Financial Capability

Making your money work

Financial capability is the skill of managing money well, and it matters to everyone, whatever they earn. Money has three main jobs: it lets you buy things, it lets you store value for later, and it lets you compare the prices of different things. Banks keep money safe and let people save, borrow and pay for things. Saving means putting money aside for the future, and it earns interest, which is a reward paid to you. Borrowing means using money now and repaying it later, and it costs interest, which is a charge you pay. The heart of managing money is a budget, which plans what comes in against what goes out. This module covers the functions of money, banking, saving and borrowing, budgeting, and how to make sensible financial decisions.

Personal finance words

Learn these terms before the budgeting is worked. They name what comes in, what goes out, and the cost of money.

Match each money term to its meaning

Saving against borrowing

Both saving and borrowing move money across time, but in opposite directions, and interest works the opposite way for each.

What does a budget surplus mean?

A person makes a monthly budget and finds they have a surplus. What does this mean?

• Their income is greater than their spending, so they have money left to save
• They have spent more than they earned
• They have no income at all
• They must borrow money to get by

Spend less than you earn

The foundation of managing money is simple to say and harder to do: spend less than you earn. When your income is greater than your expenditure you have a surplus, which you can save for the future or for emergencies. When you spend more than you earn you have a deficit, which usually means borrowing and paying interest, and can grow into debt. So the first job of a budget is to see clearly what comes in and what goes out, then to separate needs from wants and trim the wants until a surplus appears. None of this needs a large income; it needs knowing your own numbers and making choices on purpose rather than by accident. A small, regular surplus, saved steadily, is what slowly turns money worries into money security.

Pick the functions of money

Select every job that money actually does.

• A way to buy things
• A way to store value for later
• A way to measure and compare prices
• A way to make food
• A way to tell the time

Order how to make a budget

Put the steps of making a budget in a sensible order.

• Add up all the money coming in as income
• List all the money going out as expenditure
• Separate the spending into needs and wants
• Compare the income with the expenditure
• Decide how to save a surplus or cut a deficit

Complete the personal-finance facts

Money coming in is _____. Money going out is _____. When income is greater than spending there is a _____. The cost of borrowing money is _____.

Work out the monthly surplus

In one month a person receives 800 pounds of income and spends 650 pounds. Work out the surplus, in pounds, that they have left to save by taking the spending away from the income.

A leaking bucket

Imagine filling a bucket that has small holes near the bottom. You can pour water in as fast as you like, but if it leaks out just as quickly the bucket never fills. Money can behave the same way. A steady wage pours in, but small daily spends leak it away, and by the end of the month nothing is left, no matter how much came in. The fix is not always to pour in more; often it is to find and plug the leaks. Look at where the small amounts go, decide which are worth it, and stop the rest. Plug enough leaks and the bucket finally holds water, which is money kept back for the things that really matter.

Tap the two forms of borrowing

Tap the TWO actions that are forms of borrowing money.

• taking out a loan
• using a credit card
• putting money in a savings account
• receiving your wages

Make each money decision

Read each situation and choose the most sensible answer.

• A person spends more than they earn every month. What is the likely result?
• Someone wants an expensive item but has no savings. What is the most sensible first step?
• A person has a surplus at the end of each month. What is a sensible use of it?

Build a budgeting sentence

Choose the word for each gap to complete one point about budgeting.

Explain how to manage money well

A friend has started earning some money but keeps running out before the end of the month. Using what you have learned, explain how to manage money well.

• Explain what income and expenditure are
• Explain what a budget is and how to make one
• Explain the difference between a surplus and a deficit
• Explain the difference between saving and borrowing, and what interest is
• Explain why separating needs from wants helps