2. Learning Objectives 1.To understand the basic principles of saving, debt and borrowing. 2.To understand what the Annual Percentage Rate (APR) is and how it varies between banks. 3.To understand the concept of interest and the importance of understanding that APRs can add to the real cost of a loan.

3. Meet Ben Ben is 15 and has a band. They want to raise some money to hire a sound studio. You need to consider the two options Ben has for borrowing money.

4. How will they raise the rest of the money? Option 1 – There are four people in the band and each earns £15 per week. It will take them 7 weeks to save the extra £420 that they need. Option 2 – If they borrow £400 and each have to pay it back at £10 a week, they will need 10 weeks to pay off their whole debt.

5. Which is the best option? If the band take option 2 and they borrow money from their friends and families they would still have £5 left each week after making their payments. What are the pros and cons of this option? Seven weeks of saving would mean seven weeks of not being able to enjoy themselves as much. What do think about option 1 and the work/life balance?

6. What about you? Does anyone in this class have a bank account? What do you use your bank accounts for? How many people have savings? Do you know how much interest you are earning?

7. The cost of borrowing You don’t often get to borrow money without having to pay back more than the amount you borrowed. You need to watch the interest rate. This is the rate that lenders charge when people borrow money. Interest is the amount the lender adds to the loan and this is usually shown as the Annual Percentage Rate (APR). The interest a lender or bank will charge differs so you need to make sure you are getting the best rate for you!

8. The cost of borrowing However, interest can become a problem if the APR is very high and you can’t afford to pay back the loan in the specified time. Every time you miss a payment, or only pay off a little, the interest just keeps getting bigger!

9. The cost of borrowing Imagine a bank lends you £500 at an interest rate of 15% and you agree to pay back the loan in monthly instalments over one year. This means that every month you have to pay back part of your debt plus the interest!

10. The cost of borrowing After a year, when all your monthly instalments have been paid, your debt is paid off. Have you noticed that paying £44.90 twelve times doesn’t add up to £500? You’ve actually paid £538.80. The extra £38.80 you paid, on top of the £500, is the interest (calculated from the 15% APR) that the bank charges you. The higher the APR, the more you have to pay back!

11. What are the other options? If there’s something you really want to buy, borrowing isn’t the only option. What are the other options? You could save up instead. If you save up some money, you can either buy what you want straight away or borrow less to buy it.

12. Interest If you save money interest also comes into play. Do you know how? When you save money you earn interest. This means that if you have £500 in the bank for a year, a bank will pay you interest on it (a percentage of the money saved). For example, if your savings account had an interest rate of 5% your £500 would have grown to £525 after one year.

13. Debt dilemmas We’ve just been discussing borrowing money and the interest rates you pay on this. Now let’s think about debt. Firstly…what is it? A debt is when you owe money.

14. Debt dilemmas Debts get bigger if you are charged interest. Interest is an extra charge on the original amount of money that you borrow. It could be that you owe money to a friend or relative, or it may be that you owe money to an organisation such as a bank or credit card company.

15. What counts as a debt? Jack is 14 and a talented athlete. He has just joined an athletics club and has upgraded his kit. His mum and dad have lent him £200, they’re not charging any interest on his loan and they don’t mind how long it takes him to pay it back. Do you think Jack is in debt? Does it count if you owe money to your parents? Discuss as a class and make notes in your booklets on the page called ‘what counts as a debt?’

16. Zoe is 12. She and her mates want to see their favourite band but Zoe hasn’t got enough money for the ticket. Josh offers to lend her the money and Zoe says she can pay Josh back after her birthday in two weeks time. Do you think Zoe is in debt? Does it count if you owe money to your friends? Discuss as a class or make notes in your booklets.

17. Rory is 20. He’s had a job for a couple of years and he’s just moved into a shared house with his friends. He’s decided to splash out and buy some new things for his room. He uses his credit card and at the end of the month, his statement arrives for £450.31 and he decides to pay just the minimum payment (what the bank says is the minimum payment he must make). Do you think Rory is in debt? Discuss as a class or make notes in your booklets.

18. Your thoughts… Would you consider lending money to friends and family? Would you want to know how the money was going to be used? Would that make a difference to your decision? What would you need to consider before borrowing money?

19. Is debt a national issue? Now look at the worksheet ‘A National Issue’ which contains a number of newspaper headlines. Why do you think debt is such an important issue in the news? Make notes about your views on the worksheet.

20. Is debt always a bad thing? Look at the worksheet ‘Is debt always a bad thing?’ You need to list reasons for not getting into debt… …and the reasons why debt can be useful. Consider: How does debt cause trouble for some people? Think about the important things in their life they could lose when they don’t have enough money because they’re having to pay a debt/loan off? How might it cause relationship issues? Consider: What opportunities can debt give people? Can there be such a thing as “good debt”?

21. Your thoughts… Is debt always a bad thing? Why? Are there any circumstances when it’s okay to be in debt? Explain why.

22. How many of these points do you agree with? Debt’s always bad if: –You borrow more than you can afford and you can’t make the repayments –You borrow from the wrong person or organisation and have to pay more interest than you need to and find yourself in more debt –You borrow money for something you don’t really need or want –You make yourself miserable because you can’t afford to go out and have fun

23. How many of these points do you agree with? Debt’s OK if: –You only borrow what you can afford to repay –It helps you to be more successful, for example buying a piece of equipment so that you can be better at your job –You can manage your repayments without getting into more debt and still have enough money to go out now and again To conclude: Can there be such a thing as “good debt”?

24. Learning Objectives 1.To understand the basic principles of saving, debt and borrowing. 2.To understand what the Annual Percentage Rate (APR) is and how it varies between banks. 3.To understand the concept of interest and the importance of understanding that APRs can add to the real cost of a loan.