Making the most
of your money
Twenty questions and answers about making financial decisions…
This Factbook has been compiled by the Commonwealth Secretariat.
The main contents of the booklet have been sourced from various
organisations including the UK based education charity the Personal
Finance Education Group. ‘PFEG’s’ mission is to make sure that young
people leaving school are equipped with the skills and knowledge to
make wise financial decisions.
The Commonwealth Secretariat was established in 1965, and is currently made up of 53 member countries.
Trinidad and Tobago is a member of the Commonwealth. The role of the Commonwealth Secretariat is to help
ensure peace, democracy, equality and good governance. The Secretariat works with countries to deliver
programmes aimed at meeting needs in areas such as education, health, finance and government.
Most of our work targets small developing countries; we work to ensure sustainable development and help
eradicate poverty.
Twenty questions and answers about
making financial decisions...
1.
Why should I save?
8
2.
Where can I save and invest?
9
(i)
(ii)
(iii)
(iv)
(v)
Commercial Bank (Bank)
Credit Unions
Mutual Funds
The Stock Market/Stock Exchange
Bonds
3.
How can I decide where to place my money?
13
4.
What is an account and what are the different types of
accounts available?
14
(i)
(i)
(ii)
(iii)
Ordinary Savings Account
Current Account
Time Deposit Account
Foreign Exchange Accounts
5.
What do I need to open an Account?
17
6.
What are my Balances?
18
7.
How can I get my money out of my accounts?
19
8.
What is the difference between a debit card and a credit card?
22
9.
What should I know about Interest?
24
(i) Loan Terms
(ii) Simple Interest
(iii) Compnterest
10. Should I Borrow?
4
29
11. Can Interest Rates work for me?
30
12. What kind of Fees and Charges do I pay?
32
13. What do I need to get a loan from a financial institution?
33
(i) A Steady Income
(ii) Downpayment
(iii) Collateral
14. What is Hire Purchase?
35
15. How can I keep my debit and credit cards safe?
37
16. What is the difference between Savings and Investment?
38
17. What is the risk and return on an investment?
40
18. How can I best manage my income and expenditure?
43
(i) Budgets
19. What can I do to protect myself from unforeseen events?
46
(i) Insurance
20. What are some other financial decisions I will
have to make as an adult?
50
(i) Education
(ii) Mortgages
(iii) Pensions
Important Tips !!
57
Financial do’s and don’ts
57
Review Exercises
59
Answers
66
5
Something to Reflect upon…
This booklet seeks to help you understand some important concepts about the financial
world that surrounds you. We hope that it helps you make better financial decisions.
You’re not too young to make the most of your money.
Developing good saving habits from young makes you more prepared for the future.
Having a piggy bank at home is good, but it does not help your money grow. However,
savings placed with a financial institution can earn you interest which will allow your
savings to increase. Additionally, saving with a financial institution reduces the chance of
losses, theft or the temptation to spend on the latest gadget or entertainment.
Some financial institutions have special accounts for young people and may even
provide you with your own bank card. Others require that your parent or an adult open
the account on your behalf. So why wait? If you haven’t already done so, you can open a
savings account as soon as possible. Piggy banks and mattresses may be a good start to
savings, but a smart saver knows the benefits of opening an account. Believe me it’s
exciting to watch your money grow. Why not get hooked on saving today?
6
Game 1:
Savings Sudoku
­n
g
s
a
v
v
g
i
s
a
i
v
v
a
n
n
s
s
a
The objective of this game is to fill all the blank squares in the game with the correct
letters of the word SAVING. There are three very simple rules to follow:
•
•
•
•
Every row of 6 letters must include all letters in the word saving
Every column of 6 letters must include letters in the word saving
You cannot use a letter more than once in each row or column
Have Fun!
7
Question 1:
Why should I save ?
There are lots of responses to this. Here are a few….
1)
2)
3)
4)
5)
6)
7)
8)
9)
To develop a habit of saving
To store your money
To create a brighter future for tomorrow
To be prepared for important life events like university, weddings, buying a home etc
To keep your money safe
To earn interest and help your money grow
To reduce the temptation of spending irresponsibly
To make payments safer, less time consuming and less expensive
To improve your credit rating so that you can access a loan to help you in the future
Can you think about other reasons?
8
9
Credit unions offer members a range of financial services and some now offer debit
or ATM cards. However they do not offer as wide a range of financial services as
commercial banks.
(iii) Mutual Funds
A mutual fund is a form of collective investment because it pools money from many
people and invests the money in various financial instruments. People who place
their money with mutual funds are called investors. They purchase units in the fund.
The money is managed by a fund manager. The returns from the investments are
shared among the fund holders as dividends after deducting for operating expenses.
Mutual funds pay higher interest than deposits because there is some chance or risk
that the money invested may make a loss. The possibility of getting a higher return or
growth on their money encourages people to invest. As discussed later, investors are
prepared to take greater risks in the hope of earning greater returns.
Countries like Trinidad and Tobago, have a financial institution like the Unit Trust
Corporation that administers mutual funds. There are different investment options
available to choose from. There is for example the Children’s Investment Starter Plan
(CISP) which is geared towards children but you must get an adult to open them for
you. With this plan, an account can be opened for a child by the purchase of ten
(10) units and the UTC will allocate an additional ten (10) units to that account. To
encourage savings, the child is not allowed to make withdrawals from that starting
amount for a given period of time.
Some banks and other financial institutions also offer their own mutual funds.
As you grow older you may wish to consider more complex options for saving and
investing. These include equities; real estate and; corporate bonds. Two such options
are discussed opposite.
10
(iv) The Stock Market or Stock Exchange
The Stock Exchange provides a place for people to buy and sell shares in companies
that are listed on the register. When you purchase a share in the company you become
a part owner. That means you receive money (dividends) if the company makes
profits. There is the risk however, that if the company makes a loss, no dividend will
be paid. You can also sell your shares on the stock exchange. The price of your shares
can go up or down depending on the profitability of the company. If the price of your
share is higher than what you paid for it you have made a capital gain.
This is why investing in the stock exchange is for the more experienced investor and
for people who can afford to take the risk with their money. People who invest on the
stock exchange hope to make a lot more money than with banks or mutual funds
because they take more risk.
Stock exchanges operate under strict rules, regulations and guidelines.
(v) Bonds
A bond is simply a loan provided to the government or a private company to help
them raise money or capital to finance projects. When the government or a company
issues a bond, it promises to pay you a specified amount of interest for a specified
length of time and to repay you the full amount of the loan when the bond matures
or comes to an end. Bonds generally pay higher rates of interest than savings because
they may be held by the government for as long as 5, 10 or 20 years. In general, the
longer the period for which the bond is kept the higher the rate of interest paid.
Investing in a bond is a good way of setting aside money for future use. It is not as
easily accessible as savings and earns a higher rate of interest. Government bonds are
risk free which means that you should always get your money back at the end of the
loan. Corporate or business bonds carry some risk. The company may be unable to
repay the loan if it does not do well.
11
Activity 1:
Use what you have learnt to complete the table below. The List of Features provides
some clues for you.
Features
Financial Institutions
FinancialofEntity
Commercial Bank
Credit Union
Mutual Fund or Unit Trust
List of Random Features
•
•
•
•
•
•
•
•
•
•
•
12
Loans
Plastic cards
Dividend payments
Interest
Accounts
Investors
Must be licenced
Must open account with an adult
Cash machine (ATM)
You own part of the company
Risk
Features
Question 3:
How can I decide where to
place my money ?
People use a number of factors to guide them, they include looking at:
•
•
•
•
•
•
•
Which institution is offering the highest rate of return?
What type of charges will you pay for the services?
How easy is it for you to deposit or invest your money?
How customer friendly is the service being offered?
What types of accounts and products do they offer?
How soon do you need your money?
How much risk are you prepared to take?
Game Two
Money Tic-Tac-Toe – Choose Wisely
$
%
Play this game with a friend or by yourself. Choose a sign and take turns putting your
sign in a block. The first person to get his or her sign straight across a row, column or
diagonal is the winner.
Remember MONEY ($) can earn interest (%) and grow!
13
Question 4:
What is an account and what are the
different types of accounts available ?
An Account is really a record that a bank or other financial institution holds on the
transactions you have made with your money. The financial institution provides you with
a number for each account you own. You use your account number whenever you are
making a transaction such as a deposit or withdrawal. The number ensures that the
money goes against the correct account.
The bank normally provides a statement of the money you put into the account, the
money you withdraw and the balance. It is good to verify that the statement on your
account is true and reflects only the transactions you have made. It may be useful to
keep your own records whenever you make a transaction.
Typically you take money in and out of your account by visiting your financial institution
or using a plastic card. Some accounts can be operated by phone or over the internet.
Different types of accounts offer different types of services, different interest rates and
different terms and conditions.
(i) Ordinary Savings Account
An ordinary savings account allows you to save and have access to your money at any
time. Because you can access your money as you wish, ordinary savings account
generally pay a lower interest. The interest paid is calculated on the average balance
that was kept in the account during the month.
14
(ii) Current Account
A current account is a type of savings account that allows you to write cheques or
make payments to pay for day-to-day goods and services. Usually it pays no interest,
however some may pay interest on an outstanding balance if it is greater than a
given amount. There may also be a service charge for the cheque facility.
(iii) Time Savings Deposit Account
This is an account where money must be kept for a certain period of time if it is to
earn a high rate of interest. The more money you decide to save and the longer you
agree to save it, the higher the interest you will earn.
When you start the account, you must agree with your bank, or other financial
institution, on the amount to be kept in it, the rate of interest to be paid and the
length of time for which the money is to be kept. For example, you may want to save
$1000 for 6 months and the bank or financial institution agrees to give you an interest
rate of say 3%. But if you save $5000 for 3 years you may be given an interest rate of
say 7%. However, you must keep your money in for the agreed length of time. If you
withdraw your money from a time deposit account before the term ends, you may
have to pay a significant penalty — sometimes as much as all the interest that was
due to you.
(iv) Foriegn Exchange Deposits
Some banks allow you to open a United States or US dollars savings account. The
deposits must be made in US dollars only and you receive your interest in US dollars.
They generally pay higher interest than your local currency accounts.
15
Game 3:
High Interest Hunt
See if you can find your way through the maze of options.
Start
Finish
16
Question 5:
What do I need to open
an Account ?
The requirements for opening an account may vary from one financial institution to
another. In general, financial institutions require that you have:
•
•
•
•
•
Some proof of who you are e.g. birthpaper, passport or driving licence
A picture ID
Some proof of where you live (bills sent to your home)
Money or funds. Some accounts, like time deposit accounts, require a lot more funds
to start them up than others. If you keep a specified amount of money in your
account you may not be charged for using some of their services
Some financial institutions require you to be a certain age to open an account. If you
are not, your parents can open them on your behalf.
17
Question 6:
What are my Balances ?
A balance is the amount of money remaining on a given account on a given date.
Financial institutions calculate your outstanding balance (or balance owed) at the end of
the month.
18
Question 7:
How can I get my money out
of my accounts ?
You can either take your passbook to the bank or financial institution, fill in a form
stating the amount of money you want and go to the teller to withdraw and collect your
money.
To get cash using a card you must have a - Personal Identification Number (PIN). You
must never reveal your PIN to anybody; they could take money from your account.
Activity 2:
Watch your money grow
Carla has been given $100 dollars as a birthday present. Carla is faced with different options
as to where to put her money. The different options offer Carla different rates of interest.
Below is a table of the rate of interest Carla can earn:
However, Carla is reminded that investing in the mutual fund has a risk. If the fund does
well, Carla makes a profit, if the fund does not do well, Carla will make a loss and lose
some of the money she invested.
19
Questions:
(a) Filling in the table
Calculate where Carla should place her $100:
•
•
•
First calculate how much Carla will make after 1 year using the table below.
Based on this decision, decide whether Carla should invest her $100.
Use as many of the following to match the features to each of Carla’s options:
• Risk
• High interest
• Easy access
• Cannot withdraw money within a year
• Low interest
• Cash Card
• High level of safety
• Low level of safety
• Savings are insured up to $50,000
Carla’s options to
invest her $100
Piggy Bank
Savings Account
Fixed Deposit
Account
Mutual Funds
20
Carla's money
after 1 year
Should Carla
Invest? Yes or No
What Features does
each option have?
In reality, Carla does not have to invest all her $100 in only one of the options above. She
can choose to save or invest her money in more than one option. This is what is meant
by not putting all your eggs in one basket.
Carla decides to put only $40 of her $100 into a Savings Account and put the remaining
$60 into a Mutual Fund.
(b) How much money will Carla have after 1 year?
(c) What are the advantages of placing money in different types of investments?
(d) Are there any disadvantages of placing money into different types of investments?
21
Question 8:
What is the difference between a
debit card and a credit card ?
Debit Card
A debit card is a plastic card which you use to take out, deduct or withdraw money you
have saved in your account. It gives you access to your money. Some businesses accept
debit cards for payment of goods and services, treating them the same as cash. Debit
cards are useful because they eliminate the need for carrying around large amounts of
money.
Credit Card
This is a plastic card issued by a financial institution that allows you to make purchases
now and pay for them later. It is in effect a loan. Each credit card has a credit limit. You
can purchase goods up to that limit. Credit cards are useful because they allow you to
make purchases, even if you don’t have immediate cash.
Interest rates on credit cards are very high…much higher than ordinary loans; that’s the
reason why it is good to pay off the balance each month. Credit cards can therefore be
very expensive facilities. You do not have to pay off the full balance of the loan each
month however, it is a good practice to do so. If you only pay off a part of how much is
owed on the card, interest will be compounded and the amount owed grows quite
quickly. If you pay less than the minimum monthly payment required you can face an
additional service charge.
22
Activity 3:
Paying your way
See if you know all the ways to pay…. Match up the name with the description.
23
Question 9:
What should I know about Interest ?
(The information provided from Maths is fun) on mathsisfun.com
Interest is how much is paid for the use of money. Interest is normally quoted as a
percentage.
Money is Not Free to Borrow
People can always find a use for money, so it costs to
borrow money.
Different financial institutions charge different amounts at different times and offer
different returns or interest on your money. A savings account that was offering
8% would give you a better return than one that was offering 5%. Similarly borrowing
money at 12% is going to cost more than borrowing at 8%.
But financial institutions usually charge this way:
%
As a percent (per year) of the amount borrowed
%
It is called Interest
Example: Borrow $1,000 from the Bank
Alex wants to borrow $1,000. The local bank says "10% Interest".
So to borrow the $1,000 for 1 year will cost:
$1,000 * 10% = $100
24
In this case the "Interest" is $100, and the "Interest Rate" is 10% (but people often say
"10% Interest" without saying "Rate") and the financial institution is a bank.
Of course, Alex will have to pay back the original $1,000 after one year, so this is what
happens:
Alex Borrows $1,000, but has to pay back $1,100
This is the idea of Interest…..paying for the use of the money.
Note: I am showing a full year loan, but banks often want you to pay back the
loan in small monthly amounts, and they also charge extra fees too!
(i) Loan Terms
There are special words used when borrowing money, as shown here:
Alex is the Borrower, the Bank is the Lender
The Principal of the Loan is $1,000
The Interest is $100
25
Note: The important part of the word "Interest" is Inter- meaning between
because the interest happens between the start and end of the loan.
More Than One Year ...
What if Alex wanted to borrow the money for 2 Years?
(ii) Simple Interest
If the bank charges "Simple Interest" then Alex just pays another 10% for the
extra year.
Alex pays Interest of ($1,000 * 10%) x 2 Years = $200
That is how simple interest works.....pay the same amount of interest every year.
Example: if Alex borrowed the money for 5 Years, the calculation would
be like this:
• Interest = $1,000 * 10% x 5 Years = $500
• Plus the Principal of $1,000 means Alex needs to pay $1,500 after 5 Years
(iii) Compound Interest
But a bank could say "What if you paid me everything back after one year, and
then I loaned it all back to you again ... I would be loaning you $1,100 for the
second year!"
26
And Alex would pay $110 interest in the second year, not just $100.
Because Alex is paying 10% on $1,100 not just $1,000
This may seem unfair ... but imagine YOU were lending the money to Alex. After a year
you would think "Alex owes me $1,100 now, and is still using my money, I should get
more interest!"
And so this is the normal way of calculating interest. It is called compounding
With compounding, you work out the interest for the first period, add it to the total, and
then calculate the interest for the next period, and so on ..., like this:
If you think about it ... it is like paying interest on interest. Because after a year Alex owed
$100 interest, the Bank thinks of that as another loan and charges interest on it, too.
27
After a few years it can get really large. This is what happens on a 5 Year Loan:
Year
Loan at Start
Interest
Loan at End
0 (Now)
$1,000.00
($1,000.00 * 10% = )
$100.00
$1,100.00
1
$1,100.00
($1,100.00 * 10% = )
$110.00
$1,210.00
2
$1,210.00
($1,210.00 * 10% = )
$121.00
$1,331.00
3
$1,331.00
($1,331.00 * 10% = )
$133.10
$1,464.10
4
$1,464.10
($1,464.10 * 10% = )
$146.41
$1,610.51
5
$1,610.51
Source: Mathsisfun.com
So, after 5 Years Alex would have to pay back $1,610.51
And the total Interest paid was $610.51 ... it sure grew quickly!
(Compare that to the Simple Interest of only $100 each year)
In Summary:
To calculate compound interest, work out the interest for the first period, add it on, and
then calculate the interest for the next period, etc.
28
Question 10:
Should I Borrow ?
Well ... you may want to buy something you like. But as you can see, it will end up
costing you a lot to pay back the loan. You should therefore use loans for essential items.
It is always good to shop around for the cheapest deal or the lowest rate of interest on
your loan.
If you must borrow you should make sure the money is put to good used. For example if
you are a business you may be able to use the money to make even more money.
Example: Chicken Business
You borrow $1,000 to start a chicken business (to buy chicks,
chicken food and so on).
A year later you sell the grown chickens for $1,200.
You pay back the bank $1,100 (the original $1,000 plus 10%
interest) and you are left with $100 profit.
And you used someone else's money to do it!
But ... be careful. What if you only sold the chickens for $800?
... you would still have to pay the bank $1,100 and would
face a $300 loss.
29
Question 11:
Can Interest Rates work for me ?
Compound Interest can work for you!
Investment is putting money to use in a way that is expected to provide returns or
profits, e.g business, bonds.
If you invest your money at a good interest rate it can grow very nicely.
This is what 15% interest on $1,000 can do:
Year
Loan at Start
Interest
Loan at End
0 (Now)
$1,000.00
($1,000.00 * 15% = )
$150.00
$1,150.00
1
$1,150.00
($1,150.00 * 15% = )
$172.50
$1,322.50
2
$1,322.50
($1,322.50 * 15% = )
$198.38
$1,520.88
3
$1,520.88
($1,520.88 * 15% = )
$228.13
$1,749.01
4
$1,749.01
($1,749.01 * 15% = )
$262.35
$2,011.36
5
$2,011.36
Source: Mathsisfun.com
It more than doubles in 5 Years!
Of course, you would be lucky to find a safe investment at 15% ... but it does show you
the power of compounding.
30
Game 4:
I Can Do the Math to Make My Money Grow
7
+
+
+
-
2
x
12
+
-
x
+
2
32
-
x
81
x
7
12
Try to fill in the missing numbers.
Use the numbers 1 through 9 to complete the equations.
Each number is only used once.
Each row is a math equation. Each column is a math equation.
Remember that when working a problem multiplication and division are performed
before addition and subtraction.
Tip: Start with the easiest line!
31
Question 12:
What kind of Fees and Charges
do I pay ?
Most financial institutions charge you for using their services. This is called a service fee
or charge. There may also be service fees on other services such as writing cheques,
buying travellers cheques, sending money abroad, taking a loan and withdrawing cash
from your account. If you keep more than a certain minimum balance in your account
you may avoid paying some service charges.
Game 5:
Taking Stock of My Balances
4
Try to fill in the missing numbers.
Use the balances given to figure out
how the sums of money were spent.
The missing numbers range between
0 and 9.
The numbers in each row add up to
totals to the right.
The numbers in each column
add up to the totals along the bottom.
The diagonal lines also add up the totals
to the right.
32
8
15
3
7
14
15
10
12
8
14
Question 13:
What do I need to get a loan
from a financial institution ?
With financial institutions you need to meet certain criteria to be granted a loan.
The most essential criteria are:
(i) Steady Income
Firstly you must be able to repay. To obtain either a loan or a credit card you must be
an adult and show a steady income which must be sufficient to help you make the
payment on the loan. Usually a financial institution tries to determine how likely you
are to repay a loan. They review personal information about you. They consider
factors such as your salary, whether you have other loans to repay, how much money
you need to live on during the month and whether you have repaid other loans you
took previously. If you don’t meet the criteria you would be refused the loan.
(ii) Down payment
Instalment and Mortgage loans require some amount of down payment. A down
payment is a percentage of the total loan you are seeking. If you are purchasing an
expensive item such as a car or a house, the financial institution may ask you to pay
down 10% of the costs of the item. It must be paid in cash. The remaining balance e.g.
(90%) is then given as the loan.
(iii) Collateral
Most loans require some form of collateral. Collateral is an asset or something of
value that is pledged to secure the loan or ensure that you pay up. This can be your
savings deposits, property or an insurance policy. If the borrower is unable to repay
the loan, the lender takes possession of the collateral. For example, if you get a
mortgage or loan on house, your collateral would be your house. If you stop making
payments, the bank can sell the house and get its money back. A credit union will
use the shares you have as collateral.
33
REMEMBER: You always sign credit or loan agreements which will contain a lot of ‘small
print’. The small print will contain your rights and obligations under the contract.
ALWAYS read the small print and ask questions if you do not understand any of the
terms. Once you sign the contract you may find it difficult to back out.
34
Question 14:
What is Hire Purchase ?
Hire Purchase is one of the ways in which a person can purchase goods without paying
the full amount upfront. If you wish to purchase a household item like a fridge or stove
you can enter into a hire purchase agreement. Here you make a down payment and
receive the use of the item immediately. You then make a number of monthly payments
called instalments until you have paid off what you owe. In effect, it is like a loan
contracted with the firm selling the item. The firm uses the item as a form of collateral.
Because you did not pay for the full price of the good, interest accumulates on the
balance. This means you will end up paying more than you would have if you bought
the item using cash. However, you get to use the item straight away. The item becomes
your property when you have paid the last instalment. If you fail to make payments, the
firm can repossess the item and you lose all the money you have paid.
Using personal financial services
Credit/Borrowing: Examples of financial options in brackets
Buying a new car / motor cycle
Hire purchase agreement
Building an extension on your home
Personal Loan, Second mortgage
Installing a new kitchen
Personal loan
Being a university student
Student loan; government grant
Buying a new computer
Credit card / Personal loan
Buying a fridge / freezer or new furniture
Hire Purchase agreement, personal loan,
Credit card
Buying a house
Mortgage
Getting married
Personal loan
35
Activity 4:
How to pay for different items
Look at the table below and decide on how you would pay for the items listed. Also decide
and tick how long you think it will take you to pay off the debt. Some ideas for payment are:
Discuss the advantages and disadvantages of your chosen method of payment.
• By Cash • Personal Loan • Mortgage • Hire Purchase • Credit Card
Item
CDs
Gas Bill
Car
School Lunch
Magazines
House
Clothes
Wedding
Electricity Bill
MP3 Player
Health Insurance
University Fees
Internet Access
Dinner for two
Trip to USA
New Bed
36
Estimated
cost
Short
Medium
Term
Term
(less than ( 1-5 years)
1 year)
Long term
(5 years and
over)
How will I
buy it
(ByCash/Loan
/Mortgage)
Question 15:
How can I keep my debit and
credit cards safe ?
•
•
•
•
•
•
•
•
Store you cards in a safe place.
Don’t take your card to school unless you really need it that day.
Don’t leave your card in an unattended jacket or bag.
Don’t keep your card in an outside pocket where it could easily be stolen.
Never reveal your pin to anyone.
Try not to write your PIN down.
If you write down your PIN try to disguise the number - e.g. as part of a phone
number along with other numbers.
Choose a PIN which you can remember easily, but stay clear of obvious numbers like
your birth date or 1234.
37
Question 16:
What is the difference between
Saving and Investing ?
Saving
Saving is putting aside money so that you can get your hands on it easily if you want to.
Sometimes you save to have funds to meet emergency expenses or towards a goal such
as going on a vacation. Most financial institutions have savings account plans where
your money will earn interest and be safe. When you place money in a financial
institution, you usually expect to have the amount you have not used available for use
and to earn some interest. Because there is little or no risk associated with saving
money, you earn lower returns than if you had invested the money.
Investing
Investing is putting your money to use so that it can earn even higher interest. Generally,
money for investment purposes is put away for longer periods of time than savings.
You usually hope to make a greater return on your money but the risks are also greater.
When you take more risk or invest for a longer period of time you are paid more interest.
Purchases of mutual funds, shares and real estate or housing are all forms of investment
The value of an investment may increase, decrease or stay the same. If the value
decreases you may not get back the full capital (money) that you put into the
investment.
38
Game 6:
Choices
Solve the puzzle to determine a right lifestyle and money choice.
Unscramble each of the clue words.
Copy the letters in the numbered cells to other cells with the same number.
VASE­­
2
KRWO
DESPN­­
1
TAYPR­­
5
NOMEY­­
3
DYUST­­
4
KANB­
­
I
1­­­­­­­2­­­­­­3­­­­­­­4­­­­­­5
39
Question 17:
What is the risk and return
on an investment ?
Capital
The amount of money you have to save or invest. You can make interest on your capital
Risk
Risk is another name for chance or uncertainty. One type of risk you face is the chance
that the value of your investment may decline. The more uncertainty there is about the
investment, the higher the risk and the higher the interest that will be paid.
An investment in a new company normally carries a higher interest because there is no
proof of how well this company will perform, so the investment is more risky. Investing
for longer periods also carries higher interest because it is more difficult to predict
events further into the future.
Return
The amount of money you get back on your capital. A general rule is that you get a
higher rate on more risky investments.
Warning!
High Interest ➞ High Risks ➞ higher the probability that you can lose your capital.
Low Interest ➞ Low Risks ➞ Lower the probability that you can lose your capital.
Always ask how the institution is earning the money to pay you high rates of interest.
40
41
Activity 6:
High, medium or low risk
Below are ten different financial situations. Say whether you think they are low, medium
or high risk activity and what the possible advantages and disadvantages would be.
•
•
•
•
•
•
•
•
•
42
Burying your money in a hole in the backyard.
Borrowing money from the bank to buy a second-hand car from the brother of a
friend’s friend.
Using your savings to pay for an expensive weekend excursion that a shopkeeper in
the village has organised.
You are busy at work, so you give a colleague your credit card and PIN (Personal
Identification Number) to get money out of the ATM machine and purchase lunch for
you.
Taking up a ‘credit card’ which is offered and then spending up to your limit in one
mad shopping spree.
Having a student loan from the Student Loan Company.
Borrowing money from a ‘loan shark’ or unauthorised source.
Lending large amounts of money to a friend.
Getting three credit cards from different financial institutions.
Question 18:
How can I best manage my income
and expenditure ?
It is useful for you to develop the habit of making a budget.
(i) Budgets
A budget refers to a list of income (money you get) and planned expenses (money you
hope to spend). Budgets can be made for a person, a family, a business, a government
or a country.
Each month you may receive a fixed or regular income which means that you have a fair
idea of the amount of money you will get. In your case this may be your pocket change
or allowance. In your parent’s case this may be a salary. Your regular income should be
used to meet your regular expenses such as groceries and electricity. You should also set
aside money for a regular savings plan from your regular income.
Sometimes you receive unexpected forms of income e.g. birthday gifts, Christmas gifts,
prizes or rewards for doing well at school. In addition to your regular savings, you should
try to save as much of your unexpected income as possible. It is good to save for things
you want. Sometimes you may need to make sacrifices to increase your savings and meet
your wants or needs. If you decide to give up the purchase of say one soft drink a day,
you can set aside this money towards an item that you wish to purchase.
In a personal or family budget, all sources of income e.g. salary, cash, gifts from
grandparents, are identified. After this, expenses e.g. expenditure on groceries, utility
bills, new school uniform, books, rent, are planned. The idea is to live within ones means
or to make ends meet. To do this you must match your income with your expenditure.
It is important that you put aside some of your income for savings even before you plan
what you are to spend. Our savings is listed as an expense because it is one way we use
our income.
43
When you spend more than you earn you are forced to borrow and end up in debt. Too
much debt can land you in trouble if you find it difficult to make the payments.
Activity 7:
Buying, can you afford it?
If you take time to think things through carefully, you can avoid unwise spending and
avoid getting into too much debt.
Number List Everything you bought
during the month
Cost per item Which items
could you
really afford
Which items
do you regret
buying
1
2
3
4
5
6
7
8
9
10
Budget Planner
It’s a good practice to get accustomed to making a budget. You could do this on a weekly
or monthly basis depending on how often you receive your main income.
Use the budget planner format provided overleaf to help you plan your own budget.
Feel free to add to the list.
44
My Budget Planner Week Beginning:
Income
Amount( $) Expenditure
Fixed or Regular
Income
Fixed or Regular
Expenses
Allowance
Donations
Other Earnings
Savings
Amount( $)
Cell phone minutes
After school Snacks
Groceries
Transport
Stationary
Unexpected or Irregular
Income
Unexpected or
Irregular Expenses
Gifts
Movies
Prizes
Arcades
Other
Shopping
Outings
Presents
Medicine
Cellphone repairs
Total Income
Total Expenditure
Balance (Total Income - Total Expenditure)
45
Question 19:
What can I do to protect myself
from unforeseen events ?
While it is useful to have savings for a rainy day there are some events which may be too
costly for even your savings to cover. This is why people use insurance.
(i) Insurance
Insurance is protection against unwelcome/unexpected events. You can take out an
insurance policy to protect against damages to your home, your car and even your health.
If you do have an accident or become so ill that you need costly medical care, you can
make a claim on your policy and the insurance company would pay a given amount
depending on what was agreed in your policy. Sometimes you may not need to make a
claim and some people feel that they have wasted their money. What you need to
remember is that having a policy provides you with the comfort of knowing you have
some protection against losses. Imagine trying to rebuild a home that was destroyed by
fire on your savings only. An insurance policy provides funding to help meet this need.
Some parents take out insurance policies for their children while they are still quite young.
Usually, an insurance policy for a child is cheaper than that of an adult. One useful
insurance policy for children is education insurance. It is somewhat like a savings plan
and is useful, as the child can only have access to the money when he or she enters say
university or college, The money placed in the policy therefore grows as the child grows.
46
Insurance: Examples of financial options in brackets
47
Game 7:
Money Snakes and Ladders
Rules: Throw a coin and move two blocks when a head is thrown. Move one block for
tail thrown. Bad choices bring snake bites and you slide down the snake. Good
financial decisions help you move up the ladder. First one to reach the last block wins!
Use your head make wise decisions!!
OWN
HOME
WIN!
GOOD
OLD LIFE
HIGH
DEBT
UNIVERSITY
SPEND
INVEST
MONEY
GIFT
SAVE
Start
Art: www.adrianbruce.com
48
Activity 8:
Using personal financial services - Good or Bad financial decisions
Financial Decisions
Good or Bad Idea Reasons for answer
Taking a Mortgage to buy a house
Applying for a loan to start a business
Using money from saving to buy concert
tickets
Investing all my money in high risk
accounts
Placing money in non interest earning
accounts
Using a piggy bank
Telling my friends or family my
PIN number
Not paying my credit card bill on time
Saving at least 10% of my monthly
income
Constantly checking my account balances
Making a weekly or monthly budget
Using all the money I get
Using a University loan to buy a car
Saving to buy a car
Buying Government Bonds
Writing a cheque when there are not
enough funds in my account
Buying shares in a company that
gives high dividends
Saving in an account that pays
high interest
Paying into a pensions account from
when I start working
49
Question 20:
What are some other financial
decisions I will have to make as
an adult ?
(i) Education
Today, having a formal education is more important than ever and young people are
investing in a good education to secure a good job for themselves. They recognise that
there is much competition in the job market and that they must have the right tools to
take part in that competition. You cannot win a raffle if you don’t have a ticket. Whether
you want to be a banker, teacher, cook or plumber, you should undergo some form of
formal training. This costs money.
You can meet you education needs using savings, a loan or some type of government
grant. Most countries offer student loans at a low rate of interest and the student only
begins repaying the loan when he or she starts working. The government also offers grants
to help people further their education. Depending on the national budget, in some years,
the government may repay you all of the money you use to fund your education or
sometimes only a proportion, say 50%. You must check to see what type of assistance the
government is offering to help you further your education and make the most of it.
(ii) Mortgages
One of the most important financial decisions you will have to make is whether to live
with family for the rest of your life, rent, build or purchase a home. Renting your own
home brings you some independence but you keep paying money for something that
will never be your own.
Building or purchasing a home is one of the single biggest expenditures you may make
in our life. Most people cannot do so from their own savings. They need to take a loan.
These loans are called mortgages.
Mortgages are loans from financial institutions that help people to buy, and eventually to
own their own property, whether this is land, an apartment or a house. You might also
use a mortgage to pay for improvements to your home. The main difference between a
mortgage and most other types of borrowing is that it is ‘secured’ against your home.
50
51
But I’m still at School!!
Three Points of View
“I am not worried about my old age. You should
be looked after by your family – children, grandchildren and
other relatives when you grow old. It is up to them to provide for you,
look after you and see that you are OK. As soon as I get too old to look
after myself, I will go and live with them. They know how best
to look after me”
“The Government should look after you when
you grow old. You pay your taxes for all those years after all.
I think the Government should pay you a large enough pension to
make sure you can live comfortably. They should provide help with
electricity bills and the cost of your health care if you need to
go into a nursing home.”
52
“You must take responsibility for your own
future, which includes planning for your retirement. If you
plan carefully and don’t spend all your earnings on things like luxury
holidays abroad and large expensive cars, you can save enough to have a
very good retirement. The trouble is you must start early. If you leave
it too late you may still not have enough money to live on.”
Make the most of it!!!
53
Activity 9:
Think about your future - Personal life-time plan
When I reach 18, my plan is to...
When I reach 25, my plan is to...
When I reach 40, my plan is to...
When I reach 65, my plan is to...
When I reach 80, my plan is to...
54
My Hopes and Fears
The hopes for my future are:
1
2
3
4
5
6
The fears for my future are:
1
2
3
4
5
6
Hope & Fears Action Plan
Hopes for the future
1
Action to take
1
2
2
Fears for the future
1
Action to take
1
2
2
55
Some Useful Information about Pensions
State pension
A pension provided by the Government. In order to receive the state pension you must pay
National Insurance Contributions – which is a form of tax on earnings - payable during your
working life. A person must normally pay National Insurance Contributions for a minimum
number of payments/ contributions to qualify for a full basic government pension.
Occupational pensions
A pension linked to a job or profession.
Many employers offer a pension as part of your job. In most cases you are asked to pay
some money (called a ‘contribution’) which is taken from your salary or wage. The
employer must also contribute to the scheme. In some cases an occupational pension is
called ‘non-contributory’, which means that your employer pays all the contributions.
Personal pension plan
This is a pension an individual can take out with an insurance company, bank, building
society or investment organisation. It is suitable for those who do not have access to a
work scheme, are self-employed or who do not wish to join their occupational scheme.
A personal pension plan can also be used to top-up the pension from an occupational
scheme.
Tax Treatment
All pension arrangements, whether they are work schemes or personal, enjoy favourable
tax treatment to encourage people to save for their retirement. There is very little tax
charged on the investment return earned and, with most schemes, part of the proceeds
at retirement can be taken as a lump sum which is paid free of all tax. Any lump sum
paid on death is also free of tax.
56
Important Tips!!
Now that you are a bit more educated about the financial world here are some tips for
you to follow:
Financial do’s and don’ts
•
Use your common sense
If you get into financial difficulties, the worst thing you can do is pretend the
problem will go away. It won’t and you can end up in court.
•
Trust no one
Especially with your PIN (Personal Identification Number). If someone knows it and
he or she gets hold of your card they can collect your money from an ATM machine.
They may also tell other people what the number is. If you have to write it down, try
to disguise the number and/or keep it in a separate place to your bank / credit card.
•
Save something
Build up an emergency fund so you can cope financially in a crisis without being
forced to borrow. Saving is also a good discipline regardless of how little you can
afford. Don’t be ashamed to start small. Every dollar counts! Get a savings account
with a decent rate of interest.
•
Get a good deal
Shop around for credit or loans the way you shop for anything else. Look around for
the best credit deals. Avoid getting into too much debt!
•
Think ahead
You may think pensions are just for old aged people, but the best time to start paying
into a pension scheme is around 25, or even earlier. You can have a pension plan
from any age.
•
Get help
If you’re worried about your finances talk to someone who can help.
57
•
Take action
Personal Finance needs a degree of planning. Use a budget planner. You can also do a
lot more to get your money working harder, starting with where you choose to put it.
REMEMBER:
•
•
•
•
58
Start a committed saving plan today
Read the fine prints on all your contracts
The cost of loans can vary according to the type of loan and the lender
Credit cards are easy to use but it is important to pay off all or as much as you can
on a monthly basis.
Review Exercises
Game 8:
Financial Terms
U
I
D
Y
C
Z
E
T
F
O
C
W
C
D
I
P
N
X
Z
G
O
I
X
N
U
I
E
N
S
N
A
V
C
X
E
D
N
C
P
T
N
E
V
E
T
Y
E
Q
E
E
C
A
T
H
E
D
D
C
T
E
M
S
N
R
R
C
N
D
R
I
N
N
S
A
R
E
T
C
O
C
T
R
A
V
A
A
S
D
L
E
N
M
N
O
I
A
A
I
R
L
C
E
E
U
S
T
E
U
R
W
S
D
I
A
U
B
T
L
C
T
O
N
H
A
U
C
N
B
N
T
S
O
P
L
S
T
T
L
P
T
T
O
E
O
T
A
N
E
A
E
C
U
S
T
O
M
E
R
P
N
Y
J
I
C
G
T
I
S
O
P
E
D
R
E
V
E
N
U
E
R
B
T
F
A
R
D
R
E
V
O
X
Q
V
Z
A
E
U
Q
E
H
C
S
H
A
R
E
S
I
C
H
E
R
U
T
U
F
V
B
U
D
G
E
T
Z
C
ACCOUNT
CALCULATE
CONTRACT
DEBTOR
EXPENSE
INSURANCE
LOAN
PENSION
SHARES
BALANCE
CHARGES
CREDIT
DEPOSIT
FUNDS
INTEREST
OVERDRAFT
RETURN
UNCERTAINTY
BUDGET
CHEQUE
CUSTOMER
DIVIDEND
FUTURE
INVESTMENT
PAYMENT
REVENUE
WITHDRAWAL
59
Game 9:
Your Crossword Puzzle
1
2
3
4
6
5
7
8
9
10
11
12
13
14
15
16
17
ACROSS
2. loan made to purchase a property
4. form of savings that carries risk
5. protection against damages and
injuries
7. amount of money owing on a given date
8. personal identification number
9. person granting a loan
10. lists of planned revenue and
expenditure
12. to put money into an account
13. scheme to provide income in old age
60
15. charges made by financial services on
services used
16. male in family on state pension
17. asset used to secure a loan
DOWN
1. earnings from savings and investments
3. chance or uncertainty
6. amount of money to invest
11. return paid by credit union on shares
14. when you put aside for the future you.
Activity 10:
Funding the Future - So you think you know about pensions?
Carefully read through the statements in the table. They all refer to pensions. Firstly
decide which ones you think are true and which ones you think are false. Tick the
appropriate box to indicate your decision.
For those statements that you think are false, write a sentence that would be correct.
Statement
TRUE
False: it should say
The state pension is provided by the
Government.
A person will automatically receive the
full basic government pension.
A pension linked to a job or profession is
called an occupational pension.
The amount you pay towards your
occupational pension is called your
instalment.
A person who works for themselves
(self-employed) will receive an
occupational pension.
Most pensions give you the option to take
a tax-free lump sum at the expected
date of retirement.
Personal pensions are a waste of money
since you will receive a government
pension anyway.
You’re too young to think about pensions.
You should think about enjoying life,
studying, getting a job and finding the
right gentleman or lady!
61
Activity 11: What do you think?
Here are three decisions someone might make regarding his/her financial future.
For each decision how could the scenarios below affect his/her plans:
Decision 1
You decide not to take the offer of an occupational pension or to take up a personal
pension plan. As an only child, you decide to rely on inheriting money from the sale
of your parents’ house when they die.
Decision 2
You join an occupational pension scheme as soon as you start work.
Decision 3
You are self-employed and therefore cannot join an occupational pension scheme. As
you are worried about relying on the government pension you decide, after careful
consideration to join a personal pension plan.
1. You work for ten years then retire and stay at home
2. You were made redundant.
3. Your parents needed long-term care in a nursing home when they got old. In order
to pay the cost of this, their house had to be sold.
62
Activity 12:
Revision
Do you know
Yes
No
Describe it
Yes
No
Explain how
What a savings account is?
What a cheque book is for?
What credit is?
What benefits are?
What pensions are?
What tax and national
insurance are?
What insurance is for?
What is meant by ‘debt’
What is meant by ‘budgeting’
How household bills, such as
gas and electricity, are paid?
Can you
Keep a record of your
spending?
Decide what is ‘good value’
for money’?
Plan your spending in
the next week and the
next month?
Name the different ways of
paying for goods?
63
Do you
Yes
No
Write about it
Have a bank or savings
account?
Have a regular income, such
as by pocket money?
Know how much money you
receive in a week, a month
and a year?
Know how much you spend
in a week?
Activity 13:
What have you learned?
I have learned the following things from “Making the Most of Your Money”
1
2
3
4
5
64
When thinking about my future I need to remember…
1
2
3
4
5
65
Answers
Game 1: pg 7
Savings Soduku
­n
g
i
a
s
v
s
a
v
g
i
n
i
v
n
s
g
a
g
s
a
v
n
i
a
i
g
n
v
s
v
n
s
i
a
g
Activity 1: pg 12
Commercial Bank: Loans; Plastic cards; Accounts; Cash machine; Must open account with an adult; Must be
licenced; Interest;
Credit Union: Loans; Cash Machine; Account; Must open account with an adult; Dividend payment; Interest;
You own part of the company
Mutual Fund: Interest; Dividends; Must open account with an adult; Investors; Risk
Activity 2: pg 19
Carla’s options to invest
her $100
Carla's money
after 1 year
Should Carla
Invest? Yes or No
What Features does
each option have?
Piggy bank
0
No
Easy access; Low level of safety
Savings account
103
Yes
Easy access; Low interest; Cash card; High
level of safety; Savings are insured up to
$50,000
Fixed Deposit Account
107
Yes
High interest; Cannot withdraw money
within a year; High level of safety; Savings
are insured up to $50,000
Mutual Funds
108
Yes
High interest; High level of safety
b) $106
c) Can earn different interest rates; Invest in low risk and high risk options; If the value of one investment
drops you will not lose all your money; “Spread your risk”; Learn about different investment opportunities;
Learn how to save.
d) Must have up to date information on different investments; Could invest in too many accounts you do not
understand; Place too much money in accounts that you cannot easily access; The value of your investment
may fall if not monitored.
66
Activity 3: pg 23
Credit card
Accounts
Dividend
Cash/ATM Machine
Stock Exchange
Debtor
A way of paying for something before you have the money
A record of transactions
Payment made on Mutual Fund or Unit Trust shares
Place where you can withdraw cash
Buy and sell shares here
The person borrowing money
Debit Card
A card that allows you to pay for things from your bank account at a
store, over the telephone or Internet
Balance
Shares
Cash
Overdraft
Mortgage
Amount in your account at a given date
A part ownership in a company
Coins and notes we often use for smaller purchases
Borrowing more than you have saved
Long term loan used to buy a house
Game 4: pg 31
7
x
5
+
3
+
+
8
-
2
32
x
2
+
x
+
3
7
12
-
1
x
7
9
81
12
Game 5: pg 32
4
8
6
1
15
5
2
3
10
1
7
4
12
14
15
8
14
67
Activity 4: pg 36
Short Term: CDs (Cash); Gas Bill (Cash); School Lunch (Cash); Magazines (Cash); Clothes (Cash); Electricity Bill
(Cash); MP3 Player (Cash); Health Insurance (Cash); Internet Access (Cash); Dinner for two (Cash)
Medium Term: Car (Cash/Loan); Wedding (Cash/Loan); MP3 Player (Cash); Health Insurance (Cash); Internet
Access (Cash); New Bed (Cash/Loan)
Long Term: House (Loan); Wedding (Cash/Loan); University Fees (Loan); Trip to USA (Cash/Loan)
Game 6: pg 39
VASE – SAVE; KRWO – WORK; DESPN – SPEND; TAYPR – PARTY; NOMEY – MONEY; DYUST – STUDY; KANB – BANK
Final word: INVEST
Activity 5: pg 41
Watching TV – 1, Playing games on a computer – 2, Walking down a flight of stairs – 3, Going to a National
team football match – 4, Playing tennis/Golf – 5, Getting a lift in a friend’s car – 6, Crossing a very busy highway
– 7, Riding a bicycle without a crash helmet – 8, Making a parachute jump – 9, Smoking Cigarettes – 10.
Activity 6: pg 42
High Risk; Medium Risk; Medium/High Risk; High Risk; Medium Risk; Low Risk; High Risk; Medium/High Risk;
High Risk
Activity 8: pg 49
Good Idea:
Taking a Mortgage to buy a house - Houses are very expensive. Mortgages are loans specific to buying a
house. Buying is better than renting a property that will never be yours.
Applying for a loan to start a business - Enables you to start a business despite not having enough money to
cover the start up costs.
Saving at least 10% of my monthly income - Helps you develop good saving habits. Can use savings for future
investments.
Constantly checking my balance - Good to know how much you have and to monitor your income and
expenditures.
Buying shares in a company that gives high dividends - You shall receive regular payments from your
investment.
Making a weekly or monthly budget - Helps you know your income and expenditure and therefore you can
make wise decisions on how to spend your money.
Saving to buy a car - Good to save for a specific item.
Buying Government Bonds - You are ensured of getting your money back plus interest.
Saving in an account that pays high interest - Compounded interest is accumulated; Your money increases at
a high rate.
Paying into a pensions account from when I start working - The earlier you start saving, the more you will
have at retirement.
68
Bad Idea
Using money from my savings to buy concert tickets – It is better to use Savings for investment and needs.
Investing all my money in high risk accounts - Even though high risk lead leads to high returns, if the value
of the investment decreases you will lose money.
Placing money in non interest earning accounts - Your money does not increase in value therefore it remains
the same.
Using a piggy bank - Money is not secure, no interest is earned and you are more likely to use or spend your
money.
Telling my friends or family my PIN number - They may use your card to withdraw money or pay for
purchases.
Not paying my credit card bill on time - The card user will charge you a penalty for late payments and may
later cancel your card.
Using all the money I get - You do not save anything for the future.
Using a University loan to buy a car - Use a university loan to go to university and save to buy a car.
Writing a cheque when there are not enough funds in my account – Your cheque may bounce; You may go
into your overdraft; If your account does not allow for this you may be charged or penalised or worse, you
account may be closed down.
Game 9: pg 60
1. Returns; 2. Mortgage; 3. Risk; 4. Investment; 5. Insurance; 6. Capital
7. Balance; 8. PIN; 9. Creditor; 10. Budget; 11. Dividends; 12. Deposit;
13. Pension; 14. Save; 15. Fees; 16. Grandfather; 17. Collateral
Activity 10. pg 61
True Statements:
The state pension is provided by the Government; A pension linked to a job or profession is called an
occupational pension; Most pensions give you the option to take a tax-free lump sum at the expected date of
retirement.
False Statements and Reasons:
A person will automatically receive the full basic government pension – You must pay National Insurance
Contributions during your working life to receive a government pension.
The amount you pay towards your occupational pension is called your instalment – It is called a
“contribution”.
A person who works for themselves (self-employed) will receive an occupational pension – No, this person
will have to take out a personal pension plan.
Personal pensions are a waste of money since you will receive a government pension anyway – The money
you receive from the Government may be much less than you were accustomed to earning therefore it is a
good idea to put money into a fund so that you can receive more at retirement.
You’re too young to think about pensions. You should think about enjoying life, studying, getting a job
and finding the right gentleman or lady! – It is important to think about who will take care of you when you
grow older, this can help you ensure a good quality of life in your old age.
69
Notes
70
Notes
71