Financial Literacy Basics

Grade 5 · Social Studies · Study Guide

Learn essential money management skills including earning, saving, spending, and the basics of budgeting.

Financial literacy means understanding how money works and how to make smart decisions about earning, saving, spending, and sharing it. These skills help people manage their money wisely throughout their lives.

Money is earned through work. When people have jobs, they receive wages or salaries in exchange for their time and skills. Some people also earn money by selling things or starting businesses.

Once you earn money, you have choices about what to do with it. Spending means using money to buy things you need (like food and clothing) or want (like toys or games). Saving means setting aside money for later use. Saving is important because it helps you afford bigger purchases and prepare for emergencies. A common rule is to save at least 10% of what you earn.

A budget is a plan for how to use your money. A simple budget lists how much money you have coming in (income) and how much you plan to spend (expenses). If you spend more than you earn, you run a deficit. If you earn more than you spend, you have a surplus, which can be saved.

Banks are safe places to store money. When you deposit money in a savings account, the bank pays you interest — extra money for letting the bank use your savings. Borrowing money from a bank comes with interest you must pay back.

Donating is sharing money with charities or people in need. Many families divide their money using a simple rule: spend some, save some, give some.

Key terms

Budget
A plan for how to earn and spend money over a specific period of time.
Income
Money that comes in, usually from working a job or running a business.
Expenses
Money that goes out to pay for goods and services.
Savings
Money set aside for future use rather than spent immediately.
Interest
Extra money paid when you save money at a bank (you receive interest) or borrow money (you pay interest).
Needs vs. Wants
Needs are things required to survive (food, shelter, clothing); wants are things you desire but don't need to live.

Flashcards

Income
Money received from working, selling, or other sources.
Expenses
Money paid out for goods, services, or bills.
Budget
A financial plan that tracks income and expenses to help manage money.
Savings
Money set aside and not spent, often kept in a bank account for future use.
Interest
The fee paid for using money — banks pay you interest on savings; you pay interest when borrowing.
Needs
Essential items required to survive, such as food, water, clothing, and shelter.
Wants
Items that are desired but not necessary for survival, such as video games or extra toys.
Surplus
The amount left over when income is greater than expenses — a positive financial position.

Questions

  1. What is a budget?

    1. A type of bank account
    2. A plan for how to earn and spend money
    3. The amount of money in a piggy bank
    4. A type of credit card
    Show answer

    Answer: A plan for how to earn and spend money

    A budget is a financial plan that shows how much money you have coming in (income) and how you plan to spend or save it.

  2. When you deposit money in a savings account, the bank pays you interest.

    Show answer

    Answer: True

    Banks pay depositors interest as a reward for keeping money in savings accounts. The bank uses your deposited funds to make loans to others.

  3. Things you must have to survive, like food and shelter, are called _______.

    Show answer

    Answer: needs

    Needs are things required to survive and function, like food, water, shelter, and clothing. They are different from wants, which are desired but not essential.

  4. If you earn $50 and spend $40, what do you call the $10 that is left over?

    1. A deficit
    2. A surplus
    3. An expense
    4. A loan
    Show answer

    Answer: A surplus

    When you earn more than you spend, the extra money is called a surplus. In this case, $50 earned minus $40 spent leaves a $10 surplus that can be saved.

  5. Spending more money than you earn is called having a surplus.

    Show answer

    Answer: False

    Spending more than you earn is called a deficit, not a surplus. A surplus is when you have money left over after expenses. Running a deficit means you are going into debt.

Get a personalized course on Financial Literacy Basics built around your child.