Example of Economics Lesson Plan-K5

Objective

Students will understand the following:

• A bank pays interest to people who put money in it.
• A bank charges interest to people who borrow money from it.
• A bank charges higher interest to borrowers than it pays to savers.

Materials

For this lesson, you will need:

• paper and pencils

Reference

Procedures

1. Ask students what a bank is and why people put some of their money in banks. Elicit from students that two reasons are
• to protect the money from thieves and
• to make more money by getting interest from the bank.
2. It's important for students to understand what interest means. Define interest as 'a fee paid for borrowing money.' Explain that when a person puts his or her money in the bank, the bank is, in a sense, borrowing the person's money. The bank uses the person's money by lending it to other people or companies. The bank charges interest to the people it lends money to and pays interest to those who put money in the bank. Show students an example such as the following:
• John puts $100 in the bank for a year.
• During that year, the bank lends John's $100 to Mary. At the end of the year, Mary gives the bank the $100plusthe interest she must pay, so she gives the bank $108.
• At the end of the year, John takes out the $100 he put in earlier plus the interest it earned, so he gets $105.
• Ask students, 'How much money did the bank make on John's $100 during the year?' Or ask, 'Why does the bank charge Mary $8 but pay John only $5?"
3. Now explain that interest is expressed as a percent. The bank says to John, 'If you give us your money for a year, we will give you 5 percent interest at the end of the year. So you will earn $5 on your $100.' The bank says to Mary, 'If you want us to give you money for one year, you will have to give us 8 percent interest at the end of the year. So you will have to pay us back $108.'
4. Make sure students understand why the bank needs to make money.
5. Ask students to assume that they each earned $100 for a job they did. Tell them to figure out in which bank to put their money for at least one year. Here are the details:
• Bank of Elmont pays 5 percent at the end of the year to someone who starts a new account. Bank of Elmont is in walking distance.
• Bank of Honeyville pays 5½ percent at the end of the year to someone who starts a new account. It will cost 50 cents to take the bus each way to make the deposit in Honeyville and another 50 cents each way at the end of the year to take out the money and interest.
• Bank of Lextown pays 4½ percent at the end of the year to someone who starts a new account. In addition, Bank of Lextown will give you a mouse pad that it says is worth $2. Bank of Lextown is also in walking distance.
6. Ask students to explain how to compare the three banks. They should come up with the following reasoning:
• If I put my money in Bank of Elmont, at the end of the year, I will have $105.
• If I put my money in Bank of Honeyville, at the end of the year, I will have $105.50, but I will have spent $2 in bus fare, so I will have only $103.50.
• If I put my money in Bank of Lextown, at the end of the year, I will have $104.50 and a mouse pad worth $2.00.
7. Ask students to decide which bank they would choose based on the preceding analysis. The class may split between students who choose Elmont and students who choose Lextown (the choice perhaps depending on whether or not a student needs a mouse pad).
8. Give students the following problem to work out in writing:
• Bank of Midtown will pay 4 percent interest and has a setup that allows you to check on your account by phone or online. The bank is in walking distance.
• Bank of Downtown will pay 5 percent interest on a new account. This bank does not yet have a system that allows you to check on your account by phone or online. The bank is in walking distance.
• Bank of Uptown will pay you 5 percent interest. To deposit your money there, you will use the U.S. Mail; to take your money out at the end of the year, you will spend $1 in roundtrip bus fare.

In writing, tell which bank you will put your money in, and explain your reasoning. Consider how much money you will wind up making. Consider other factors such as convenience.

Evaluation

You may evaluate your students' responses using the following three-point rubric:

• Three points: student's arithmetic is accurate; student shows that he or she has considered numbers as well as other factors such as services and convenience; student's writing is error-free
• Two points: student's arithmetic is accurate; student does not acknowledge other factors such as services and convenience; student's writing has a few errors
• One point: student does not show grasp of the necessary arithmetic; student does not acknowledge factors such as services and convenience; student's writing has many errors