- Define inflation and learn how it affects the price of goods
Before Reading: Background Research
Step 1: Ask students to go home and ask their parents, grandparents, or an older friend the approximate cost of the following items when they were children:
- Candy bar (cost and year)
- Movie tickets (cost and year)
- New car (cost and year)
Step 2: The next day, write the word “inflation” on the board. Define inflation as the increase in prices of products and services over time. Explain that inflation causes money to lose some of its value over time.
Step 3: Create a chart or graph with the information that students brought back to class and discuss it together.
Full Class Reading
Step 4: Ask a class, read aloud “The Value of Money” article from the Money Confident Kids Student Magazine printable.
Analyze for Meaning
Step 5: Begin by asking students basic comprehension questions about the article and highlight the current rate of inflation (-0.1%).
Step 6: Reinforce students’ understanding of how inflation causes the value of money to decline over time with examples from the Inflation Introduction worksheet from T. Rowe Price. Make the connection between the inflation rate and price increase as students work through the problems together or independently.
Step 7: Ask students how inflation might change the way they think about saving. Do they feel that all savings plans should take inflation into account? (No, inflation only
truly affects plans for future spending at least two years in the future.)
Step 8: Help students think about the real effect of inflation on short-term goals (little to none) and long-term goals (potentially great) by asking: When should you consider inflation? When you’re saving for a car (yes), new clothes (no), a video game (no), college (yes), etc.
Activity Option A: Star Banks Adventure
Each student (or group) will need access to a computer for this activity.
In the Star Banks Adventure Game, students will make financial choices in order to unlock new levels. As they progress, they will use their knowledge of inflation and investments to make choices that allow them to reach longer term goals. In addition, they will be asked to answer questions to assess their understanding of key concepts.
Step 1: To get started, have students open the Star Banks Adventure Game.
Step 2: Have students play Levels 1 and 2 on both the Budget and Deluxe levels. Before playing each level, students should record their savings goal ($1,000 and $2,000). Encourage students to click on the question mark to review vocabulary terms. Be available to discuss any questions students might have about the game.
Step 3: Look at Level 3 as a class. Read the introduction together and ask: How is the Yellow Star Bank related to the idea of interest? (Saving in a Yellow Star Bank means you won’t lose any coins, but you can only earn a small amount of additional coins.) If you were saving for a long-term goal with a cost that would rise over time, do you predict that savings in the Yellow Star Bank would keep ahead of the rate of inflation?
Step 4: Continue playing as time allows and watch for the inflation challenges on Level 14!
Activity Option B: Pairs Research
Step 1: Define and discuss what influences the rate of inflation, highlighting market power, demand, and supply. Use the “Chocolate Rising” article from Natural News about the rising price of chocolate as a reference point: http://bit.ly/1xuCHwB. Share other examples such as the following:
- Market power: cable companies (great market power); pumpkin sellers at Halloween (little market power)
- Demand: certain medications (great demand); notebooks (little demand)
- Supply: drought (could affect the availability of certain agricultural products)
Step 2: Give students time to research the increase or decrease in the price of one product over the last 20 years. Students may choose any product they wish (video games, clothes, snacks, washing machines, etc.). Each pair should be able to: a) define the price change in their product over the past 20 years; and b) discuss why the price changes may have occurred (market power, demand, supply, etc.). Be prepared to discuss why technology-related products may be in higher demand, yet have lower prices today (production costs have decreased).
Supporting All Learners
Instead of a paired research project, use the Hershey Bar Index, historical data provided by the FoodTimeline library to lead a classroom discussion about price changes.
Review the inflation graph of data from 2004 to 2015 on page 4 of the Money Confident Kids Student Magazine. As part of their research projects, students should compare their product’s price changes to the rise and fall in inflation rates.
Does student research or their experience with Star Banks Adventure reflect an understanding of why the value of money decreases due to inflation?
Lexile Score: 890L
Common Core Key Standards: N/A