teacher ’s manual - the...

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financial literacy

teacher’s ManualMaking the Most of Your Money

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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 programme will encounter a life changing experience.

introduction

5contents

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” 39

Creating a small business, assessing profits and business plans.

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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 neighbourhood schemes and saving at a financial institution.

outcoMes

at the end of the lesson students will be able to:• recognize that home/neighbourhood 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.

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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 pre-seMinar response post-seMinar response

i. credit

ii. insurance

iii. interest

iv. dividend

v. risk

vi. investment

vii. deposit

viii. withdraw

ix. Budget

x. shares

student resources

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introductary 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 neighbourhood 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.

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• 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 recognise 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 yearfind 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

yr. 4

yr. 5

Answer

start yearfind 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

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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.

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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

student resources

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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 recognise 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 utilising savings for emergencies and investment only

• recognise that wants can be satisfied by making sacrifices and giving up unnecessary expenditure


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

introductary 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, a sandwich for lunch, five snacks, a calculator, deodorant, soap, an ipod or cd player. Teachers may create their own list to make it more applicable to their students.

Module two:

“Balancing my Budget”

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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 baby sitting; hairdressing or doing a neighbour’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/ evaluationUse the knowledge quiz at the end of this module to assess student’s knowledge.

follow up activityHave students use the budget sheet at the end of this module to plan their weekly/monthly budget.

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student paGe

Knowledge QuizTest 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 neighbour’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.

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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 neighbour’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.

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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: $

teacher resource sheet

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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:

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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 tue wed thu fri sat

1

Allowance from Dad -$100

2

Pay Back -$20 Borrowed from Sue

3 4 5

Chicken and Chips with friends - $20

6

7

Offerings/Donations- $15

8 9 10

New Celebrity Magazine - $25

11 12 13

Baby Sitting for Neighbour - $40

14 15

Deposit -$50 in savings account

16 17 18

Money from Brother’s First Pay - $40

19 20

21 22 23 24 25 26

Withdrew $40 from savings

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New Top and Gift for friend’s birthday party - $90

28 29 30 notes

Total Income - $180Total Expenditure- $170Savings this month- $10

next Month’s Goals: spend less; save More; do not Borrow, do not touch My savinGs!!!!

student resources

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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 $ total spent $

( If Money Received will be greater than Money Spent Write Extra Savings)

( If Money to be Spent will be greater than Money Received Write Money to Borrow and Repay)

student resources

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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.

student resources

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overview

students will:

• make decisions on granting loans

• review the pitfalls of too much debt

oBJectives

To sensitise 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

• recognise 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


This module supports material provided in Questions 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

inroduction

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.

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.

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suGGested approach

step iStimulate 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 cheque for him/her? What would the banker do before issuing that cheque 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? [Emphasise the importance of reading the fine print on a contract. Note that it may contain hidden penalties]

step ivShare 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 vMay 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

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• 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.

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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

student resources

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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 diffi culty in repaying the loan

• Note that this is activity is simplifi ed to make it easier to complete the task. Emphasise 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

source: http://www.investopedia.com

credit card repayMent - John credit card repayMent - Jane

!"

#"

!"

#"

!"

#"

principal - $2000

interest - $2241

interest - $1276

principal - $2000

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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.

income

Under $10,000 5

Up t0 $15,000 10

Up to $20,000 15

More than $20,000 20

Bank account

No 0

Yes, Little savings 5

Yes, Regular saver 15

Yes, Large savings 20

occupation

Unemployed 0

Unskilled 5

Semi-Skilled 10

Professional/ Skilled 20

length of time in employment

Under 1 year 5

1- 2 years 10

3- 5 years 15

More than 5 years 20

age

Under 21 0

21 - 30 5

31- 50 20

51- 60 10

More than 60 5

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

dependents

None 20

1 or 2 10

3 or 4 5

5 or more 0

security

None 0

Money in Fixed Deposit 10

Money in Units/Bonds 15

Owner of home 20

total scores first assessMent

0 – 95 Refuse loan

100 – 120Application needs further consideration – refer to Manager

125 – 180 Grant loan

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Application Profiles Credit Scoring

shawn 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


• 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


• Has 1 bank account and little savings

• Has 2 credit cards and a car loan.

total

additional information credit card information

Card 1: Amt. Used $4,000 Card Limit: $5,000Card 2: Amt. Used $8,000 Card Limit: $10,000

* 2 missed payments and 6 late payments

car loan information

Balance on Car Loan: $40,000 Monthly Car Loan Payment: $3,000

* No missed or late payments

loan Granted

loan refused

loan referred

31

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 you credit card account. You normally have to pay a very high fee for these withdrawals. “I’ll pay it back from my next pay cheque,” 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 realised 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.

student resources

32

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

student resources

33

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

• realise the benefits of being self-reliant and risks of depending on others

• recognise the difficulty of maintaining lifestyles/commitments on limited or no income


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 centre

• 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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wheel of fortune

wheel of Misfortune

$30,000

lost Money $2000

$60,000

house fire $500,000

$15,000

car accident $25,000

$100,000

Grave illness $75,000

uneMployed

death & Burial $40,000

$5,000

house theft $150,000

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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 spendings).

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

0

Hope:

Fear:

20

Hope:

Fear:

40

Hope:

Fear:

60

Hope:

Fear:

80

Hope:

Fear:

37

student sheet

Lifeline Sheet

0

Hope:

Fear:

20

Hope:

Fear:

40

Hope:

Fear:

60

Hope:

Fear:

80

Hope:

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



• 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.

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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 analyse 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


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)

Module five:

“Business planning”

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.

41

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?

student resources

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

43

the share story

shares – what does it mean?

Jake has an idea to create a sporting centre 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 centre

• 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 2000 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 toal 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.

student resources

44

playing the stockmarket

• 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 realising 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 share holders 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 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 behaviour 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

student resources

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 a 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:

Questionyour

answerpoints

your answer

pointsyour

answerpoints

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-adMinster Questionnaire froM lesson one!

49

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

teacher ’s manual - the...

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