Here was the Savings Lesson delivered yesterday as part of the 24 Hour Personal Finance Course NGPF is teaching at Eastside Prep.

Key learning objectives:

• Importance of starting to save when you are young (i.e. the power of compound interest)
• Understanding the psychological barriers to saving and how they can be overcome

Documents:

• Lesson Guide (Note: I have terrible habit of going off script so what follows does not mirror this lesson plan)
• Student Activity Packet

1. Opened with 4 Poll Everywhere questions to gauge student experience with saving

• Have you ever saved? 95% said Yes
• What is balance in savings account?
• What’s the most important thing that you are saving for?
  • Highlighted importance of having a saving goal (almost 40% didn’t have one)
  • Importance of saving for college: Dollar saved is dollar that you don’t need to borrow

• Word cloud; first word that pops into your head regarding Saving?
  • Had students discuss the negative terms they associated with saving: limited, broke, bills along with the positive
  • Clearly means a lot of different things to different people

2. Next, had students spend a few minutes thinking through this brain teaser:

OPTION 1: $1,000,000 in one month*

or

OPTION 2: A single penny doubled every day for the period of one month*

• Good discussion ensued: One student made the connection between this question and other personal finance decisions. Said something along the lines of “Don’t always jump at the first option that looks great (like the $1,000,000 in one month) but spend the time digging deeper and analyzing what is best for you.”

3. Then we used this Data Crunch titled “Why Should You Invest/Save When You Are Young?” (and now a word from our sponsor: Check out our latest product, the NGPF Data Crunch!)

• Didn’t have color copies of the worksheet so students couldn’t tell which line on the graph corresponded to which investor which turned out to be a great learning opportunity (and became the sixth question too: Label each of the lines to correspond with the proper investor)!
• There were those “aha” moments as students realized the importance of starting early, as the investor who invested $50,000 between the ages of 25-35 (Susan) bested Bill who invested $150,000 between ages of 35-65.
• They also figured out the most important question which was “What interest rate is being assumed?” leading to a good discussion of whether they could earn that rate in a savings account (not currently!).
• They were also surprised to see how $50,000 could turn into $600,000 due to compounding.
  • As one student succinctly put it: “That’s money you earn that you don’t have to work for.”

4. Turned to this 2 minute Investopedia video to cement the learning around Compound Interest. 

• It moves quickly so I paused it while the Compound Interest example was being explained to check for understanding.
• The concept of interest on top of interest is not something most people have ever thought about

5. Then, on to some savings calculator examples using some real-life scenarios

• See student activity packet for scenarios
• Most students missed the impact of the 401(k) match in the first scenario. A good opportunity to discuss the 401(k) and why you want to take advantage of the company match!
• Students surprised to see the value of saving 10% of your income over a career and what it amounted to (over $900K in first scenario)
  • Opportunity to discuss how inflation likely to erode the value of those dollars balanced by..
  • Their compensation may increase at rate greater than inflation and they may increase their contributions over time.
• Quickly reviewed the Rule of 72 to show the value of the first dollars invested at the age of 22 and how much they are worth so much more in the future. Even if you take into account inflation, every dollar saved now is worth a multiple of that to your future self

6. Ok, so we can all agree that saving when you are  young is so worth it and yet millenials are not saving much (could have inserted this chart from NGPF Data Crunch here but didn’t), so why not?  Showed the famous marshmallow experiment video demonstrating the importance of delayed gratification.

• After watching this entertaining video, I had students reflect on a time when they struggled with this issue around a specific purchase.
• Great discussion ensued:
  • Succumbing to peer pressure
  • Bought something and then regretted it
  • How hunger can reduce will power
• Then we discussed strategies to help overcome our human frailties
  • Hitting pause button (Amazon shopping cart example) to make sure this is something you really want
  • More upfront planning/budgeting
  • Setting savings goals so you are motivated to not just spend everything you have
  • Students were engaged and tried to come up with solutions to help their friends.

7. Bankrate video which describes strategies to make saving automatic

• Students discussed whether they would use automatic or manual strategy to encourage saving.

8. Students discussed their takeaways from the lesson. 

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You can find our earlier posts here:

• The 24 Hour Personal Finance Course Kick-Off…At Eastside Prep (East Palo Alto, CA)

• Day 2 of the 24 Hour Personal Finance Course: Checking Basics

• Day 3 of the 24 Hour Personal Finance Course: Investing

• Day 4 of the 24 Hour Personal Finance Course: Managing Checking Account

• Day 5 of the 24 Hour Personal Finance Course: Checking Account Case Study

About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.

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