Teacher’s Manual Making the Most of Your Money Financial literacy

Financial literacy
Teacher’s Manual
Making the Most of Your Money
Page |3
This manual is designed to help
teachers prepare students for the
challenges they face as they make more
complex financial decisions.
The manual takes students through a
series of activities which reflect every day
financial choices and provides a practical
guide to the banking and financial world.
It contains five simple lessons which can
be prepared quickly, are cost effective and
provides the basic information needed
to teach basic financial concepts with
confidence. Teachers are provided with
key objectives, teaching strategies, and
reinforcement and evaluation activities.
The accompanying students’ booklet
“Making the Most of Your Money” contains
information required to explain the major
concepts in greater detail.
The world is becoming more of a global
village and technology is speeding up
our ability to interact with the rest of the
world and complete transactions quickly.
We, as citizens of developing countries,
are no less a part of this global village and
would more than likely have participated
in various local and international
financial transactions. For this and many
other reasons we must keep abreast of
developments and newer technology.
We must ensure that both we and our
students know enough to protect ourselves
both at home and abroad. As a first step,
we must enhance our knowledge of the
world of banking and finance. Credit, debit
and risks are all terms we use in doing
business and we must be confident in our
understanding of these and other financial
concepts.
Both the teachers’ manual and the
students’ booklet have been designed
to guide teenagers through some of
the basics in financial decision making.
Students will be exposed to information
on saving and budgeting, credit and
borrowing, managing risks and planning
for the future. We hope that the teenagers
who complete this program will
encounter a life changing experience.
Content
s
Module one: General introduction – “every dollar counts”
7
Saving for the future; why save; where and how can I save?
Module two: “Balancing My Budget”
13
Budgeting; living within my means; revenue and expenditure.
Module three: “running from debt”
23
Borrowing and credit: usefulness and pitfalls.
Module four: “expecting the unexpected”
33
Future planning; lifelines, unforeseen events, planning and preparing.
Module five: “Business planning”
Creating a small business, assessing profits and business plans.
39
6
Module one: General introduction
“Every dollar counts”
Overview
Students will:
• complete a questionnaire on basic financial knowledge
• discuss what they know about saving at different types of financial institutions
Objective
To help students distinguish between saving in home or neighborhood schemes and saving at a financial
institution.
Outcomes
At the end of the lesson students will be able to:
• recognize that home/neighborhood schemes are good incentives to savings but gain better returns when
Placed in a financial institution
• explain the concept of compound interest
• list the different institutions for depositing savings
• identify the various returns to savings/investments e.g. interest, dividends, profits
• set targets for savings
Supporting literature
This module supports material provided in Questions 1-7 of the student’s booklet, “Making the Most of
Your Money”
Materials checklist
Knowledge Quiz
Compound interest example
Pictures of two men
Knowledge Quiz
Have students complete the following questionnaire before beginning any discussion. Allow them to write a brief
sentence on what they know of each term. Give a full mark once the child has the general concept of the term.
Record the results. Re-administer the test at the end of the five modules and see whether there has been any
improvement in knowledge.
7
8
Student resources
Knowledge Quiz
Instruction: Each of these term may be used to refer to an activity related to money.
Write a sentence or phrase to describe each.
term
I. credit
ii. insurance
iii. interest
iv. dividend
v. risk
vi. investment
vii. deposit
viii. withdraw
ix. Budget
x. shares
pre-seminar response
post-seminar response
9
Introductory discussion
Gemma Thomas, 14 years old, attends hilltop high school. Today, she received an allowance of $10. Hilltop
High school held a cake sale today, so Gemma bought two slices of cake at $2 each, even though she had a
sandwich for lunch. Gemma also bought a hot dog for her friend, Sasha for $3. Later in the day, she bought ice
cream for $2.50. Generally, Gemma has no allowance left at the end of the day.
Gemma’s parents usually pick her up after school but that afternoon, the principal received a call stating that
Gemma should travel home by bus/taxi because the family car was down and was at the mechanic shop.
Gemma has no money to travel. What are her choices now? Should she have done anything differently today?
Suggested approach
Step I
Elicit from students why it is important to save. Teacher may ask questions like the following:
• Do you think everyone needs to save money?
• Why should we save?
• Is there any difference with saving at home or at a financial institution like a bank or credit union?
•What strategies can we use to prevent ourselves from spending money?
Step ii
• List financial institutions within the country.
• Review the various types of returns on savings e.g. nothing on savings at home, interest on savings, dividends
On shares.
• Allow students to discuss their saving patterns.
• Outline that while there is nothing wrong with home or neighborhood saving schemes, these should serve as
A start up to saving within a financial institution.
Step iii
• Encourage students to set long term targets for savings. Long term savings help with our future planning e.g.
buying a car, house, further education. They are different from quick savings which satisfy needs such as party
clothes and gadgets.
• Explain that saving in the short term is good and allows students to be independent and less reliant on family
and friends. Long term habitual savings is even better because it helps accumulate savings and gets the greater
benefit of compound interest. You may also benefit from new products that the bank may offer (discussed
further below).
• Encourage students who haven’t already done so to open an account at a financial institution where they can
Save regularly. Students should be warned to avoid unnecessary withdrawals from savings accounts.
• Explain that a credit union share usually costs a small amount of say $5.00 or $10.00 per share. If you decide
to start by buying one share, you will build interest and your money grows. As you obtain more money, you
can increase your shares. Inform them that the credit union usually pays dividends (the interest on shares)
each year. You can cash these or save them year by year.
10
• Note that it is important to save regardless of your income level. Some people can simply afford to save more
Than others
• Indicate that students can also choose to save at a local commercial bank. This too will yield interest and you
May increase the amount you want to save any time you wish.
• Lead students to recognize that money saved at a financial institution will increase in amount and face less risk
Of temptation, while saving at home may be subject to sympathy lending or impulsive spending.
Step IV
• Allow students to work through an example of compound interest. Teachers may reproduce the following
Worksheet or copy onto board.
• To see how compound interest works, try the following example. To make it simple we use an interest rate
of 10% which is easy to calculate. The interest is added to savings of $1000 at the end of each year. See what
happens if this remains untouched in the bank for 5years.
• Of course, interest rates are not that high for so little money! However, this is just an example of how money
grows. More importantly, if you were adding money each year think of how much more your savings can grow.
Compound interest can also be calculated on a daily, monthly or quarterly basis.
Step v
start year
find 10% interest
(strike off last
figure)
(add to start)
end year
yr. 1
1000
100
1000 + 100
1100
yr. 2
1100
110
1100+110
1210
yr. 3
1210
start year
find 10% interest
(strike off last
figure)
(add to start)
end year
yr. 1
1000
100
1000 + 100
1100
yr. 2
1100
110
1100+110
1210
yr. 3
1210
121
1210 +121
1331
yr. 4
1331
133
1420+133
1464
yr. 5
1464
146
1464+146
1610
yr. 4
yr. 5
Answer
11
Reinforcing story
Show pictures of two individuals and explain:
a) Two friends graduate from secondary school at the same time, go on to two years of college and start a new
job at the age of 19.
b) Joe Saver knows the value of compound interest, and starts saving right away.
• At the beginning of each year, he puts $3,000 into a long-term investment that earns 8% annual compound
Interest.
• He manages this for nine years, then at age 28 starts a family and spends all of his income supporting his
Family. He puts no more money into the investment, but lets it grow until his retirement.
• He works until he’s 65, then retires and checks to see what his savings amount to.
• Ask students to guess what the amount totals, and note their guesses on the chalkboard.
c) Jim Spender likes to party and travel, so he spends all of his money for a while.
• When he turns 28, he decides he had better start to save. He puts $3,000 a year into the same long-term
investment earning 8% annual compound interest.
• He continues to save $3,000 every year for the next 37 years until he retires at age 65, and then checks to see
What his savings amount to.
Ask students to guess what the amount totals, and note their guesses on the chalkboard.
d) Ask the class which of the two friends will have more money at retirement, Joe who saved $3,000 for nine
years, or Jim who saved $3,000 for 37 years.
• Note the correct figures on the board and explain that:
Joe has $697,752 Jim has $657,847
Joe has slightly more because he started earlier and let compounding do much of the work. Jim waited nine
years to start saving and after 37 years he still can’t catch up.
Closing activity
• Have the students set targets for savings. Refer students to Question 5 of the student’s booklet, “Making the
Most of Your Money” which provides further information on opening an account.
• Have students list the items that tempt them to spend most and think of three ways of resisting the
Temptation.
12
Student resources
The rule of 72
Have you always wanted to be able to do compound interest problems in your head? Well, let’s be honest probably not.
However, it’s a very useful skill to have because it allows you to judge how good an investment is likely to be.
And it’s surprisingly easy to do in your head... once you know how. The rule says, to find the number of years
required to double your money at a given interest rate, you simply divide the interest rate into 72. That’s why
it’s called the “Rule of 72”! For example, if you want to know how long it will take to double your money at 8%
interest, you would simply divide 72 by 8 and you’ll get 9 years. This is assuming the interest is compounded
annually.
As you can see, the “rule” is remarkably accurate, as long as the interest rate is less than about 20%. At higher
interest rates the error starts to become significant. Of course, you can also run it backwards. For example if
you want to double your money in 6 years, just divide 72 by 6 to find that it will require an interest rate of
about 12%.
Quite easy! You don’t need to be a “math-whiz” to do it!
Source: www.moneychimp.com
Module two:
“Balancing my Budget”
Overview
Students will:
• discuss items which make up a part of their regular expenditure and compare these to the funds allocated to
them during any given week/month
• review varied budgeting skills
Objective
• To help students understand the importance of developing and maintaining good budgeting skills.
• To reinforce the importance of allocating money towards savings when making a budget.
• To help students recognize the importance of budgeting within their incomes.
Outcomes
At the end of the lesson students will be able to:
• understand the importance of living within a budget
• distinguish between several types of income and expenditure
• identify that money received on an occasional basis is best saved
• differentiate between needs and wants
• understand the importance of avoiding unnecessary expense
• understand the importance of utilizing savings for emergencies and investment only
• recognize that wants can be satisfied by making sacrifices and giving up unnecessary expenditure
Supporting literature
This module supports material provided in Question 18 of the student’s booklet, “Making the Most of Your Money”
Materials checklist
Kitchen Scale
Cardboard Cut Outs of Needs
Cardboard Cut Outs of Spending Items (sheet provided)
Pictures of three individuals, one of whom is a famous personality
Knowledge quiz and budget sheets
Introductory activity
Present Needy Ann’s list of “needs”. Write each need on a square or round piece of heavy cardboard or any other
heavy material. Ann’s list may include items such as: cell phone, a math book, pair of Nike sneakers, and a
sandwich for lunch, five snacks, and a calculator, deodorant, soap, an iPod or CD player. Teachers may create
their own list to make it more applicable to their students.
13
14
Tell class, “Ann has to work within a budget of a half-pound/kg. Use a kitchen scale to show that the scale will
not balance at half a pound/kg. Let students give reasons for the scale not balancing. Let them make suggestions
to balance the scale.
Suggested approach
Step I
• Have each student write down three needs and wants.
• Have students provide a definition for need and want.
• Explain that needs can be seen as items that assist with a healthy existence e.g. food, health care, housing.
Wants are items that satisfy desires that do not represent essential items. It is sometimes difficult to distinguish
between both e.g. computers may be seen as a job need which provide for our healthy existence.
• Allow students to discuss these thoughts briefly.
Step ii
• Discuss the various ways in which students can fund their needs and wants
• Encourage students to develop ideas on their own small business ventures even if it involves babysitting;
Hairdressing or doing a neighbor’s gardening.
• Discuss the term “Budget” which is an estimate of income you hope to receive within a given period and how
you plan to spend it.” Allow discussion on where students have heard the term and what they know of it. Can
refer to the National Budget presentations.
• Display sample budget sheet (on page 20) and discuss items.
• Note that savings is an expense in a planned budget.
Step iii
Development activity
• Get cardboard squares. On one, put a famous personality that students are familiar with e.g. the famous cricketer
Brian Lara. Have three pictures showing: I) Rich boy Lara, ii) Middle Income Lara, and iii) Poor Boy Lara.
• Assign an appropriate monthly income to each of the three.
• Paste pictures of various spending needs on other cardboard squares (or simply cut out pictures on suggested
Worksheet provided at end of lesson).
• Allocate a price to each card.
• Give each group a different individual and assign a respective income.
• Allow each group to choose an item form each category
• Invite group leaders to discuss selections made and allow other groups to comment/critique.
• Review whether the groups included savings and stress the importance of doing so regardless of the income
Level. Remind students that every cent counts.
[Preparation for this activity takes time, but activity generates much debate among students]
Closing activity/ evaluation
Use the knowledge quiz at the end of this module to assess student’s knowledge.
Follow up activity
Have students use the budget sheet at the end of this module to plan their weekly/monthly budget.
15
Student page
Knowledge Quiz
Test your knowledge on budgets.
1. What is a budget?
2. Explain the difference between a need and a want.
3. When making a budget is the money you plan to save included in the revenue or expense column?
4. Indicate whether each of the following is a revenue or expenditure item: weekend wages; grocery bills;
haircuts, cinema tickets; money from birthday gift, clothing purchases, transport; money from weeding
neighbor’s garden, savings.
5. Is budgeting limited to working people or people from a certain social status?
Explain the reason for your answer.
6. Jaime does not think it is necessary for students like you to lay out your budget on paper since you do not
work. She thinks you can just use your senses when you have money. State why you agree or disagree with
Jaime.
16
Answer sheet
Suggested answers - should be used as guides only.
1) Guide: Budget is an estimate of income you hope to receive and how you plan to spend it.
2) A need represents something that is essential to our healthy living while a want is a desire, something
unrelated to our everyday existence
3) Planned savings is recorded in the expenses column since it represents how you use your income.
4)
revenue
expenditure
weekend wages
grocery bills , haircuts,
money from birthday gift
cinema tickets
money from weeding neighbor’s garden
clothing purchases transport
5) Budgeting should not be limited to any social status. Both rich and poor should save, it is simply that the
amounts would vary. Everyone should try to put aside some savings. It is true however, that some very poor
and destitute people may face serious challenges in trying to save.
6) Some people do budgets mentally, however, laying them out on paper helps provide a picture, helps you
readjust your plans and helps you compare and keep track of your spending.
Teacher resource sheet
17
Mansion: $
Apartment: $
House: $
Share Room at Parents: $
Live on Streets:
Car Load of Groceries: $
Cart Full of Groceries: $
Bag of Groceries: $
Few Basic Items: $
Beg: $
Garage Sale Clothing: $
Hand Me Downs:
Latest Fashion: $
Designer Wear: $
No Name Clothing: $
Luxury Car: $
Second Hand Car: $
Taxi to work: $
18
Bus Ride to Work: $
Ride to Work: $
Walk to Work:
Lunch at Fancy
Restaurants: $
Lunch at Food Stall: $
Buy Fast Foods:
Pack Own Lunch
Pick Fruits for Lunch:
Eat Snacks for Lunch:
Overseas Vacation:
Weekend with Friends: $
Cinema Trip: $
Relax on Local Beach:$
Watch DVD: $
Borrow a Book:
Play Golf: $
Join a Gym: $
Walk around a park:
Join a swim Club:$
Go for a jog:
Student resources
19
You can use an ordinary monthly calendar to help you plan your budget or to keep a record of your spending.
~ June 2009 ~
Sun
Mon
1
Tue
2
Wed
3
Thurs
4
Allowance from Pay Back -$20
Dad -$100
Borrowed from
Sue
7
8
9
Offerings/
Donations- $15
14
28
5
10
11
12
New Celebrity
Magazine - $25
15
16
22
29
Sat
6
Chicken and
Chips with
friends - $20
17
Deposit -$50 in
savings account
21
Fri
13
Baby Sitting
for Neighbor
- $40
18
19
20
26
27
Withdrew $40
from savings
New Top and
Gift for friend’s
birthday party
- $90
Money from
Brother’s First
Pay - $40
23
30
24
25
notes
Total Income - $180
Total Expenditure- $170
Savings this month- $10
Next Month’s Goals: spend less; save More; do not Borrow,
do not touch My savings!!!!
20 student r e s o u r c e s
Budget sheet
MY BUDGET FOR THE MONTH OF
Money to receive
$
Money to Be spent
Money from Parents/ Guardians
Contributions /Offerings
Odd Jobs
Lunches
Gifts
Snacks
Other
Transport
$
Entertainment
Small Purchases
Shopping
Beauty & Beauty Products
Mobile Phone
Savings
Other
total received
( If Money Received will be greater
than Money Spent Write Extra
Savings)
$
total spent
( If Money to be Spent will be
greater than Money Received
Write Money to Borrow and
Repay)
$
Student resources
Student sheet
Tips!
• At the beginning of each period try to think of all your income and plan your expenditure.
• Think of any item on which you can eliminate or reduce spending? (e.g. snacks)
• Can you replace anything with a cheaper alternatives? (packed lunches rather than cafeteria or take-out
Meals?)
• Can you save more? Remember - A fool and his money will soon be parted!
• Understand exactly where every cent you spend goes
• Ask yourself if you need what you are about to purchase. If not walk away.
• Decide on the maximum amount you will spend before you go shopping. Stick to it!
• Window shop before making purchases. This allows you to compare prices and think about whether you
Really need the items that attract your attention
• If you don’t need something right away, wait a while and see if the price will go down
• Make sure it is a true sale, get familiar with the prices of items you purchase regularly
• Brand names may last long but there are many good alternatives. Department store clothing can be just as
Durable and fashionable.
• Wait for sales.
• Don’t turn your nose up at second hand stuff or garage sales. You can find some really good items at
Such sales.
• Look out for special offers e.g. buy two get one free.
• Team up with friends and family and buy in bulk.
• Clip coupons or mail in rebates.
• Remember money borrowed means you have to repay and that means you have less to spend on yourself
The next month.
• Be realistic. Set saving goals you can achieve. Try to reward yourself with some treat during the month.
• Don’t worry if you spend too much this month. It takes practice to balance your budget. Keep working on it,
You’ll get there.
21
22
Module three:
“Running from debt”
This lesson can Be Broken down into two parts, or teacher can choose which area he/she
prefers to focus depending on time and ability of students.
Overview
Students will:
• make decisions on granting loans
• review the pitfalls of too much debt
Objectives
To sensitize students on the factors that financial institutions take into consideration before granting loans.
Outcomes
At the end of the lesson students will be able to:
• recognize that credit is not for everyone
• know the factors that financial institutions take into consideration before granting loans
• recognize the importance of reading the fine print on loan contracts
• understand what credit cards are and how they work
• recognize that credit cards are loans
• learn that interest on credit cards is normally higher than most loans
• understand that making the minimum payments on credit cards can prove costly
Supporting literature
This module supports material provided in Q u e s t i o n s 8 – 15 of the students’ booklet, “Making the Most of Your
Money”
Materials checklist
Pictures of a beggar and a suited professional
No one has a right to credit worksheet
Discovering the Benefit of Increasing Your Payments worksheets
Introduction
Display pictures of two individuals and inform students that both are seeking a loan to start a small business
(one picture can be that of a beggar while the other a suited professional). Allow students to discuss who they
would most likely give the loan and note reasons given for choices.
23
24
Suggested approach
Step I
Stimulate discussion on lending from the point of view of the bank. Ask questions such as:
• If a borrower already has an outstanding loan with another bank, would this banker have to know? Why?
[Yes, it is important to take other loans into consideration before granting a new one]
• Can this banker check what the borrower says?
[Yes, the borrower would be asked to declare all other loans and payments and the banker will later check
his/her credit report. The credit reports gives an indication of who and what the borrower owes, and whether
there are any payments that are not being met. It may rate him/her as a good or bad borrower]
• If the borrower were negligent in paying any of his/her other loans would the banker be willing to give
Another loan?”
[Explain to students that a clean/good credit report is important when going for loans at a financial institution.
Remind students that loans must be repaid. Non-payment of loans affects your credit history]
• If the borrower’s credit report is great and he/she qualified for the loan would the banker simply withdraw
$5000.00 from the bank and write a check for him/her? What would the banker do before issuing that
cheek to Debbie?
[Have the borrower sign a loan contract].
• What information would be in that contract?
[Amount of loan, terms of repayment, time limit, interest rate, penalties for late payment, fees and charges]
• Does the fine writing at the end of contracts provide any additional information?
[Emphasize the importance of reading the fine print on a contract. Note that it may contain hidden penalties]
Step IV
Share with students the following concepts on interest:
• Interest is normally expressed as a percent and is normally calculated on an annual basis. It is the fee paid for
The privilege of borrowing money
• This fee or interest is the price a person pays for the ability to spend money today that would otherwise take
Time to accumulate
• Conversely, if you were saving the money, that fee/interest compensates you for giving up the ability to spend
That money today
Step v
May wish to discuss credit card debt
• Explain that most of us are familiar with credit cards. Statistics show that in the USA the average family has
long-term credit card debt in excess of $5,000. In fact, credit card debt accounts for a very sizeable chunk of
most of the debt owned by individual consumers. Since credit cards have become an important part of our
day-to-day lives, it is important for consumers to understand the effect of that interest on them
• Indicate that Alan wants to buy a new computer for $1,300.00. He wants to use his credit card. He’s happy
because he doesn’t have to take a loan. He plans to pay off for the computer by making the minimum monthly
payment on his credit card
• Ask whether students agree that Alan has not taken a loan
25
• Explain that credit cards are loans and interest on credit cards is normally higher than most loans
• Point out that if someone makes the minimum payments on credit cards, that person will pay a far greater
Amount than the cost of the item
• Inform students that if they must use a credit card they should try to pay off the whole balance as soon as
Possible or repay as much as they can each month
Step VI
Use the sheet at the end of this module on discovering the Benefit of increasing your payments as an
example of different interest payments on credit cards.
26
Student resources
Discovering the Benefit of increasing your payments
Let’s say John and Jane both owe $2,000 debt on their credit cards, which require a minimum payment of 3%.
Both are strapped for cash, but Jane manages to pay an extra $10 on top of her minimum monthly payments.
John pays only the minimum.
Each month John and Jane are charged a 20% annual interest on their cards’ outstanding balances. So, when
John and Jane make payments, part of those payments go to paying interest and part go to the principal or
$2,000 owed.
Here is the breakdown of the numbers for the first month of John’s credit card debt. Do not focus on the
Calculations. Can encourage students to work through in their own time, if they wish. Example:
• Principal or Amount of Credit Card Loan: $2,000
• Minimum Payment : $60 (3% of amount used on card)
• Interest due: $33.33 (one month of the year or 1/12 x 20% x 2000)
• Principal Repayment or Amount of Loan Repaid: $26.67 ($60- 33.33- minimum payment made less
interest due)
Remaining Balance: $1,973.33 ($2,000 - $26.67- total used on card less principal repaid)
These calculations are done every month until the credit card debt is paid off. Note that John paid $60 but
only $26 went to pay off the money he borrowed. More than half ($33) went into interest payments!
In the end, John pays $4,240 in total over 15 years to repay the $2,000 in credit card debt. The interest that
John pays over the 15 years totals $2,240. This is even higher than the original credit card debt.
Now look at Jane. Because Jane paid an extra $10 a month, she pays a total $3,276 over seven years to repay
the $2,000 in credit card debt. Jane pays a total $1,276 in interest.
The extra $10 a month saves Jane almost $1,000 and cuts her repayment period by more than seven years!
If you find this all confusing look at the table and graphs below.
facts
John
Jane
Amount borrowed on card
$2000
$2000
Interest charged per annum
20%
20%
Amount paid monthly
Minimum Payment
Minimum Payment + $10
Total Repaid (Loan and Interest)
4240
3276
Interest Repaid
2240
1276
Time to Repay
15 years
7 years
27
Credit card repayment - John
Principal
$2000
credit card repayment - Jane
Principal
$2000
Interest $1276
Interest $2241
Source: http://www.investopedia.com
The lesson here is that every little counts. Paying twice your minimum or more can drastically cut down the
time it takes to pay off the balance, which leads to lower interest charges. Best of all, it’s wise not to carry a
balance at all.
Step viii
• Ask students whether it is wise to borrow and allow a discussion on the things for which they normally borrow
• Note that there are times when it is not a bad idea to borrow. Borrowing should be seen as an investment in
the future and not just as a means of satisfying pleasure. Borrowing to fund education brings better returns
in the future as you may earn a higher salary which can help pay back the original loan. Borrowing for a new
shoe may satisfy a need which brings some returns or may simply satisfy a want which brings no money
returns. You need to decide whether you can make the money borrowed work for you
Evaluation activity
• Copy and distribute worksheets on “No one has a right to Credit” to each group
• Instruct them to calculate the credit scores for each person and decide on whether they would grant a loan
• Highlight the risks and consequences of borrowing money; if you borrow you MUST repay it. Also highlight that
Students should not borrow money if they know they will have difficulty in repaying the loan
• Note that this is activity is simplified to make it easier to complete the task. Emphasize that in addition to
factors noted banks compare their customers’ total loans to their income before making a decision. This is in
fact one of the most critical factors in granting a loan
Answer sheet for ‘no one has a right to credit (page 30)
Shawn: 65 points- refuse loan
Tricia: 130- grant loan
Mrs. Billings-110-refer loan to manager
28
No one has a right to credit!
Use the score sheet provided to score points for each individual. After forming a first assessment use the
Additional information to make a firm decision on granting the loan.
Under $10,000
5
Up t0 $15,000
10
Up to $20,000
15
More than $20,000
20
No
0
Yes, Little savings
5
Yes, Regular saver
15
Yes, Large savings
20
income
previous loans &
repayments
Large loans and
significant repayments
0
Few loans with
manageable payments
10
Small loan balances
with low payments
15
No loans or
outstanding payments
20s
None
20
1 or 2
10
3 or 4
5
5 or more
0
None
0
Money in Fixed Deposit
10
Money in Units/Bonds
15
Owner of home
20
Bank account
dependents
Unemployed
0
Unskilled
5
Semi-Skilled
10
Professional/ Skilled
20
occupation
security
length of time in
employment
age
Under 1 year
5
1- 2 years
10
3- 5 years
15
More than 5 years
20
Under 21
0
21 - 30
5
31- 50
20
51- 60
10
More than 60
5
total scores
first assessment
0 – 95
Refuse loan
100 – 120
Application needs further
consideration – refer to
Manager
125 – 180
Grant loan
29
Application Profiles
Shawn
Credit Scoring
profile
credit scoring
• Applying for a loan to travel
• Male, aged 19
• Single, no children
• Has been working for 15 months
• Works in an unskilled job
• Earns $9,000 a month
• Has a credit union account with little savings
• No previous loans
total
additional information
• Has saved $500 in credit union account set up
from school
loan Granted
loan refused
loan referred
Tricia
profile
credit scoring
• Applying for a loan to buy a car
• Female, aged 28
• Married
• No children
• Skilled worker
• Worked with same company for 6 years
• Earns $25,000 a month
• Money in fixed deposit for security
• Has 1 bank account, is a regular saver
• Has one credit card and one other loan
total
additional information
credit card information
Credit Card Amt. Used: $500
Credit Card Limit: $4,000
* No missed or late payments
loan information
Remaining Balance on Loan: $2,000
Monthly payments: $ 500
* No missed or late payments
loan Granted
loan refused
loan referred
30
Mrs. Billings
profile
credit scoring
• Applying for a home improvement loan
• Married
• Female, aged 45
• Has 3 children
• Owns home – can use for security
• Worked with same business for 20 years
• Is a professional
• Earns $30,000 a month
• Has 1 bank account and little savings
• Has 2 credit cards and a car loan.
total
additional information
credit card information
loan Granted
Card 1: Amt. Used $4,000 Card Limit: $5,000
Card 2: Amt. Used $8,000 Card Limit: $10,000
loan refused
* 2 missed payments and 6 late payments
loan referred
car loan information
Balance on Car Loan: $40,000
Monthly Car Loan Payment: $3,000
* No missed or late payments
Student resources
Interesting stories
CREDIT CARDS
1) Rachel opened the mail eagerly. Her first credit card! And at a special low introductory interest rate!
Not that that mattered, because she was going to pay off the balance every month.
2) At first, she was very careful. But when she got busy, she was sometimes a little late with her payment. It
wasn’t too bad, though - although it did add a surprising amount to the cost. So whenever she had to pay
the added interest, she said to herself, “I’ll have to make sure I don’t do that again.”
3) Occasionally, when she was short of cash, she withdrew money using her credit card. This is called a cash
advance and is actually a loan since, unlike you debit card, you do not have savings in your credit card
account. You normally have to pay a very high fee for these withdrawals. “I’ll pay it back from my next pay
check,” she thought.
4) When her monthly bill arrived, she said, “I have to remember to pay that right away,” although sometimes
she didn’t. Then when the next bill arrived, the interest charges were a shocker - “How could it be that
much?” she thought.
5) She decided to call the card company to ask. The agent on the phone explained that, firstly, the low
introductory rate was just for the first three months.
6) And since she did not pay her balance, the low rate did not apply. Also the interest-free grace period did
not apply when there was a cash advance outstanding, so Rachel had to pay the full interest rate on the
entire balance from the date of the charge. And the cash advance fee, too!
7) Oops. Rachel had to admit that it was all in the agreement she signed, although she had not really read the
four pages of tiny type. And it might not have made much difference if she had, because she intended to
pay the balance before the interest came due. And even when the agent on the phone explained it, it was
hard to understand what charges applied, and when they were due.
8) Credit cards are complicated tools, with complex rules. They can be helpful but they can also be costly.
The tips at the end of this sheet can help you use credit cards carefully.
DEBIT CARDS
A) David’s mom wanted to be sure he’d be okay when he left home, so she opened an account and placed
$250 on it - “For emergencies,” she said. “It’s very secure.” She gave him the debit card and encouraged him
to put in his PIN. If it gets lost, you just call the number on the back, you can also add savings to this card.”
She gave him the contract to read.
B) David had a few “emergencies” whenever he was out with friends and usually withdrew around $20 each
time, and soon found that the card was refused when he went to use it. He was a little surprised because
he thought there was more money on it.
C) He finally looked at his statements which were lying around and realized that there was a fee of $3.00 each
time he made more than 2 withdrawals in a month.
D) He also had to pay bank charges of $5.00 a month because he did not keep a minimum balance of $500 in
The account.
E) David had wasted more than $30 in fees and charges because he did not pay attention to how his account
Operated.
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32
Student resources
Student sheet
What can you do to control your cards?
• Ask questions
• Find out how and when your card company charges interest
• Find out what fees apply on the cards you use.
• Read your monthly statement. Question any charges you don’t understand
• Pay the charges due each month. If you have to keep an unpaid balance, pay it early to reduce interest
Charges
• If you can’t pay the entire balance, pay the higher interest cards first and use cards with lower interest rates
• Use cash advances from your credit cards only when absolutely necessary. They are really loans and are
Charged at a high rate of interest
• Keep a good credit record
• Choose passwords that are hard to guess and don’t let others find out what they are
• Don’t share passwords or PINs. People sometimes pretend to be a friend just to rip you off
Module four:
Expecting the unexpected: Managing risk & planning for the future
Overview
Students will chart their life stages and discuss their hopes, fears and methods of managing risks.
Objective
To help students understand the concept of risk and the importance of planning for it.
Outcomes
At the end of the lesson students will be able to:
• define risk
• identify ways of protecting against risk
• define insurance and discuss a few types of insurance e.g. health; education, home, car
• identify the benefits of having insurance
• understand the concept of pensions and pension planning or providing for aged life
• realize the benefits of being self-reliant and risks of depending on others
• recognize the difficulty of maintaining lifestyles/commitments on limited or no income
Supporting literature
This module supports material provided in questions 19 and 20 of the student booklet, “Making the Most of
Your Money”
Materials checklist
Wheel of Fortune
Wheel of Misfortune
Lifeline sheets
Introductory activity
• A Game: Wheel of Fortune and Wheel of Misfortune
• Make two simple cardboard (clocklike or pie shaped) circles divided into about 8 sections. Insert a spinning
Arrow in each center
• On one include a range of incomes ranging from very high to very low, can also include unemployed
• On the other include risks such as car accident $5,000; illness in family $20,000; house fire $300,000; theft;
Stolen purse…again let losses range from small to large amounts
• Produce first pie/clock like shape and make sure that the second is well hidden
• Inform students that they are going to spin and determine their salary/income. Allow students to spin and
Write down salaries
• Allow a few minutes to discuss hopes, plans….
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34
Wheel of fortune
$30,000
$5,000
$60,000
$100,000
Unemployed
$15,000
Wheel of Misfortune
Lost
Money
$2000
House
theft
$150,000
House fire
$500,000
Grave illness
$75,000
Death & Burial
$40,000
Car accident
$25,000
35
Step I
a) Produce Wheel of Misfortune and explain that in life there are both fortunes and misfortunes. Often the
Television only shows us the winnings and the fortunes. However, life is full of mishaps.
b) Allow students to spin and note the amounts. Students must then subtract these misfortunes from the salary
they got during their first spin.
c) Briefly discuss: remaining balances, options for dealing with losses, and what could have been done to
minimize losses (one suitable response could be Insurance)
d) While spinning the wheel generates lots of excitement and fun, if it is not possible to make cardboard
clock-like figures, strips of paper/cardboard can be used. Simply write figures and events on paper and fold
to hide figures. Follow same procedure as above.
Suggested approach
Step I
a) Explain concepts of risk and insurance to students.
b) Risks are chances; a source of danger, the possibility of some misfortune occurring.
c) Insurance are schemes that help protect against various types of danger or misfortune. Individuals must
Pay either a monthly, annual or quarterly premium or payment. If the danger occurs, the individual receives
some agreed amount to help with the expenses that arise. If no misfortune occurs the individual receives
nothing. Each year you must renew your insurance payments to protect you against different risks.
An education insurance is more like a savings plan.
d) Some people think that insurance payments or premiums are a waste of money, especially if they never make
a claim. They truly believe that there is little likelihood that something bad would happen to them. What are
your thoughts on this? What benefits can insurance bring? (E.g. peace of mind; assistance in times of need;
protection of precious assets, compensation for loss on large spending’s).
e) Allow for discussion.
f) It is true that in some countries insurance companies have a bad reputation because they do not make
payments. This should not deter you, however, you simply have to research each company well before making
a decision.
g) Never leave your large investments unprotected.
36
Student sheet
Lifeline Sheet
Hope:
0
Fear:
Hope:
20
Fear:
Hope:
40
Fear:
Hope:
60
Fear:
Hope:
80
Fear:
37
Student sheet
Lifeline Sheet
Hope:
0
Fear:
Hope:
20
Fear:
Hope:
40
Fear:
Hope:
60
Fear:
Hope:
80
Fear:
38
Step ii
a) At some point in discussion, students can be given lifeline charts.
b) Allow them to circle where they are now in terms of ages and write down one hope/ plan and one fear.
c) Allow students to identify the period during which they will earn their most income.
Ask questions such as: when they think it best to begin savings, when will they make their greatest decisions
in life, when will they make investments such as buying a house or a car?
d) Use their chosen occupations to discuss jobs that involve greater risks.
e) Ask students to write down a hope, plan and a fear for age 70/75.
f) Observe responses and discuss how to deal with fears, plans for future or any other interesting issues
They may raise.
g) Ask students, what can they do to protect against difficulties they may face as they grow old? (Insurance,
pensions, investments)
Step iii
Ask: What is a pension? Are pensions important? Present the following information to students.
Key facts about the aging population in the UK:
• in 1901 the life expectancy for women was 45, and age 49 for men
• in 1961 the life expectancy for women was 76, and age 71 for men
• in 1998 the life expectancy for women was 80, and age 75 for men
• a female pupil of 15 can expect to live for a further 66 years
• a male pupil of the same age can expect to live for a further 61 years
Key concept: discuss pension and pension planning.
Stress that a pension provides only a percentage of what was earned as an employee it is key that saving is done
to supplement to income from pensions.
Closing activity
Have students perform a drama/skit about planning for the future. Show scenarios of two aged persons, one
who is prepared and the other who is not. Or invite the class to create a singing item such as a local calypso,
poem or a story on such a scenario.
Module five:
“Business planning”
Overview
Students will plan a business activity and decide on how to price the business for a profit.
Objective
To provide information that will help students to differentiate between savings and investments.
To sensitize students on the need to analyzes business expenses and determine profits, losses or break even
position.
Outcomes
At the end of the lesson students will be able to:
• define investment [a way of putting money to use with the hope of making more money]
• understand that investments are generally expected to yield higher returns than savings
• understand that investments involve some risk. [ Normally the higher the risk present in an investment the
higher the incentive needed as greater returns are expected. Your teacher would have to offer a much bigger
prize for you to prepare and run for a 500m race instead of the 50m bunny hop race!]
• recognize that investments normally require you to hold money longer e.g bonds, shares, businesses, mutual
funds
• understand that the longer you hold your investment the more you are expected to earn but there are more
risks involved
• recognize that returns from savings are normally known and returns from investments are uncertain. You can
lose all your investments, make moderate returns or gain unbelievably high returns
supportinG literature
This module supports material provided in questions 16 and 17 of the student booklet, “Making the Most of
Your Money”
Materials checKlist
Samples/ Pictures or Table of items and prices
Sample Business Plan Sheet
introduction
step i
Example One: Provide examples of investment e.g. This shirt was made by Elaine who had $25.00. She paid
$10.00 for material and $15.00 for labor.
This shirt was sold for $40.00. Did Elaine make a profit or a loss? If Elaine saved her $25.00 at
home or in the bank for at least one month would she get similar returns? (No)
39
40
Example Two: Joe invested $25.00 to make this cake. He spent $11.00 on ingredients and $14.00 on gas and
labour. Joe’s cake was sold for $25.00. Did Joe make a profit, loss or did he break even which
means make enough money to cover his expenses?
a) Allow students to discuss who was more successful and why.
b) Ask students what is a risk and let them indicate whether Joe or Elaine took a risk. [Risk: chance, uncertainty;
possibility of harm/loss]
c) What were the risks they took? [e.g. no one would buy, wrong material, burnt cake] Wait for responses.
d) Teacher then informs students that Investment involves taking risk. Investments are generally expected to
yield higher returns than savings. This is because you added a bit more than the money e.g. time, thinking
strategies/ ideas, ingredients, materials, labour.
step ii
a) Have students create a product for which they will be given a list of ingredients and their costs (use ingredients
and ideas that are familiar to your local environment, can also use item like wood, glue, or even present real
samples with prices).
b) Have students discuss or prepare a business plan (see opposite page)
c) They then have to come up with the cost for the product.
d) Let students determine how to price the item to make a profit. This will be based on the cost of ingredients
and labour.
For example:
inGredients
cost
Flour
$10.00
Coconut
$2.00
Colouring
$1.00
Sugar
$12.00
Baking Powder/ Yeast
$5.00
Raisins
$6.00
Eggs
$7.00
Milk
$5.00
Labour (1 person)
$20.00
Gas/electricity
$10.00
step iii
a) Let groups present their ideas and have other groups evaluate and comment on presentations. They must say
whether they think this is a good investment or a bad one.They must indicate whether they would be willing
to buy the product.
evaluation / follow-up
Have students take home and complete the following business plan, if they are interested in setting up their own
business.
Student resources
Sample Business plan
How to Make a Business Plan
Develop and nurture your leadership and entrepreneurial ability. Write a business plan for your first enterprise.
Below you’ll find an outline to get you started.
i. description of Business
A. What name would you give to your business?
B. Describe the product and/or service you wish to offer
C. What is the location of business or where would it operate from?
D. Why is this a good location?
ii. Market analysis and competition
A.The Industry
1. Write a brief description of the other competitors in this business.
2. Is this industry or this type of business doing well in general?
3. Why is it a good industry to get into?
B.Target Market (best customer)
1. Describe your typical customer in detail.
2. How many potential customers do you plan to service?
3. How do you plan to approach them?
C. Competition
1. Who are your major competitors? (list them)
2. Compare yourself with your competition.
a. Describe the advantages you have over your competitors.
b. Describe your disadvantages and what you will do about them?
iii. Market strategy
A. Sales strategy
1. How will you get people to buy your product/service?
B. Pricing
1. How much will you sell this product/service for?
2. How do you set your prices?
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42
C. Inventory/Records
1. How would you maintain a stock of the items you need to produce and sell your goods or service?
2. How do you plan to keep a record of sales and expenses?
iv. Management/personnel
A. Employees
1. How many employees do you need and why?
2. What is each employee’s job (including your own)?
3. How will you find prospective employees?
4. How will you pay employees? (hourly, salary, commission, etc.)
5. How much will you pay employees?
B. Management
1. Describe owner’s management and industry experience.
Source: www.aspira.org
Student resources
the share story
shares – what does it mean?
Jake has an idea to create a sporting center for kids. He would like money to help run his business. He decides
to sell shares in that business.
• He decides that there will be 30,000 shares that will cost $10 each. This will hopefully give him $300,000 to
Set up the new center
• People who decide to buy shares in Jake’s business are actually buying part of the business. This means that
Jake will not be the only owner of his business
• Everyone who owns shares will have a right to give ideas and decide on how he runs the business from now
On
• People buy as many or as few shares as they want. For example someone could buy 100 shares at the cost of
$1,000 or 2,000 shares at a cost of $
Those people who own lots of shares have more say in the running of the company as they have more power.
• It is not like borrowing the money as Jake does not have to pay it back
People buying the shares will get a percentage of the profit that the business makes
Share holders, as they are called, also hope their shares will go up in value. For example, if Jake’s business is
profitable, in three years each share might be worth $12 each
If I owned 10 shares which I bought for a total of $100. I can now sell them to someone else for $120 and make
a profit of $20
• The shareholders are taking a risk however, as Jake’s business may not do well and parents may be unwilling
to pay for his services. Or it may go well for a while, then there may be a serious accident which scares
business away. The value of the shares will then go down and you may either make a loss or at worse, lose
all the money you put into Jake’s business
Like any business, it takes time and effort to bring dividends (profits or interest on shares) to shareholders. You
must pay careful attention to the running of the business so that you can decide whether to keep your shares
or when it is best to cash in.
43
44
Playing the stock market
• Many people buy and sell shares regularly as a way of making money (investing)
• People can buy shares on the stock market through a stockbroker
• It is a risk however as shares can go up and down in value
• People with extra income are often willing to take this risk because there is no limit to how high the price of
Their shares can rise
• Only some businesses sell shares in their companies and you can find lists of the share prices of companies
Quoted on the stock exchange in many newspapers
• Many people own shares without realizing it because they have a pension, or unit trust through a financial
Institution which invests in shares on their behalf to make money
45
Student sheet
Myths and truth about shares
Discussion Questions and Answers points – agree or disagree? – Answer sheet
1. It is better to buy a few shares in lots of different companies than lots of shares in just one.
Answer: This is usually true since it reduces the risk of losing money. It is rather like ‘don’t put all your eggs in
one basket’.
Buying small numbers of shares directly can be expensive, so most people do this by buying ‘collective
investments’ like unit trusts. These are managed by a manager who ‘pool’ small contributions from lots of
people into a single fund and this lets you buy a stake in a wide range of investments.
2. You have to be rich to buy shares.
Answer. Not really although people with plenty of spare money can afford to buy enough shares to make a
Reasonable profit and don’t need to worry as much about losing money.
However most ordinary people own shares either directly or through a credit union or pension or unit trust.
3. There is no point in buying shares because you might lose all the money you invested.
Answer: It is not the safest way of making money because share values might drop. However, as long as you hold
a spread of different companies’ shares, you are unlikely to lose all your money and could make good returns.
4. If you bought shares it is a lot of hassle because you would have to help run the business.
Answer: Most shareholders have nothing to do with the day to day running of the business, unless they own a
very large amount of shares in a company. However all shareholders are entitled to attend the annual meeting
of shareholders and give their views on how the business is run.
If you want to avoid a lot of hassle, you can invest in shares through an investment fund like unit trusts
5. Jake is mad to sell shares – now he will have to do what the shareholders tell him.
Answer: Not necessarily, Jake is likely to keep a large number of shares for himself so he can remain the
Managing director and keep control of his company.
46
Student resources
Student sheet
Investment warning flags
You or your parent may be approached to invest in one type of scheme or another. Scammers are everywhere,
even on the internet. How many of you have received emails about huge lottery winnings or special prizes?
These people do not even know your name! Even in schools you care faced with cons.
Here are some warning flags to alert you to when there is a risk of fraud or other investment problems:
• Promises of high rates of returns with low risk
• Claims that are too good to be true
• “Guaranteed high returns, no risks.” There is no such thing as high returns with no risk
• Grand Promises about future profits or share prices
• Failure to answer your questions properly
• Sales tactics which places a high degree of pressure on you
• Secretive behavior or request to keep silent
• Secret or expert tips that no one else knows about. They are secret to prevent you asking anyone about it
• Friends who have found a great opportunity for you, particularly one that earns very high interest.
They may be mistaken or may have been a fraud themselves
• Reluctance to provide any written information
• Requests for you to sign documents that aren’t filled in
• Requests for you to sign documents before reading them
• Back dated or falsified forms
• Purchases made without your specific instructions
• Illegal businesses
47
Student sheet
Test your appetite for risk
Choose the answer that is closest to the response you would give in the situation. Then count up the points for
your choices and see how you scored.
1) Your best friend says his uncle will give you a chance to invest in an oil mining company in a
nearby island. He says the investment will more than double before the end of the year. What do
you do?
a) Listen, but remind yourself that a fool and his money are soon parted.
b) Tell him to put you down for $75, and mentally write it off as the price to keep on good terms
with your buddy.
c) Find more information about the oil mining company. If it looks like it has good potential, invest $500.
d) Take every last dime you’ve saved and buy as many shares in the company as possible.
2) Your boss is going to pay a year-end bonus, and gives you a choice between $500 cash or $600 in
company shares. You can’t sell the company shares for at least 12 months, and in that time the share
price could go up or down. What do you do?
a) Grab the money while you can.
b) Take the shares. Hey, any company that employs me will make more money in the long run.
3) A friend invites you to join a football pool to the tune of $20. You could win over $500 if you predict the
winner. What do you do?
a) Say no thanks, and invite your friend to a Gamblers Anonymous meeting.
b) Ask another friend to split the cost, since a $10 loss is better than a $20 loss.
c) Study the Football predictions, listen to your gut feeling, and place your bets.
d) Find out if you can purchase two pools to increase your odds of winning the jackpot.
4) Your parents decide to give you a gift of $10,000, asking that you invest it wisely. What do you do?
a) Buy a flashy used car, and take the folks for a ride.
b) Put the cash in a safe term deposit earning 4% interest a year.
c) Invest it all in a high-tech computer company just starting out with huge potential reward (and risk).
d) Get a financial adviser to help you place the money in investments such as company shares, bonds and
mutual funds that represent different risk levels.
5) A share you bought over a year ago has suddenly increased in value by over 40%. What do you do?
a) Let it roll and keep things right where they are.
b) Borrow money to buy more shares, certain it will keep going up.
c) Sell the share and stash your dough in a low interest earning deposit now that you’ve made a cool profit.
48
Appetite for risk
Give yourself points for each of your answers as follows:
Question
your
answer
points
your
answer
points
your
answer
points
your
answer
points
1
a
1
b
4
c
6
d
15
2
a
1
b
4
3
a
1
b
4
c
6
d
10
4
a
10
b
2
c
15
d
8
5
a
6
b
10
c
2
If you scored:
15 Points or less: You’re careful! You’ll be happiest with investments that offer some guarantees, or you’ll lie
awake at night thinking about it. You’ll probably be most comfortable with a safe mix of investments including
term deposits, treasury bills, guaranteed investment certificates and government bonds.
16 To 35 points: You’re not afraid to risk a little, but you don’t take risks unnecessarily. You’ll risk a bit if there’s
a good payoff, but you don’t want to put all of your savings on the line. That’s a good strategy, though it won’t
double your savings overnight. You’ll probably want a well¬ diversified portfolio that’s balanced between cash,
bonds and common stocks.
36 or more points: You’re a gambler, willing to risk everything on the right deal. Sometimes that’s okay, as long
as you know you really could lose it all. If you can handle the potential losses, you might have a chance at really
good returns. You’re likely to invest more heavily in stocks, maybe even some shares of new companies. You
might also be the type to start your own business.
Don’t forget to re-administer Questionnaire from lesson one!
References
There are several sources of information on teaching children about how best to manage money. Some of
the material from this manual was drawn from the UK based charity the personal finance education Group
and the financial consumer agency of Canada.
Here are some links to web-sites which contain useful financial education materials:
http://financialliteracycaribbean.com/
http://www.fsa.gov.uk/financial_capability/index.shtml
http://www.sorted.org.nz/
http://www.understandingmoney.gov.au/
http://www.pfeg.org/index.html
http://www.fcac-acfc.gc.ca/eng/default.asp [check out “the city”]
These teachers’ manual, student’s booklet and other financial education
materials will also be made available on the Commonwealth’s website at:
www.commonwealth.org
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Financial
literacy