Middle School, we had prizes ranging from candy to savings bonds. This part of the lesson is optional.
Day 3
Discuss the activity with the class. Discuss the choices that had to be made at the booths. Ask students to answer three of the four open-response questions which follow.
- When you were choosing a vehicle at the Car Lot, what three considerations influenced your choice? Discuss these considerations. Also explain how advertisements may or may not have influenced your choice.
- Deductions for Uncle Sam were taken from your paycheck before you received it. List goods and services you think the government should provide for your family. Using the economic concept of opportunity cost, explain why the government cannot provide all the services and goods you listed. What advice would you give government officials to consider before deciding which services and goods to provide?
- Your grandmother gave you $100 for your birthday. You are trying to decide how to spend it. You are considering buying a DVD of a movie, investing the money in the stock market, or depositing it in a savings account in the school's student bank. You do not have to spend all your money on one thing. Use economic terms to explain what you will do with the money and why. Describe the opportunity cost of your decision.
- You are preparing for the work world. Monetary aspects of getting an education were discussed during the Leap into the Future project. Describe the nonfinancial benefits of receiving additional education beyond high school.
Economic Concepts
Marginal Benefit The additional benefit that could be obtained from one more unit of some good or service. Marginal Cost The additional cost of obtaining one more unit of some good or service. Opportunity Cost The next best alternative that is given up when a choice is made. |
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