The cost of credit

Introduction

From buy now, pay later and payday lenders to credit cards and personal loans, you can expect to access different types of credit from a range of credit providers throughout your life. In simple terms, credit refers to using money belonging to a lender to buy something now, with the understanding that the lender will be repaid in the future.

Why is this important?

You may be surprised when you learn about the cost of credit. Lenders don’t give out money for free, so it is important to remember credit ALWAYS has a cost - in the form of interest and/or fees and charges.

Task

Your job in this WebQuest is to investigate the costs associated with a range of credit options available in Australia. You will also explore your own attitudes toward credit.

Process

Before you begin

Do you know what credit actually is? Are you aware of the many different types of credit available to consumers? Watch this video clip for information on some of the key concepts of credit.

Why borrowing money can cost you more https://www.youtube.com/watch?v=S4rYLkNE5V4 (2.15)

Task 1 – Credit brainstorm

Download and complete Task 1 worksheet – Credit brainstorm. Save a copy of your completed worksheet.

(Source: https://financialbasics.org.au/wp-content/uploads/2024/10/9_THE_COST_OF_CREDIT_task1worksheet_credit_brainstorm.docx)

Task 2 – The cost of credit

Download and complete Task 2 worksheet – The cost of credit. Save a copy of your completed worksheet.

(Source: https://financialbasics.org.au/wp-content/uploads/2024/10/9_THE_COST_OF_CREDIT_task2worksheet_the_cost_of_credit.docx)

Evaluation

SUBMISSION

Submit your responses to Tasks 1 & 2 to your teacher.

Your teacher will review your work and provide feedback.

Conclusion

Credit allows you to use someone else’s money to buy now and repay later. However, this convenience also comes with extra costs - interest, fees and charges.

So what can you do to be credit smart? Follow these five simple financial rules for using credit:

‘Only use credit if you can afford it’ – review your budget and ensure that you can afford to repay the total amount owing on any form of credit on or before the due date.
‘Sleep on it’ – to avoid impulse purchases.
‘Spend less than you earn’ – review and adjust your budget to avoid the need for credit.
Don’t use credit to buy things that lose value over time (e.g. a new phone).
Don’t use credit for everyday expenses such as groceries, petrol, clothing, etc.

Want to learn more about credit? Ask your teacher to download the credit resources from www.financialbasics.org.au & sign you up for the ESSI Money Game.

Credits

This work is adapted by the content owners from the Financial Basics Foundation Operation Financial Literacy (OFL) resource Module 5: Credit – making it work for you. Check out the original resource for more teaching and learning activities in this content area.

Financial Basics Foundation resources are free for all Australian educators. You can access these resources here.

Other

Financial Basics Foundation Contact information

Connect with Financial Basics Foundation for more great resources and ideas, and become part of the #FinLit community!

YouTube: https://www.youtube.com/@financialbasics

Facebook: https://www.facebook.com/financialbasicsfoundation

Twitter: @Financial_Basic

Email: info@financialbasics.org.au

URL: www.financialbasics.org.au

Teacher Page

Why should your students do this WebQuest? Debt is a significant concern for many Australians, with young people being particularly vulnerable to poor credit management. Many of your students are approaching the age where they can legally apply for credit (18 in Australia). Others may already have access to credit through their parents with buy now pay later services, joint credit cards, or even mobile phone plans.

WebQuest Goal: This investigation into credit aims to deliver a basic understanding of the types of credit most used by young people and the costs associated with using these forms of credit.

Time required to complete this WebQuest: Approximately 90 minutes.

Solution: A solution for the Task 2 – The cost of credit worksheet is available through the Financial Basics Foundation member portal. Login to your account or sign up here if you’re not already a member. Once you’ve logged in, check out all of our other WebQuests and Resources by clicking on the Teacher Toolkit menu.

Suggestions from FBF:

Students complete Task 1 – Credit brainstorm, and Task 2 – The cost of credit worksheets electronically by typing their responses in the text entry fields. Alternatively, students can print and complete with handwritten responses.
Tasks in this WebQuest have been designed for students to complete individually.
Register your classes for Financial Basics Foundation’s ESSI Money Game to help students experience credit through a real-life financial simulation game.

Standards

The content and tasks in this WebQuest have been mapped to the following Australian Curriculum elements:

General Capabilities

Critical and creative thinking: Imagine, generate, develop and critically evaluate ideas (Technologies)

Economics and Business-

Knowledge & Understanding - Factors that influence major consumer and financial decisions and the short- and long-term consequences of these decisions. (ACHEK053)

General Mathematics

Applications of rates and percentages - Apply percentage increase or decrease in various contexts; for example, determining the impact of inflation on costs and wages over time, calculating percentage mark-ups and discounts, calculating GST, calculating profit or loss in absolute and percentage terms, and calculating simple and compound interest (ACMGM006).
Compound interest loans and investments - With the aid of a calculator or computer-based financial software, solve problems involving compound interest loans or investments; for example, determining the future value of a loan, the number of compounding periods for an investment to exceed a given value, the interest rate needed for an investment to exceed a given value (ACMGM096).