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Using Money Wisely Why do we save money? Introduction Do you do chores at home? If you do, your family may give you an allowance. What would you do with this money you earn? Some people decide to spend the money they earn right away. They might go to the store and buy a snack or a small toy. But other people choose to save the money that they have earned. People choose to save money for many reasons. Some people choose to save money in case of an emergency. Others save money because they want to buy something in the future. Businesses may also choose to save money. Many businesses save money by finding ways to spend less on the goods that they create. They can use the money they save to move to a bigger factory or buy new machines. People and businesses save money for many reasons. In this lesson, you will explore why and how people and businesses save their money.
Social Studies Vocabulary capital resource human resource interest invest
It is important for people to save money. This girl is bringing money she has saved to the bank.
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If you want to buy a video game system, you will need to save money.
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1. People Save Money For many people, saving money is not as fun as spending it is. You can choose to spend your money on a cookie that you can eat and enjoy right away. You may also choose to not buy the cookie. Instead, you could choose to put that money aside and save it for later. Why do people choose to save their money rather than spend it? Many people save so that they can buy something that costs more money than they have right now. Suppose you want to buy a new video game system. But video game systems are expensive. In order to buy the system, you would need to save some or all of your allowance each week. Saving money allows people to buy things that cost more money.
Another reason that people save money is because they do not know what will happen to them in the future. Suppose that you are riding your bike. Suddenly, your bike gets a flat tire. If you have money saved up, you could buy a new tire right away. If not, you won’t be able to ride your bike. Saving allows people to pay for things when accidents happen. Your parents can also save money for you. Some parents put money aside for when you are old enough to go to college. Doing well in school, even in elementary school, is important. At school, you gain new knowledge and skills. You can use this knowledge and these skills in your life. As you learn more skills at school, you have more opportunities to get better jobs in the future. Saving money for college can help you learn more things later on.
You can use the money that you save to fix your bike.
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2. Ways People Save Money
Some people save their money in a piggy bank.
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If you want to save your money, where would you put it? There are many different ways that people choose to save their money. At home, you can put extra money you have in a jar or a piggy bank. You can use the money you save in the piggy bank to buy something you like in the future. Piggy banks are a good way to save small amounts of money. Because you can keep a piggy bank at home, you can easily put more money in it. But if you have a piggy bank at home, your money could get lost or even stolen. You may not want to save your money in a piggy bank. Where can you store your money so that it will be safe?
Many people choose to save their money in a bank. A bank is a place where people can store their money safely. If you want to save your money in a bank, your parents can open a savings account for you. Banks offer interest on money that you save in your bank account. Suppose you deposit $100 into your savings account at the bank. A year later, you go back to see how much money you have saved. You may be surprised to see that your savings account now has $101. That extra $1 is interest that you earned by saving money at a bank. The more money you store in a bank, the more money you can earn from interest. The government also protects money in banks. If a bank closes or is robbed, the government will make sure that you do not lose your money.
People can save their money at a bank.
interest extra money that you make from saving money at a bank
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This man is using a machine that helps him make shoes quickly.
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3. Businesses Use Their Money Wisely Businesses also save money. But where does this extra money come from? When a business earns a profit, it can choose to put that money back into the business or save some of that profit to use later. Businesses can find ways to spend less on the things they make. They can choose to save this extra money. One way that a business can spend less money is by using machines. Machines can make goods quickly. By using machines, a business needs less time and money to make a good. For example, it may take one worker a whole day to make a pair of shoes by hand. But with a machine, the same worker can make thousands of shoes in a day. The business needs fewer employees to make shoes. It spends less money because it no longer needs to pay as many workers to make shoes.
Businesses can also spend less money by choosing different resources to use. Sometimes a business might find that they can make their goods with cheaper resources. One type of resource is a natural resource. Natural resources are things that can be found in nature, like plants. Look at your shirt. Some shirts are made from cotton. Cotton comes from a plant, so shirts made from cotton are made from natural resources. A business may find that cotton does not cost as much money as other materials. The business may choose to make shirts out of cotton. It will spend less money on each shirt that it makes. The business saves the money it does not spend. Another type of resource is a human resource. The people that package and ship the shirts to stores are an example of a human resource. So are the accountants that figure out the business’s profit. Businesses also have capital resources. The machines in a shirt factory are a capital resource. By looking at different resources, a business can figure out how to save money.
human resource any human activity used to produce goods and services
capital resource an item that is used to produce other goods and services
Cotton is a natural resource that a business can use to make clothing.
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4. Businesses Invest Their Money
invest using money in the hopes of making more money in the future
Some businesses invest money into repairing their machines when they break.
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Spending less money helps businesses of all sizes do well. What can a business do with the money that it sets aside? Businesses can invest the money they set aside. When a business invests its money back into the business, it is trying to make even more money. One way to make even more money is to buy new machines so that goods are made faster. For example, the owner of a business may already own a machine. But the owner may find that a new machine would help him make twice as many goods as he can now. If he has saved enough money, the owner can invest by buying a new machine. This machine will help the business make more money in the future. Sometimes machines break down, and a business needs to pay someone to fix it. If the business has saved its money, it can fix the broken machine. When the machine is repaired, the business can continue to make goods to sell.
Businesses also invest in human capital. Some will pay for a worker to go to school. Businesses know that workers who learn new skills can perform jobs well. One day, you will add to a business owner’s human capital if you work hard in school. Businesses save their money so that they can invest in creating new things to sell. In a free market economy, businesses compete with one another by inventing new and useful goods or services. Do you have a computer at home? Many different businesses make computers and compete with one another to get people to buy their goods. They often spend money each year to invent new ways to make their computers better and faster. If businesses save, they can spend that money to invent new ways to make their goods better. Businesses save money so that they can make better goods to sell to their customers.
Companies invent new things to make computers better and faster.
Lesson Summary Many people choose to save their money instead of spending it. People save their money so that they can buy something expensive in the future, or they can put money aside in case they need to fix something that breaks. They can save this money in a bank. Businesses save money by finding ways to spend less on making goods. They can choose to use machines or choose cheaper resources. They can think about how to spend well on different types of resources. They then can save money for new machines or to invent new things.
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READ & DO
Economics
Creating a Budget People do not have enough money to buy everything that they want. We all have to plan how we will spend the money that we have. How can we create a plan for how to spend our money? Mr. Bessie’s class had worked very hard this year. Each student had studied very hard, and they had all done really well on the tests. Mr. Bessie decided that his class would have a party to celebrate how well they had done that year. The class seemed excited about celebrating. Each student wanted to have different things at the party. Some students wanted to have lots of snacks and a very large cake. Others wanted to fill the room with
Students vote on how they want to spend their party money.
balloons and confetti. One student even wanted a piñata. Mr. Bessie told each student to bring $5 to class. The next day, all twenty students brought money to class. All together, they had $100. The students voted on how to spend the money. They decided that they wanted to buy balloons, board and card games, some snacks and drinks, and fun music to listen to.
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The class voted on all the things they wanted to buy with their money. After the class decided what they wanted, Mr. Bessie helped the class make a budget. A budget is a plan for how to spend and save money. First, he created a list of all the things that the students agreed on buying. The class talked about how much money they should spend on each thing on the list. The class voted to spend $10 on balloons, $20 on
budget a plan for how to use money
donate give money or goods to someone in need
snacks and drinks, $30 on board games, and $10 dollars on music. After they voted, the class still had $30 left over. They decided that they should save $10 in case they needed something extra to buy. Mr. Bessie suggested that they donate, or give, the remaining $20 to charity. The class chose to give the money to their local animal shelter. With the $20 they donated, the shelter could buy food for the animals it took care of. Us i n g Mon e y Wi s e l y
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The class had to choose which games they could buy with the money from the budget. Mr. Bessie and the students went to the store to buy the supplies. Mr. Bessie broke the students up into different groups. Each group was in charge of finding one thing on the list. One group of students was sent to find balloons for the party. They found that the store sold different types of balloons in many sizes and colors. They had to think about the costs and benefits of each option. The students wanted to buy the big balloons, but found that the big balloons were $12. This price was too high for their budget. The benefit of the big balloons was that they would make the classroom look more festive. But the cost was that they would go over their budget. The bag of small balloons only cost $8, so the students chose to buy the bag of small balloons instead. Another group was sent to find board games. There were many types of board games, but they could not buy all of them. The students only had $30, so they chose to buy two board games. 232
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The students were very happy with their shopping trip. Each group of students had made careful choices about what to buy. By the end of their shopping trip, the class hadn’t spent all of their money. They still had an extra $15 to save. With the $10 they planned to save, the class now could save $25. When they got back to class, the students set up the party. All the students had a fun time. The class decided that they could save the money left from their budget for something else in the future. Maybe they could even donate the money to Mr. Bessie’s class next year. That way the next class could have an even bigger party. ◆
ITEM
BUDGET
AMOUNT SPENT
Balloons
$10
$8
Board Games
$30
$25
Drinks and Snacks
$20
$15
Music
$10
$7
Money to Donate
$20
$20
Money to Save
$10
$10
Total
$100
$85
$15 Under Budget
The students were able to have the party that they wanted by making a budget.
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