F1.2 Create a financial plan to reach a long-term financial goal, accounting for income, expenses, and tax implications.
Skill: Creating a Plan to Reach a Financial Goal
Managing finances is not just about being able to afford the expenses that are essential to health, safety and well-being; it is also a way to allow yourself to work towards financial goals, no matter what the associated value.
When discussing financial goals with students, it is important not to let one's own beliefs and biases influence the tone or direction of the discussion. Perceptions of the value of money can differ from family to family, from individual to individual, and may also have social and cultural implications, so it is important to allow students to share their truths about the financial goals they might have or imagine themselves having.
A financial goal is not necessarily the purchase of a physical object. The financial goal could be to save for an experience (a trip, an excursion, a concert, etc.), to make a donation to an organization that inspires us, or even to save a sum of money per month in order to have a safety net in case we have to face an unexpected expense.
Planning for and Reaching a Financial Goal
In teaching, it is important to establish clear learning goals and success criteria that are well understood by students. This allows the student to focus on the expectations of the task at hand. Similarly, having a clear financial goal can help us make decisions about money and ensure that spending is well thought out.
Teachers should introduce students to a variety of financial goals, which can be categorized by type of goal (an amount to be saved, a purchase, personal income), time frame (immediate, short-term, and long-term), or even the people or organizations that might be involved in achieving the goal (the individual, family, charities, community, etc.).
It may be difficult for the student to determine a financial goal, especially if they have little or no experience with money. In order to respect and value differences in students' comfort with money management, a fictional scenario is useful and preferable. A scenario that focuses on the interests of the class group could also support the collective implementation of a plan to achieve the goal.
Some examples of financial goals relevant to students are grouped in the following table.
|
Timeline \(\rightarrow \) Type of Financial Goal \(\downarrow \) |
Immediate | Short-Term | Long-Term |
|---|---|---|---|
|
Individual |
Have a summer job at minimum wage, 15 hours per week. |
Save half of all the money received as gifts this year. |
Set aside $1000 a year for post-secondary plans. |
|
Classroom |
Organize an activity that will raise funds for the local food bank. |
Seek sponsors during the year to finance the publication of a yearbook. |
Plan to fund the creation and maintenance of a community garden through fundraising and grant applications. |
|
Community |
Increase the registration fee for a sports team to purchase new equipment at the beginning of the season. |
Set aside a portion of the community youth centre's dues until savings are available to pay for renovations. |
Seek sponsors in the community and organize fundraisers to take part in a humanitarian trip internationally. |
This table is not exhaustive; by presenting a version of this table with only the headings, it could be very interesting to see what examples the students will think of. An exchange of ideas could follow this exercise, which could be done individually, in pairs, or in small groups (or a combination of all three at different times in the process). The class could select a scenario to work on, or the scenarios can be posted for students to choose which one to plan.
Planning, or how to achieve the financial goal, can be done using budgets. The complexity of the budgets should be commensurate with the students' level of knowledge. Several factors can also affect the path to achieving a financial goal.
Income, Expenses, and Tax Implications
Income and expenses affect immediate, short-, and long-term financial goals.
When we talk about income, we are referring to the various ways of earning money.
In addition to facilitating a discussion, a quiz could be conducted on the various types of income with examples. Concrete and relevant examples will ensure that students get the most out of the exercise. Here are some examples of situations and the types of income that would be associated with them:
|
Situation |
Type of Income |
|
You get a $5 bill in a birthday card. |
Gift |
|
A neighbour gives you $10 for mowing his lawn. |
Compensation |
|
You sell pastries for $1 a piece. |
Sales income |
|
You deposit money in a bank account that earns you a small amount of money per month. |
Interest |
|
You buy an item with the intention of reselling it for a profit later. |
Investment |
This list is not exhaustive, and situations should be modified to be relevant to students; for example, items purchased as an investment could be sports cards or figurines, and income from sales could refer to a school fundraiser. The definitions of the terms could be presented alternately to students who, in turn, would describe representative situations.
It should be noted that some examples of income sources may not be applicable to students' lives. A situation where one receives honoraria, for example, is not very realistic for the junior or intermediate student, since this type of income is reserved for specific professions. This is also true for certain financial products, such as annuities or stocks. In these cases, it is suggested that a discussion be led about scenarios in which these sources of income might be relevant.
Extensions: Income in the form of wages or salary can be very complex. Junior and intermediate students may not be able to analyze a T4 slip, but it would be possible to discuss deductions when wages are earned (for example, Canada Pension Plan, Employment Insurance and income tax deductions). This may open the door to a discussion of the difference between gross and net income and the significance of these two amounts.
Finally, it is important to consider various expenses that may affect the achievement of long-term financial goals. For example, students in Grade 8 may be less aware of certain living expenses, as these expenses are probably not yet part of their financial reality. The concept of insurance may also be abstract, as well as losses related to investments. Teachers need to guide students in developing plans to make them aware of the multiple factors that need to be considered in relation to a long-term goal.
Knowledge: Financial Goal
An objective that a person sets that affects how they spend and save money. An objective may be short-term, such as buying a pair of shoes, or long-term, such as financing their university or college education.
Source: The Ontario Curriculum. Mathematics, Grades 1-8 Ontario Ministry of Education, 2020.
Knowledge: Gross Income
An individual’s total earnings from pay and/or other sources, before taxes or other deductions.
Source: The Ontario Curriculum. Mathematics, Grades 1-8 Ontario Ministry of Education, 2020.
Knowledge: Net Income
An individual's total earnings from pay and/or other sources, minus income tax and other deductions.
Source: The Ontario Curriculum. Mathematics, Grades 1-8 Ontario Ministry of Education, 2020.