PSHE KS3 / KS4: Credit and Debt - What happens when you borrow money?
Steph McGovern covers everything you need to know about credit and debt after leaving school.
When you borrow money from a bank or building society, they charge interest, money you pay back on top of what you've borrowed. What it costs depends on the interest rate and how long you take to pay back your debt.
There are other forms of borrowing too; overdrafts, credit cards, student loans and mortgages. 'Payday' loans, the most risky kind of borrowing, can have sky-high interest rates.
Lenders check your payment history, to see if you'll be able to pay the money back. So, if you need a loan, make sure you have a plan for how to repay it.
Choose from a selection of activities to help students learn more about credit and debt.
Questions to get the class thinking and talking...
- What is a debt?
- What is credit?
- What should you consider before borrowing money?
Establish 'debt' is money you owe and 'credit' money you borrow. Before you borrow money, you should know how much you'll have to pay back, how you'll afford it and when you'll have to do it.
Using the film
As they watch, ask the students to choose 'the single most important fact' from the clip. After viewing, gather the students' varying responses, to form an instant summary of the key points.
Watch the clip again, with the sound muted. Challenge your students to supply an alternate commentary, putting into their own words the points made by the silent Steph McGovern. Fade up the sound now and then, so your students can check if they are correct.
Role-play - Ask the students why they might 'ask for credit' (apply for a loan). The class could list reasons. Point out store cards and mobile phone contracts are credit agreements.
Invite several students to play the role of someone approaching a bank to borrow £1,000. (You will take the role of bank manager!)
Interview each applicant, asking questions such as:
- Why do you need this loan?
- Have you considered the alternatives?
- Are you employed?
- What is your monthly income?
- What are your outgoings?
- How long a period do you want the loan to run?
- What is your credit history like?
- Can you supply documents to support your application? (e.g. bank statements, payslips).
- Glossaries - Students could compile glossaries of financial terms used in the film clip, along with their own definitions. This encourages them to clarify their understanding of key vocabulary.
Terms might include: 'credit', 'debt', 'interest', 'interest rate', 'Annual Percentage Rate (APR)', 'overdraft', 'mortgage', 'loan', 'student loan', 'payday loan' and 'credit check'.
- Missing word puzzles - On the blackboard or onscreen, display the following paragraph, with the words in brackets missing. Ask students to fill the gaps.
An overdraft is short-term borrowing, best used for emergencies. The bank charges interest AND a daily, weekly or monthly fee. Spend more than you have in the bank without their permission and this unauthorised overdraft will cost you a LOT more. If you're about to go overdrawn, talk to your bank and agree a cheaper authorised overdraft.
Ask students to devise similar missing-word puzzles about other forms of borrowing.
- APRs - Working in pairs, students could use an online loan repayment calculator to explore borrowing £100 at a range of different APRs. For each APR, they should note the length or 'term' of the loan, the monthly payment, total interest and total amount repayable.
Point out that, even if the APR and monthly payments seem low, when a loan runs for a long time it ends up costing a lot to borrow a little.
Invite each pair of students to draw leaflets advertising three loans from their imaginary bank. Each loan has a different APR and a different term. Their classmates must try to spot the best deal (the one that will cost them the least in the end) for borrowing £100.
- Alternatives - Ask the question 'are there alternatives to borrowing money?' The class could list suggestions, such as: 'save up, wait until you've been paid, cut back on other spending, do some overtime, sell something to raise the cash, choose a cheaper item, or consider if you really need to buy something at all.'
Supported learning and SEN
Students could (with any necessary support) take a screen-grab from Steph McGovern's film and add their own speech bubble, e.g. 'tell the bank before you go overdrawn'. A collection of 'Steph Says' captures and captions could form a financial education comic strip.
Closing the lesson
Ask students to try out their missing-word puzzles on the class.
This is a fun and snappy way to revisit the lesson material, reinforce the learning and check the students' understanding.
Ask the class to research online the differences between credit and debit cards. Students could draw up a table comparing the two types of card.
This short film meets and extends curriculum requirements for financial literacy at:
- Key Stage 3 and Key Stage 4 in England (Citizenship and Personal, Social, Health and Economic Education)
- Wales (Mathematical Development and Personal and Social Education)
- Northern Ireland (Mathematics and Numeracy and Learning For Life and Work)
- Third and Fourth Level and the Senior Phase in Scotland (Mathematics and Numeracy, Social Studies and Learning, Life and Work).