PHSE - Economic wellbeing and financial

capability Lesson 3 – Debt management

L.O. –• Capability 1.2b - Learning how to manage

money and personal finances.• Economic well-being 2.4d – Identify how

finance will play an important part in their lives & in achieving their aspirations

• Economic well-being 3.h - Personal budgeting, wages, taxes, money management, credit & debt.

1. the 16-17 rate for workers above school leaving age but under 18 will increase to £x.xx

2. the apprentice rate, for apprentices under 19 or 19 or over and in the first year of their apprenticeship will increase to £x.xx

Recap

£3.68

£2.60

Debt isn’t bad, Bad debt is bad

Decide whether or not you consider the scenarios to be “good” debt or “bad debt” There may be arguments to support both.

GCSE Maths – Percentages of amounts.

1. To find 12% of £45

2. Divide the amount (£45) by 100

3. Multiply your answer by the percentage (12)

• Mental percentages worksheet complete columns – 10%, 1%, 5% and 17.5% only

How could you work out 6% of £600?How could you work out 9% of £600?

Credit cards and loansBorrowing from, and needing to pay back, a company or bank is not like borrowing a

fiver from your big sister and giving it back next week when you can afford to.

THEY WILL WANT INTERESTA credit card is just a pre-approved loan, so once we’ve got one we can borrow as much as we like from it, up to a set limit. Yet just like a loan, every penny needs to be paid back… and if not, be prepared to be chased for it.

The key difference, though, between borrowing in the form of a loan and using a credit card is that we decide how much (or how little) to pay off per month. In addition, we decide how much we borrow, within a pre-arranged limit.

How is interest calculated?

• If you borrow £1000 on a credit card at an interest rate of 20% at the end of the year you owe £200

• This DOES NOT mean at the end of the 2nd year you just owe another £200 because they use COMPOUND INTEREST which basically means you have to pay interest on the interest you have already accrued.

• So after 2 years you now owe £1440 not £1400. This will keep going up and up each year the debt is not paid off.

GCSE – compound interest questions

• John borrows £500 at an interest rate of 7%. How much would he owe after 3 years if he doesn’t pay any back?

• End of year 1 - £500 +7% (£35) = £535 • End of year 2 - £535 +7% (£37.45) = £572.45 • End of year 3 - £ 572.45 +7% (£40.07) = £612.52

Now attempt the GCSE compound interest questions on the sheet

Choices

• Mia and Paul are recently married and want to go on holiday and need £3,000.

• Mia suggests a bank loan of £3,000 for 2 years at an interest rate of 18%

• Paul thinks he sees a better deal with a rival bank offering £3000 for 3 years at only 12%

• Which method will charge them less interest over the duration of their loan?

• Why do you think this is?

Wonga.com

Wonga.com rates

360% interest means for every £1 you borrow you owe £3.60 at the end of the first year. (this doesn’t include any late repayment fees etc)

£100 Borrowed and not paid back.

• End of year 1 - £100 x 3.6 = £360 (8gb iphone 4 – pay as you go)• End of year 2 - £360 x 3.6 = £1296 (family holiday)• End of year 3 - £1296 x 3.6 = £4666 (decent 2nd hand car)• End of year 4 - £4666 x 3.6 = £16,798 (deposit on a house)• End of year 5 - £16,798 x 3.6 = £60,473 (1/2 bedroom flat)• End of year 6 - £60,473 x 3.6 = £217,703 (family home)

Don’t forget this doesn’t include any late payment fees or possible court costs for non payment of debts!!!