"In order to get a loan, you must first prove you don't need it."
Popular saying
I. Literacy Objective: The students will be able to calculate the cost of interest on installment loans and list in writing the advantages and disadvantages to using credit.
II. Materials for Lesson: "Amortization Table" - handout
"Calculating the Cost of Interest - Part 1" - handout
"Calculating the Cost of Interest -Part 2" - handout
"To Live & Thrive in L.A." - handout by Kathy Seal
III. Suggested Readings : Lifeskills: Developing Consumer Competence by Calvin R. Stone, Penny Fitzgerald, and Janet
Starko
Contemporary Books, Inc.
180 North Michigan Avenue
Chicago, Illinois 60601
(312) 782-9181
IV. Notes to Instructor: Slyvia Porter says that there are two distinct sides to the possession of money: one is saving it, the other is borrowing it. The next two lessons look at consumer credit and the procedures for borrowing it. Bring in any relevant examples from local sources that relate to being "credit-wise". Allow the students to use calculators, if possible, for the needed computations on the worksheets.
If you are interested in purchasing copies of Consumer Reports, with accompanying
Teaching Guide, they are available for $13 for a class of 20. Topics include Money
Management, Product Evaluation, Food and
Nutrition, Safety, Shopping Skills, and
Economics. Mail inquiries to Consumer
Reports, Classroom Programs, P.O. Box
3760, Jefferson City, MO 65102-9887.
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Journal Entry:
Review:
What types of credit do you use? Are they helpful or harmful? Why?
Ask the student to read and discuss their answers to the sentence starters: Today in mathematics I learned...
My plan for what I will do tomorrow is...
Of the math we've done lately, I'm most confident about...
What I still don't understand is...
Develop strategies for addressing identified areas of need.
INITIAL INQUIRY
Ask the students to discuss their ideas about credit, loans, and interest. Suggested questions for discussion are:
1. What is credit?
2.
3.
Why do people use credit?
What are the advantages of credit? Disadvantages?
4.
5.
6.
7.
8.
How do you get credit?
What types of credit are you familiar with?
What types of credit have you used?
What do they want to teach your children about credit?
When is "getting a loan" a good idea? A bad idea?
9. How do you get a loan?
10. What is "interest"?
11. How is interest calculated?
12. How are credit, loans, and interest related to each other?
Record student responses on the chalkboard or overhead projector.
LEARNING ACTIVITY
Credit is money that you borrow. You use the money now and promise to pay back the money later. Credit is also time. You get time to pay for goods or services that you are using now.
When people purchase items on credit, they receive the item before they have fully paid for it.
Sources for credit include:
1. Service Credit - getting service that you pay for later, such as utility bills (gas, electricity, water, telephone), some doctor or dentist bills, or home remodeling bills.
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2. Cash credit - getting money that you pay back later. Sources for getting loans include:
* Banks - which are a major source of loans, but you must have a good credit rating to get one.
* Credit unions - which lend money only to its members.
* Life insurance policies - which might allow you to borrow on the cash value of your policy.
* Consumer finance companies - which lend money to people who have risky credit ratings. They usually lend small amounts of money at high interest rates.
* Pawnbrokers - who charge high interest rates. Loans can be easy to get but they cost a lot. You give the pawnbroker something of value, such as jewelry or electronic equipment, to hold as collateral. If you don't pay the money back in time, the pawnbroker can sell your goods. Most states regulate how high their interest rates can go.
* Loan Sharks - who are illegal lenders. They make their own rules and can charge whatever interest they want. They try to keep you in debt and are best avoided.
3. Sales Credit - is time given you to pay for goods you receive. You can get sales credit from:
* Store owners - who can approve a charge account for you, issue you a credit card, or give you an installment loan.
* Sales Finance Companies - which gives cash to the store owner for goods you buy from the store. Then you pay the sales finance company. Car dealers and furniture stores often use sales finance companies.
(Source: Using Credit by Sharon Bywater. New Readers Press)
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Credit is not free. You pay for the convenience of using someone else's money. When people borrow money they must pay back more money than they borrowed. The extra money paid back is called interest . Interest is usually shown as a percent (%). The percent of interest is called the interest rate. When the interest rate goes up the individual pays more money for borrowing money. The amount of interest a person pays varies. Three things affect how much one pays in interest:
1. Amount of money borrowed - For example a person may borrow $500 for a washer/dryer or $125,000 for a house This is called the principal .
2. Rate of interest - Interest rates fluctuate and can change daily. Interest rates are usually "locked in" at the time the loan is negotiated. Although mortgages and smaller loans are not directly tied to the prime rate 1 , they tend to follow its ups and downs.
3. Length of loan - The longer the loan, the more interest is paid. The longer the loan, the lower the monthly payment. For example, a 20-year mortgage results in monthly payments of $400 while a 30-year mortgage results in monthly payments of $300. The 30-year mortgage has lower monthly payments but that person will be paying interest longer.
INSTALLMENT LOANS
Many people buy large items such as TV's, refrigerators, and other household items by paying for them in monthly installments . Buying in installments means getting the item before it is fully paid for. These are the most widely-used kind of consumer loans. They may be obtained from commercial banks, finance companies, automobile dealers, furniture and appliance stores, mailorder houses, and similar sources. They are called "installment" loans because repayment is made in regular monthly installments, usually over a period of time.
The monthly payment includes interest, so that when the customer has finished making all the payments, (s)he has paid more than the cash price of the purchase.
AMORTIZATION TABLE
Read and discuss the "Amortization Table" handout making sure the students understand how to read the table. Ask them to complete questions 2, 3, and 4. Answers to question 2 are:
If Nellie received a loan for $1,000 at 12% interest for three years,
A.
How much will she pay each month? $33.22
B. How much will she pay total for the $1,000 loan?
$33.22 x 36 months = $1,195.92
C. How much interest will she pay?
$1195.92 - $1000 = $195.92
Distribute the questions the students wrote around the class. Ask the students to read the questions they were given, and the answers they calculated. Discuss the activity.
1 The prime rate is the lowest rate of interest commercial banks offer - its the rate charged for short-term loans to very wealthy customers with impeccable credit ratings. Mere home mortgages or small businesses loans will always be higher.
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CALCULATING THE COST OF INTEREST - PART 1
Distribute the " Calculating the Cost of Interest Worksheet - Part 1" and discuss the five things to know before making an installment purchase. Use this (or a similar) example as you discuss the steps.
Heide needs to buy four new tires for her car. She reads an advertisement in the newspaper for tires the size she needs for $39.95 per tire. When she goes to the tire store, the sales clerk informs her that with the addition of sales tax, federal excise tax, and mounting and balancing fees, the cost of the tires is actually $55 per tire. He tells her that she can purchase the tires by making a small down payment of only $20 and making 12 easy payments for only $20 a month for one year. What would be the cost of the interest for purchasing the tires using this installment plan?
1. What is the cash price? ($55 x 4 tires = $220)
2.
3.
4.
What is the down payment? $20
How much will each payment be? $20
What will be the total cost of the purchase, including down payment and all the monthly payments? ($20 down + $20 x 12 months = $260)
How much will interest add to the cost of the item? ($260 - $220 = $40) 5.
After discussing this example ask the students to work the problem on the worksheet.
A washing machine sells for $325 in cash. The sales person tells you that you can purchase the machine by making a down payment of only $30 and making easy monthly payments of only $30 a month for one year. What would be the cost of the interest for purchasing this machine?
Discuss each of the steps for finding the interest cost.
1.
2.
3.
Identify the cash price:
Identify the down payment:
($325)
($30)
Find the total cost of the monthly payments by multiplying the amount of each payment by the number of
4. payments: ($30 x 12 months = $360)
Find the total credit price by adding the down payment to the total of the monthly payments: ($30 + $360 = $390)
5. Find the cost of the interest by subtracting the cash price from the total credit price: ($390 - $325 = $65)
Ask the students to write their similar questions on the board (or overhead projector) for the class to answer using the five steps outlined above.
CALCULATING THE COST OF INTEREST - PART 2
2.
3.
4.
5.
Read and discuss the "Calculating the Cost of Interest - Part 2 Worksheet" . Answers to the practice problems are shown below.
1. You borrow $120 at 10% interest. You pay $12 _______ in interest per year.
6.
7.
You borrow $500 at 12% interest.
You borrow $690 at 6.9% interest.
You borrow $17,000 at 8.7% interest.
You borrow $17,000 at 9.3% interest.
You borrow $17,000 at 6.7% interest.
You pay
You borrow $940 at 17.5% interest. You pay
You pay
$60 _______ in interest per year.
$164.50
$47.61
You pay
You pay
You pay
___in interest per year.
____ in interest per year.
$1479
$1581
$1139
_____in interest per year.
_____in interest per year.
_____in interest per year.
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The last three figures show the importance of shopping around for the best interest rates, particularly for expensive items such as cars.
Principal X Rate of Interest X Length of Loan = Interest
__________________________________________________________________________
________
$1,200
$9,900
$9,900
$560
8.25%
12.00%
12.00%
7.75%
Four years
Five years
Two years
One year
$20,000
$4,500
$4,500
$4,500
$1200
22%
22%
9.63%
2.9%
8.25%
Three years
Five years
Six years
Three years
6 months
$2,970
$4,950
$396
$5,940
$2,376
$43.40
$11,556
$391.50
$49.50
Discuss their answers to the questions:
1.
2.
How does "time" affect the cost of an installment loan?
Why is it important to know the interest rate on an installment loan?
TAKING OUT A LOAN
To get a loan from a bank, credit union, or loan company you must first fill out an application form. The company making the loan wants to make sure they will get their money back, so the application tries to establish if you can make the payments, if you are stable, and if you can be trusted. Generally loan applications ask questions to find out:
* How much money you make.
*
*
*
*
*
*
How much you save.
If you own your own home.
What other debts you have.
If you have a steady job.
How long you have worked.
If you pay your bills on time.
The loan company then checks on the information you provided, such as your employment, your income, and your credit history.
A promissory note is one of the papers you may need to sign to get a loan. The note is your written promise to pay back the loan. Both the amount of time and interest rate are shown on the note. The note is legally binding.
WHAT CAN PREVENT YOU FROM GETTING A LOAN
Lenders prefer borrowers with stable jobs, stable family relationships, and a demonstrated ability to handle their financial obligations honestly and efficiently.
These things work against you:
1.
2.
3.
4.
5.
6.
No identification.
No permanent address.
Job hopping.
Being under 21. You may need to get a cosigner. (Discuss the risks of being a cosigner. Don't do it unless you can trust the person to pay. Otherwise, you'll have to pay off the loan.)
Having an outstanding lien on something you own.
Being past due on an account or having a history of being late.
MM p. 6
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TRUTH IN LENDING LAW
The 1969 Truth in Lending Law was passed to protect consumers who use credit. It specifies that the lender must put the following things in writing before any credit transaction is finalized:
* The finance charge in dollars.
*
*
*
*
The annual percentage rate (APR) of interest.
The number of payments you must make.
The exact amounts and due dates of your payments.
If there is a late-payment fee.
* What items are being held for collateral, if any.
This law applies to loans and credit purchases from almost any source - banks, savings and loans, automobile dealers, department stores, credit card issuers, credit unions, automobile dealers, finance companies, mortgage brokers, doctors, hospitals, plumbers and electricians, to name a few.
Always insist on your right to know the true interest rate before you sign any credit agreement.
LOAN FEES
At the time you get your loan money, you will need to pay a loan fee. You can add it to the amount of money you are borrowing, take it out of the amount you are borrowing, or you can pay cash or write a check for it. Additionally, if your payment is late, you will probably have to pay an extra amount called a late fee.
Self-paced Activities
Activity 1: Ask these students to write a short summary about credit, loans, and interest from today's class.
Activity 2:
Activity 3:
Ask these students to write advice about credit to a young person.
Ask these students to describe in writing what it means to be "credit-wise".
LANGUAGE EXPERIENCE
The cheapest way to buy anything is to buy it for cash. You always save money when you do this because there are no extra interest charges added to your purchase price.
Despite interest costs, using credit can be a good idea. Divide the class into small groups and ask each group to write a list of "right" reasons for borrowing and a list of "wrong" reasons for borrowing. Ask each group to report back to the class as you or a volunteer record the suggestions on the board.
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"Right " reasons can include:
1. Establishing a credit history. Without credit history, you may not be able to get a loan for major purchases such as a car or home.
2.
3.
Taking advantage of sales.
Safety and convenience. You don't have to carry large amounts of cash that can be lost or stolen. Many stores accept major credit cards, in fact more than accept personal checks.
Emergencies. 4.
5.
6
Using the money for college or job training expenses.
You can use the goods while you pay for them.
"Wrong" reasons can include:
1. Overspending. Becoming "overextended" and not being able to make monthly payments. Living beyond your income so that you have to borrow to meet your
2.
3. current debts.
Buying impulsively.
Borrowing to buy something that will be used up or worn out long before you have
3.
4.
5.
6 made the final payment.
Being offered "easy credit".
Gambling on having more money later (when you get a raise, win the lottery, or your rich uncle dies and leaves everything to you.)
Thinking credit is free.
Tying up your future income - the money you haven't even made yet.
Self-Pace Activities:
Activity 1. Ask the students to discuss in writing if they think it is an exaggeration to say that buying on credit has become an American way of life.
Activity 2: Ask the students to discuss in writing whether or not they want to teach their children to "Buy now, pay later"?
Activity 3: A Mrs. America contestant once stated "We find that the best way to obtain major items is to maintain planned debt, purchasing one major item at a time for a cost which will fit into our budget and including interest as part of that cost.
" Ask the students to restate the message using their own words.
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READING IN CONTEXT
Read and discuss "To Live & Thrive in L.A." by Kathy Seal.
Comprehension Questions:
1. What is unique about the loans described in this article?
2.
3.
4.
5.
What is meant by the term "traditional credit mechanisms"?
What have you learned from this article?
Is there any way you can use this information?
How much interest was paid on the first loan made to the solidarity member?
6.
7.
8.
Can you think of other groups who have used the word "solidarity" in their name? What does the word mean?
What advice do you think Marta Gallegos would give you?
What advice would you give her?
PERSONAL DICTIONARY
HOME ASSIGNMENT
Ask the students to get a definition from each of their family members on what it means to be
"credit-wise".
ADDITIONAL ACTIVITIES
1. Discuss "easy credit" with the students. Easy credit is often offered to a customer without the salesperson asking a lot of questions. The payment terms sound easy because the monthly payments are low and easy to make. But the total cost for easy credit is much higher than it is for other kinds of credit. Write on the board sample statements used by salespeople who offer "easy credit", such as:
"Low down payment and easy terms."
"I'll give you a special deal."
"You have to act fast; this deal is only good for today."
"It's a one time offer."
"You won't get a better deal but you have to decide now."
"You look like someone who pays her bills."
"For just pennies a day..."
Ask the students to write dialogues using the "easy credit" terms they suggested.
2. For more practice in calculating the cost of interest, introduce the following formula and its application. Most loans are not paid off in lump sum, but monthly payments are made over the entire length of the loan. When a person makes a payment, the principal, or the amount still owed, becomes less. The following formula can be used to calculate the interest cost on an installment plan:
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Interest = Principal

2 X Rate X Time ; or
I = (P

2) X R X T
Step 1.
Step 2.
Step 3.
Polly charged $400 on her charge card. She made four monthly payments of $100 to pay it off. The interest rate on her charge card is 18%. How much interest did she pay?
Find P

2
Write the interest rate as a decimal.
Write the time of the loan in years.
$400

2 = $200
18% = .18
4 months = 4 months year

12 months = .333
Step 4. Work the formula: I = P

2 X R X T
I = $200 X .18 X .333
I = $11.99
3. If your students are working on algebraic equations, the five steps summarized in the handout Calculating the Cost of Interest - Part 1 can be written into formulas and played with:
STEP 1: The cash price is ____________________________.
STEP 2.
STEP 3.
A
The down payment is ________________________.
B
Total cost of monthly payments is:
______________________ X $__________________ = $______________
(# of payments) (amount of payments) (total cost of payments)
C X D = E
STEP 4. Total credit price is:
$______________________ + $________________ = $________________
(down payment) (total cost of payments) (total credit price)
B + E = F
STEP 5. Interest cost is:
$____________________ - $___________________ = $________________
(total credit price) (cash price)
F - A
(total interest cost)
= G
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4.
5.
Read this Oral Drill aloud as the students write their calculations and answers on a piece of paper. Then, ask different students to come to the board to write the calculations needed for each step.
* Start with the number of years in a century.
*
*
*
Add the number of blind mice.
Subtract the number of seconds in a minute.
Multiply by James Bond's number.
*
*
*
*
*
*
Add the number of players on a football team.
Subtract the number of singers in a quartet.
Subtract the number of centimeters in a meter.
Add the anniversary celebrated with gold.
Add the numbers of days in a leap year.
Divide by 1/2 dozen.
* The answer is __(104)___________________.
Ask students to make up their own drills.
In Mark Twain's short story "The £1,000,000 Bank-Note" a young American man gets lost at sea, is picked up by a small brig, and arrives in London in ragged and shabby clothes with only one dollar in his pocket. While standing on a street corner, he is called into a sumptuous house where a couple of elderly gentlemen hand him an envelope containing one bill of legal tender for an enormous sum of money, comparable to a $5,000,000 dollar bill. The envelop also contained a note that stated:
"You are an intelligent and honest man, as one may see by your face. We conceive you to be poor and a stranger. Enclosed you will find a sum of money.
It is lent to you for thirty days, without interest. Report at this house at the end of that time. I have a bet on you. If I win it you shall have any situation that is in my gift - any, that is, that you shall be able to prove yourself familiar with and competent to fill."
Ask the students to write what they would do in these circumstances. If the students are interested, get a copy of the story to read in class.
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Project FORWARD Curricula / Texas Education Agency & El Paso Community College

Amortization is the reduction of a debt through fixed monthly payments which include reduction of principal, payments of interest, and other loan costs. The calculations are printed in table form and are available from most banks and savings and loan associations.
12 Months 24 Months 36 Months
Annual
Percentage
Rates
1.
5%
6%
7%
8%
9%
10%
11%
12%
14%
16%
18%
20%
22%
24%
85.61
86.07
86.53
86.99
87.45
87.92
88.39
88.85
89.79
90.74
91.68
92.64
93.60
94.56
43.87
44.32
44.77
45.25
45.68
46.15
46.61
47.08
48.02
48.97
49.93
50.90
51.88
52.88
Nellie received a loan for $1,000 at 10% interest for one year.
A. How much will she pay each month?
$88.85
29.97
30.42
30.88
31.34
31.80
32.27
32.74
33.22
34.18
35.16
36.16
37.17
38.20
39.25
B. How much will she pay total for the $1,000 loan?
$88.85 x 12 = $1,066.20
C. How much interest will she pay?
$1066.20 - $1000 = $66.20
2. If Nellie received a loan for $1,000 at 12% interest for three years,
A. How much will she pay each month?
B.
C.
How much will she pay total for the $1,000 loan?
How much interest will she pay?
On the back of this page, write three similar questions for your classmates to answer. 3.
4. Explain in your own words why it is to the lender's advantage to make the loan for 3 years instead of 1 year.
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There are five things to know before making an installment purchase:
1. What is the cash price?
2. What is the down payment?
3. How much will each payment be?
4. What will be the total cost of the purchase, including down payment and all the monthly payments?
5. How much will interest add to the cost of the item?
EXAMPLE: A washing machine sells for $325 in cash. The sales person tells you that you can purchase the machine by making a down payment of only $30 and making easy monthly payments of only $30 a month for one year.
What would be the cost of the interest for purchasing this machine?
Find the answer by using five steps outlined above.
1. What is the cash price?
2. What is the down payment?
3. How much will each payment be?
4. What will be the total cost of the purchase, including down payment and all the monthly payments?
5. How much will interest add to the cost of the item?
Write a similar question to write on the board for your classmates to answer. Be sure you know the correct answers.
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CALCULATING THE COST OF INTEREST - PART 2
Interest rate is the percentage rate that the seller uses to determine the customer's interest cost. Interest is usually written as a percent. Percent means per hundred .
10% is 10 per hundred. This means you pay $10 for every $100 you borrow. 8% interest would cost $8 for every $100 you borrow.
To figure how much simple interest you will pay:
1. First, change the percent to a decimal . To do this, move the decimal point two places to the left:
EXAMPLES: 10% = .10 8% = .08 5.75% = .0575
2. Now, figure out the dollar amount of the interest. To do this, multiply the amount borrowed by the decimal.
EXAMPLES: $100
X .10
$350 $200
X .08 X .0575
_____________ _________________ _______________
$10.00 $28.00 $11.40
1. You borrow $120 at 10% interest. You pay $__12_______in interest per year.
2. You borrow $500 at 12% interest. You pay $___________in interest per year.
3. You borrow $940 at 17.5% interest. You pay $___________in interest per year.
4. You borrow $690 at 6.9% interest. You pay $___________in interest per year.
5. You borrow $17,000 at 8.7% interest. You pay $___________in interest per year.
6. You borrow $17,000 at 9.3% interest. You pay $___________in interest per year.
7. You borrow $17,000 at 6.7% interest. You pay $___________in interest per year.
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CALCULATING THE COST OF INTEREST - PART 2 (cont.)
Most loans are not paid off in one year. Loans are often made for longer periods of time, from 18 months to 30 years. A well-known and much-used formula for calculating interest on loans that are made for more than 12 months is:
This formula works when a person has borrowed a certain amount of money and is going to pay it back in one lump sum at the end of the time .
Principal X Rate of Interest X Length of Loan = Interest
___________________________________________________________________
_________
$1,200 8.25% Four years $396
EX: ($1200 X .0825 X 4 yrs. = $396)
$9,900
$9,900
$560
$20,000
12.00%
12.00%
7.75%
9.63%
Five years
Two years
One year
Six years
$
$
$
$
$4,500
$4,500
$4,500
$1200 8.25
22%
22%
2.9%
Three years
Five years
Three years
6 months $
$
$
$
1. How does "time" affect the cost of an installment loan?
2. Why is it important to know the interest rate on an installment loan?
MM p. 15
Project FORWARD Curricula / Texas Education Agency & El Paso Community College

How a special micro-loan program can help low-income women break into some very successful circles.
Marta Gallego's father always knew his second-oldest daughter would succeed. He trusted
Marta's advise on business matters, confiding in her so often his wife became jealous. To
Marta, he made one feeling clear: "He never wanted to work for others, and he wanted the whole family to have our own business," she remembers.
So in 1980, Marta Gallegos, then twenty-three, left her parents and twelve brothers and sisters in
Michoacan state and made her way to Los Angeles. By day she sewed blouses and shirts for five and ten cents each in a downtown factory; at night she studied cosmetology. On afternoons after she got off from her factory job and on weekends, she worked in a beauty shop. "My goal," she says, "was to make a career. And I wanted to send money home, so my brothers and sisters could study."
Once she had a cosmetology license under her belt, Gallegos quit her factory job and began working in beauty salons. Little by little, she sent money back to Mexico, eventually bringing three of her sisters to Los Angeles.
But Marta Gallegos wasn't earning enough to help support her three sisters and still send money to the rest of the family in Michoacan - especially since she was now a single mother with two children. She wanted to open her own beauty salon. For that, Gallegos needed a loan.
"I heard the government loaned money to single mothers," remembers Gallegos. "I kept asking people and nobody knew how to get it." She combed newspaper without success. She applied for a $2,000 loan at her neighborhood bank, but found that it didn't make loans for less than
$25,000 to businesses. Undaunted, Gallegos called the Small Business Administration, only to learn she needed collateral - a home or a business, they said - to get a loan.
Finally, Gallegos discovered the Coalition for Women's Economic Development, a Los Angeles organization that has helped low-income women start or expand micro-businesses in Los
Angeles since 1988. After completing training in business skills, the coalition's clients qualify for
"micro-loans" of $2,000 or less from the organization's revolving loan fund.
"There are a lot of women who don't have the education or proper papers or English language skills to get a good job," says coalition founder and board president Jan Breidenbach. "Yet they're smart and work hard and want to earn a decent living for themselves and their families.
So I wanted to start a program to provide them support."
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Project FORWARD Curricula / Texas Education Agency & El Paso Community College

Gallegos contacted the Coalition for Women's Economic Development in the fall of 1991, after reading an article in the Catholic Church weekly paper about a woman who had borrowed
$1,500 to buy a pushcart to sell seviche - fish cocktail - on Sundays at the plaza in downtown
L.A. Within a few days, Gallegos had attended a coalition orientation, and a month later, she had met four like-minded women at the group's meetings. They decided to form a peer lending or "solidarity" circle so each could borrow money from the coalition's loan fund. Instead of supplying collateral, they would mutually guarantee each other's loans.
Peer pressure and mutual responsibility replaced traditional credit mechanisms in the solidarity circles. The circle members often helped solve each other's problems. "You want to maintain your credit to keep the circle together so you can come back for loans in the future," explained the program manager. For example, one woman might assume another's stagnant merchandise and sell it for her; or the members might help each other find customers.
Marta Gallego's circle included two women who sewed and sold wedding apparel and children's sportswear. Another member retailed clothing and another owned a small variety store. The five met weekly to share the details of their businesses. They worked on cash-flow forms to generate a business plan for each enterprise. The women critiqued each other's plans, traded leads and know-how, and soon began calling each other between meetings.
Soon after their first meeting, the women opened a savings account. Each contributed $5 dues at each session, and later five percent of each loan. This created a fund from which they could borrow for family or business emergencies, if the others approved.
After eight meetings, the new solidarity circle was certified to receive loans. The first borrower received $2,000, payable over 18 months at 15% interest, from the coalition's loan fund. Then the collective responsibility began to operate. If any circle member missed two successive loan payments, the other members had three choices: 1.) cover her payments; 2.) assume her defaulted loan and replace her with another businesswoman; or 3.) dissolve the circle.
Once payments had been made on the circle's first loan, another member borrowed $2,000. "I was very excited," she remembers. "I realized finally I was at the beginning of achieving what I wanted."
Eighty-seven businesses have been launched with help from the coalition's loan fund. The woman who borrowed money to buy the pushcart now runs a drugstore lunch counter with her husband. They are earning enough to keep their daughter in college. Another client runs an
African-vegetarian catering service and supports herself and her four children. And Marta
Gallegos and three of her sisters own their own beauty salon. They support themselves and their children and send $100 a month to the family remaining in Michoacan. A ceramic wall plaque at her work station says " I slept and dreamed that life was happiness. I awoke and saw that life was service. I served, and I discovered that in service, one finds happiness.
SOURCE: Adapted from "To Live & Thrive in L.A." by Kathy Seal. Southwest Airlines' Spirit
Magazine, March 1993.
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Project FORWARD Curricula / Texas Education Agency & El Paso Community College