Module 3

Lesson Title: Making the most of a lump sum

Aims

Develop skills to think carefully about timeframes, growth potential, risk tolerance, interest rates, and achieving
personal financial goals when deciding how to use a lump sum payment.

Learning Outcomes

By the end of this lesson, students will:

 Recognise the need to have emergency funds to fall back on.
 Explore how interest and compounding work to grow your savings over time.
 Compare risk versus return.
 Explain the benefits of starting to save towards retirement as early as you can.
 Match saving and investment goals to specific products.

Links to the Financial Planning Framework

Main Category Framework Subcategories:

Understanding the important role money plays in Personal and economic links with the wider world.
our lives 16 – 19 Next steps.
Becoming a critical consumer 16 - 19 Choosing financial products

Vocabulary

Interest, Annual Equivalent Rate (AER), compounding, investing, risk and return, Financial Services
Compensation Scheme (FSCS), company shares, stock market, pension contribution, company and personal
pension, Financial Adviser, ISAs, instant access account.

Resources

 Video – Episode 3 of The Bread Show

 PowerPoint – Module 3 Making the most of a lump sum
 Product Information Cards and PowerPoint Template (for printing)
 Online Wordwall Quiz & Printable version
 Pen and paper

Introduce & Play Video Episode 3 The Bread Show Time: 9:26

PowerPoint Slides 1 – 5
Check how students got on with The Bread Show Challenge and share lesson aims.
Introduce the video and suggest to students that they take note of the key points.

Wise Choices Time: 10 mins

This section highlights the benefits of having savings as a safety net. It also explains how to compare interest rates
when shopping around for the best savings deals and the benefits of compound interest.

PowerPoint Slides 6 - 8
Money Hack #1 Rainy Day Reserves
What could happen to make it a ‘rainy day’?
Ask students to suggest what unexpected costs they may encounter daily and share their experiences as a
group. They may already be planning to save with that goal in mind.
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Lesson Title: Making the most of a lump sum
Ask students to consider the impact of not having savings. They may suggest having to borrow, dealing with
unaffordable debt, stress and a lack of financial security.

Money Hack #2 Rate Researcher

Check that students understand the concept of savings interest, explained in the introductory video. Explain
how the Annual Equivalent Rate can be used to compare savings accounts.
Whilst financial institutions quote a nominal interest rate, it doesn’t take into account how often interest is
added or any extras, such as an introductory bonus rate. The AER converts all deals to the same annual basis.

In pairs, ask students to consider Savings Products A and B. Answer: a) The AER for Savings Product A will be
higher.

When interest is credited quarterly, you allow your money to compound more frequently, leading to a higher
AER. For example:
 £1,000 invested for one year with an interest rate of 5% calculated and compounded yearly would be
worth £1,050 at the end of the year with an AER of 5%.
 £1,000 invested for one year with an interest rate of 5% calculated and compounded quarterly would
be worth £1,050.90 with an AER of 5.09%.

Money Hack #3 The Money Multiplier

Share how the combination of compound interest can make a difference in savings over time. So even by
starting with a smaller amount, it has the opportunity to grow.

Options to save and invest Time: 15 mins

This section looks at other factors that affect how we plan to save and invest a lump sum of money, such as tax
advantages, diversification and giving long-term investments the time to grow.
PowerPoint Slides 9 – 12
Money Hack #4 The Tax Wrapper
Ask students if they know what types of ISAs are available. (Product Information Cards are available for
discussion and comparison).
 Junior ISA – You need to be under 18. A tax-free savings account set up by parents for children under
18. It works like a standard ISA and transfers to the child as an adult ISA at age 18. Subject to a
maximum yearly contribution of £9,000.
 Cash ISA – You need to be 18 or over. This is for saving cash and offers tax-free interest. There are no
risks, and you can withdraw money anytime. Subject to a yearly contribution limit of £20,000 across
ISAs.
 Stocks & Shares ISA – You need to be 18 or over. This allows you to invest tax-free in stocks, bonds,
funds, and other assets. It carries investment risks, but the return or growth is tax-free. Subject to a
yearly contribution limit as above.
 Lifetime ISA – You need to be 18 or over—a type of ISA for those saving to buy a first home or retire.
The government provides a 25% bonus on contributions up to age 50. Withdrawals before age 60 for
other purposes have penalties. Currently, the maximum yearly contribution is £4,000.

Money Hack #5 The Money Splitter

Explain why it’s a good idea not to have all your eggs in one basket. Savings accounts are suitable for short-
term goals. The longer you commit to putting your money away, the more interest you receive. For longer-
term goals, usually five years or more, investments linked to the stock market offer the potential to give better
returns.

Money Hack #6 The Patient Investor Strategy

Explain what the FTSE100 is.
Using Emma’s scenario, ask students to consider the outcome of both actions.
If Emma chose to cash in her investment when the market was low, she would have lost £800.
However, she doesn’t have the help of a crystal ball to know what will happen in the following years and to see
 Module 3
Lesson Title: Making the most of a lump sum
her investments recover. The growth in her investment over five years is based on an average performance of
2.5%. There is a risk that she could lose all her initial investment. In the stock market, history has shown that
most downturns are followed by upturns, and over time, the market tends to outperform cash savings
accounts. Although past performance and trends do not indicate what might happen in the future, it highlights
the importance of a long-term perspective when considering investments in the stock market.

Extension Activity
Working in small groups, ask students if they can recall any events that would have affected the stock market
and the value of Emma’s investment from 2015 to 2020. These are some possible reasons:
 Her investment likely dropped in value after the Brexit vote in 2016.
 It then recovered and surpassed her original £3,000 investment during the 2017-2018 rally.
 But then it fell back some in 2018-2019, given the declines in those years.
 Despite the pandemic crash in early 2020, the index recovered later.

The Risk Rundown Time: 10 mins

This section looks at two examples of risk; the risk of losing money while aiming to achieve high rewards and what
would happen if a financial institution failed.

Powerpoint Slide 13
The Risk Rundown
Explain how there is a balance to be struck between risk and reward, and our views will differ. Our experiences
in life shape these views, and finding the right balance of risk versus reward is unique to each person.

Money Hack #7 Savings Safety Zone

Ask students to vote, True or False.
If a bank went out of business, you would lose all your savings in your account. Answer: False

The government set up the Financial Services Compensation Scheme (FSCS) to keep people's money safe and
prevent panic if banks fail. All authorised financial institutions must be part of the scheme, and you are
protected up to £85,000 per financial institution. Knowing your money is protected gives confidence in finance
firms. Unlike mainstream savings and investments, most cryptocurrency transactions and holdings in the UK
are not protected by FSCS coverage. This means you could lose all the money you invest if the company fails.

Keep your goals in sight Time: 10 mins

PowerPoint Slides 14 - 16

Money Hack #8 Guided by Goals

In Module 2, students considered their short and long-term goals. Having clear financial goals is key to making
wise money decisions. Goals determine if you should be saving or investing.

Ask students when they consider it best to start saving towards retirement.
Answer: a) 25 years, or as soon as you start working. Saving towards retirement is a long-term goal and
benefits from compounding returns over a long period.

Money Hack #9 Plan to live to 100!

Share the brief overview of employee and self-employed pensions. Use the life expectancy calculator to show
students how long they might live after retirement.
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Lesson Title: Making the most of a lump sum
Activity – Let’s pull all you’ve learned into practice Time: 10 mins
This activity allows students to split a lump sum of money across savings and investment products to
achieve their goals. They can also demonstrate prior knowledge by adding additional products.
Resources: Product Cards Information Sheet and Template of PowerPoint slide to complete. (for
printing)

PowerPoint Slide 17

Students have a hypothetical lump sum of £5,000 to split across, spend, save and invest.
To start this activity, try a group discussion where students come up with a list of possible life goals, both short
and long-term. In pairs, ask students to select a range of short and long-term goals from the list and to study
the product cards on the Product Cards Information Sheet.

Ask them to choose one or more products that could be used to achieve their goals.
Note: To simplify this exercise, ask students not to allocate a portion to their company pension as
contributions from their earnings fund their pension. Encourage them to think of any products they know
about that are omitted here.

Guidance: Whilst there may be multiple solutions to achieving their goals, students need to consider the
following:

 Time- are funds committed for a specified term?

 Access – Do they have access to funds in an emergency?
 Risk – Have they considered a spread of investments?
 Ask students to share and compare their different solutions as a group.
 Other ways you may use this activity:
 Ask students to place the products in order of risk, one being the lowest to five being the highest risk.
 Depending on the availability of IT, students could research products that match the description and
check the current interest rates and rate of return.

Reflections
PowerPoint Slides 19 – 21
Share The Bread Show Challenge. You might suggest a website such as MoneySavingsExpert to help students
with this task.
What one thing would you like to know more about as a result of what you learned today?
Collate their feedback using Post-Its or a Menti slide to form the basis of a future lesson.
Use this Wordwall Quiz to test their knowledge. Select a quiz format of your choice, for example, Gameshow,
Quiz, or Maze Chase. Open the Box is a good format if your students don’t have access to a device or use the
printable version. Answers: 1=C, 2=A, 3=D, 4=C, 5=C, 6=C, 7=D, 8=B, 9=B, 10=A
 Module 3
Lesson Title: Making the most of a lump sum
How might this topic be taught across different subject areas?
Economics/Business Studies: Savings products are often viewed as low risk. Discuss risk in the context of high
inflation and low-interest rates reducing purchasing power. Financial decision-making, investment strategies, and
the role of financial institutions. It provides relevant, real-world examples of core concepts like risk, return,
volatility, asset prices, etc.

Business Studies: Matching financial products to needs and dividing a lump sum may relate to financial decision-
making within a business context, considering factors such as liquidity, profitability, and risk management.

Maths: Depending on age and ability, compare a nominal interest rate with an Annual Equivalent Rate.
Matching financial products to needs and dividing a lump sum into different products aligns with understanding
compound interest and financial calculations. Analysing financial products like savings accounts, investments and
pensions and understanding the risks and returns associated with other investments.
PSHE: To recognise and manage the influences on their financial decisions (L20). Recognise the wider impact of
their purchasing choices (L21) and Understand Savings options (L14).

What Other Free Resources are Available?

Your Money Matters textbook Investments p104