Social Studies: Credit, Debt, and Interest
Understanding borrowing, repayment, and the cost of money
Social Studies: Credit, Debt, and Interest
Understanding borrowing, repayment, and the cost of money
Social Studies - Grade 6-8
- 1
Define credit in your own words.
Think about buying something now and paying for it over time.
Credit is the ability to borrow money or receive goods and services now with a promise to pay later. - 2
Define debt in your own words.
Debt is money that a person or group owes and must pay back. - 3
Define interest and explain why lenders charge it.
It is the price of borrowing money.
Interest is the extra money paid for borrowing money. Lenders charge interest as the cost of the loan and as payment for the risk of lending. - 4
A student borrows $100 from a family member and agrees to pay back $110. How much interest does the student pay?
The student pays $10 in interest because $110 minus $100 equals $10. - 5
Explain one benefit of using credit responsibly.
Think about how borrowing can help if payments are made on time.
One benefit of using credit responsibly is that it can help a person buy needed items now and build a record of reliable repayment. - 6
Explain one risk of taking on too much debt.
One risk of taking on too much debt is that a person may have trouble making payments, which can lead to more fees, more interest, and financial stress. - 7
Two people borrow the same amount of money. One pays it back quickly, and the other takes much longer. Who will usually pay more interest, and why?
Think about what happens when money is owed for a longer time.
The person who takes much longer will usually pay more interest because interest often keeps being added while the debt remains unpaid. - 8
A store advertises, "Buy now, pay later." Describe one reason this offer could be helpful and one reason it could be risky.
This offer could be helpful because it lets someone get an item before having all the money. It could be risky because the person may end up owing more later or may miss payments. - 9
Why is it important to read the terms of a loan or credit agreement before signing it?
Think about the details that affect the total cost.
It is important to read the terms so you understand how much you must repay, when payments are due, what interest is charged, and what happens if you pay late. - 10
A borrower takes a $200 loan. They repay $50 each month for 5 months. How much do they repay in total, and how much more is that than the amount borrowed?
They repay $250 in total because 5 times $50 equals $250. That is $50 more than the $200 borrowed. - 11
Describe how making payments on time can affect a person's financial reputation.
Think about trust and responsibility.
Making payments on time can improve a person's financial reputation because it shows they are responsible and likely to repay what they borrow. - 12
A friend says, "Interest does not matter if the monthly payment is small." Explain why this statement can be misleading.
This statement can be misleading because a small monthly payment may seem easy to manage, but the person could still pay a lot of interest over time and end up paying much more than the original amount borrowed.