Students will be able to:
- Distinguish between financial transactions and classify them as income, expenses, assets and liabilities.
- Select when it is appropriate and use the Income Equation: Net Income = Gross income – expenses.
- Select when it is appropriate and use the Accounting equation: Net worth = assets – liabilities.
- Manipulate equations with multiple variables (“solving for an unknown”).
In this math lesson, students will use net income & net worth equations to learn about wealth and equality (math).
This lesson is presented by Council for Economic Education in partnership with FiCycle.
In some cases the terminology and definitions provided in this lesson come from the accounting professions. Economists may define some concepts differently. The use of accounting terminology is intended to aid students’ understanding of their personal financial situation using the language of business.
Begin Part 2 by reminding students of what they learned in Part 1, particularly that it is not sufficient to think of one’s financial situation strictly on the basis of money, but also based on wealth. Continue by telling students that two key factors in understanding wealth are to be able to recognize changes in wealth over time as well as being able to measure one’s wealth at a fixed moment in time. This lesson will introduce them to the Income Equation (also known as the Net Income equation) and the Accounting Equation (also known as the Net Worth Equation), which measure these two things.
Project Slide 1 of the Net Worth and Net Income PowerPoint. Have students answer the question in a complete sentence. The answer is Debt-less Dolores. She has $900 while Debt-ful Debby has $200 after she pays off her debt to Shady Pete.
Use this example to introduce the concept of “net,” which is the difference (or the amount remaining) after the deduction of all charges or outlays. Ask if any students are able to construct the construct an equation that would get to Debt-Debby’s net. (Net=$1,000-$800).
Use slides 2-11 to discuss key terms. Distribute a copy of Key Terms to each students. Some students may struggle with the idea that two letters – in this case NW or NI – can refer to a single variable or unknown. If this is causing confusion tell students that using two letters for a single variable or unknown is common practice in finance. You can further discuss that letters used as variables or unknowns are arbitrary and represent that a set of possible numbers (for example NW could be any integer) – there is no special reason ‘x’ and ‘y’ are commonly used in equations.
Distribute one copy of Solve for NW and NI to each student. Complete the worksheet together as a class to find Net Worth and Net Income in the practice equations. Use the Teacher Guide to review the correct answers.
Distribute one copy of Balancing the NW and NI Equations to each student and ask them to complete the equations on their own. This exercise will provide students an opportunity to develop an understanding of the equal sign and the meaning of equality. Students reason about equations as equivalent expressions by considering how changes in one expression can necessitate changes in the other expression in order to maintain equivalence. Because of the equal sign, whenever something changes on one side of the equation there must be a corresponding change on the other side. Depending on student proficiency, the teacher may want to stop and go over one or two examples with the class before asking students to work on their own. Once students have completed all equations, review answers as a class, emphasizing that if a quantity changes on one side of the equation, that same change must also happen to the other side of the equation in order to maintain equality. Use the Teacher Guide to review the correct answers.
Distribute one copy of Solving for Unknown to each student. Review #1 as a group and focus on the form of solutions. Tell students that the must check their solutions to be sure that they are correct. Note that in #3, students may find that NW – A = – L. If there confusion about this equation, take the time to go over the solution to this equation. Once students have completed all equations, review answers as a class. Use the Teacher Guide to review the correct answers.
Distribute one copy of Exit Slip to each student. Have students complete this on their own and without the assistance of their peers, although they should be allowed to use their work from the lesson and their notes. Be sure to collect students’ work before the conclusion of class.