Big Idea:

Financial Literacy

Expectations:

F1.4 explain the concept of interest rates, and identify types of interest rates and fees associated with different accounts and loans offered by various banks and other financial institutions

F1.5 describe trading, lending, borrowing and donating as different ways to distribute financial and other resources among individuals and organizations

Glossary:

Interest Rates: the proportion of the loan that is charged to the borrower, usually in annual terms

Types of Interest Rates

• Bank Account Interest (Chequing/Savings): pays interest to the account holder based on the amount in the account.

• Credit Card Rate: the amount of interest charged on the amount of credit you owe, these vary around 19% depending on the type of credit card

• Prime Lending Rate:The prime rate in Canada is currently 2.45%. The prime rate, also known as the prime lending rate, is the annual interest rate Canada’s major banks and financial institutions use to set interest rates for variable loans and lines of credit, including variable-rate mortgages. (ratehub.ca)

RESP’S: registered education savings plan is sponsored by the Canadian Government, government matches the amount contributed, up to $2500 a year. Interest is paid on this by the student when the money is withdrawn

Sources:

Ratehub.ca

https://talkwithourkidsaboutmoney.com/resources/understanding-credit-card-interest/

Future Lesson: How do companies/organizations make money?

https://www.investopedia.com/ask/answers/03/062003.asp

Sample Parent Letter:

With a partner: You don’t have enough money to buy a laptop for college. You are a student (18 years and older) and you will need credit in order to pay for it up front. The laptop costs $2500. Would you use a credit card (19% interest) or would you take out a line of credit (4.75% interest). You want to pay off the credit in 6 months. What is your best choice? Show your calculations.

Sources:

https://www.canada.ca/en/financial-consumer-agency/services/credit-cards.html

https://www.canada.ca/en/financial-consumer-agency/services/loans/loans-lines-credit.html

Other Problems to Consider

1. Brandon paid for his vacation using his credit card, which charges 21% annually. The total cost of the trip was $1349. His credit card charges no interest if he pays the total balance before the monthly due date. If he pays it all off at the end of the month, how much will he owe? Show your calculations.

2. Max borrowed $1500 using a credit card at an annual interest rate of 22%. How much interest will he owe after 2 years? Show your calculations.

3. Rachel needs a new computer. “Computer Mart” is selling it for $599 at an interest rate of 10% annually. “Electronics Warehouse” has the same computer for $549, with an interest rate of 13% annually. Assuming it will take her one year to complete pay off her debt, where should she buy it? Show your calculations.

4. Amy wants to buy a wide-screen TV that sells for $2,000 cash. She will make a down payment of $800 and monthly payments of $200. If the annual interest rate is 18%, what is the cost of buying the TV? How long will it take her to pay off her debt? Show your calculations.

5. Sanjay has seen a new bed that he would like to buy that will cost him $629 + tax if he pays cash. The $629 in his bank account earns him 2% annually. If he puts the entire cost of the bed on his store credit card, he will pay no taxes. The rate of interest on his credit card is 18% annually. The taxes (HST) are 13%. Assuming he would pay off his credit card in one year, should he pay cash or use his credit card? Show your calculations.

Source:

https://talkwithourkidsaboutmoney.com/resources/understanding-credit-card-interest/

Whole group discussion:

• Did you have any problems with your calculations? If so, how did you solve them?

• As a student: When is a line of credit advantageous?

• When is a credit card advantageous?

Exit Ticket: What did you learn about interest rates on credit and the amount of time you take to pay off the bill?

Source: https://talkwithourkidsaboutmoney.com/resources/understanding-credit-card-interest/