Personal Finance Curriculum
2008
Acknowledgements
The Personal Finance Curriculum Development Group (PFCG)
would gratefully like to acknowledge the following people in their
contributions to the creation of this document.
Kam Bahia
Gord Burt
Scott Kuntz
Andrew Leonard
Stephanie Reinhart
Andrea Robertson
Lindsay Seidler
Dan Benesh
Josh LeBlanc
Bettina Welsh
Nicole Markewich
Megan Charlton
Tessa Jordan
Jeannie Thompson
Mike Knight
PFCG would also like to thank all the other teachers who took the
time to aid us in finding what personal financial information is most
important for students to know. Most of you will know who you are.
Thank you to Dr. Cyril Kesten of the University of Regina for being
a driving force in the creating, compilation, and, hopefully, the
initiation of this curriculum document.
i
Table of Contents
Acknowledgements
i
Philosophy and Rationale
2
Aim, Goals, and Foundational Objectives
2
Course Component and Considerations
3
Core Modules
4-201
Module 1 – Economics of Personal Finance
4-10
Module 2 – Decision Making and Money Basics
11-28
Module 3 – Banking Services
29-63
Module 4 – Income and Taxation
64-69
Module 5 – Introduction to Budgeting
71-103
Module 6 – Savings and Investing
105-121
Module 7 – Credit and Credit Cards
123-163
Module 8 – Consumer Protection and Online Activity
165-169
Module 9 – Renting, Leasing, Buying, and Insuring
171-201
Philosophy and Rationale
With the increasing debt loads of students and the rising number of
personal bankruptcies, the need for financial management skills is
greater than ever. This curriculum was created in order to address this
growing concern, and the course is designed to provide students with a
broad base of knowledge and skills related to personal financial
management.
The areas covered in the course are relevant to high school students and
cover issues and topics they will encounter in the future – whether they
decide to pursue post-secondary education or enter the workforce. This
curriculum seeks to give students the knowledge and skills they need to
be financially literate and operate successfully in the business world, and
their personal lives.
Aim, Goals, and Foundational Objectives
Aim: The aim of Personal Finance is to provide students at the
Secondary Level with basic skills in financial literacy.
Goals: Awareness: To develop an awareness and understanding of
personal finance and personal economic decision-making.
Business Environment: To respond to business decisions as informed
consumers.
Personal-Use Skills: To develop work habits, attitudes, problems solving
skills and independent thinking skills that will enhance personal and
work experiences.
Self-Image and Business Attitudes: To develop a positive self-image and
essential business attitudes necessary as a consumer.
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Foundational Objective
To help prepare students for personal financial decision making.
Course Components and Considerations
This Personal Finance course is designed to help students make
informed decisions in order to protect their scarce resources. This
curriculum outlines important financial situations that students will most
likely be in. The modules were placed in a specific sequence in order
for the course to flow smoothly. However, the modules may be
rearranged as desired to suit the student’s needs. Although all modules
have been designated as core modules the teacher may focus on
particular modules and delete others. The most critical requirements
upon completion of this course are the ability to make informed financial
decisions and the ability to protect finances for financial freedom.
It is important for students to develop an awareness of the business
environment in which they must interact. Students must be equipped
with knowledge about options and vulnerabilities when making major
purchases. It is important that students realize that they are in control of
their finances and they can gain knowledge to make the best financial
decisions. It also important that students understand that they can protect
themselves from fraudulent and misleading information.
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Module 1: Economics of Personal Finance (Core)
Suggested Time: 5 – 10 hours
Level: Introductory
Prerequisite: None.
Module Overview: This module will introduce economic topics that can be referred upon
throughout the rest of the course.
Foundational Objectives:

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

To recognize the importance of scarcity, and how it underlies our entire world.
To recognize the difference between direct costs and opportunity costs of any decision made
in everyday living.
To be able to identify the positives and negatives of Canada’s free market system.
To be able to identify and define what a market is, and how supply and demand will affect
that market in various ways.
To be able to define and give examples of price elasticity.
Common Essential Learnings Foundational Objectives:

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To engrain the key concepts of Canada’s economy into the students’ lives. (PSVS)
To support the development of a positive attitude to life-long learning, as it pertains to the
changing economic structure of our society. (IL)
To apply a knowledge of numbers in determining the monetary differences between the
direct costs and opportunity costs of any decision. (NUM)
To enable students to understand and use proper vocabulary and expressions are key terms in
the major topics of economics that will relate later to personal finance. (COM)
To support students in being able to think critically, and in making choices that are
economically sound. (CCT)
Learning Objective
Notes
Why is it difficult or easy at various times to find a job? Why has
Canadian money been worth more or less than United States
money in our history? Should governments legislate pollution
1.1 To define and understand
emissions? Why can professional athletes make more money than
what economics is and why it is
the Prime Minister of Canada? Why are men paid more money in
important to study it. (COM,
wages than women? Should medical care be provided free of
PSVS)
charge to all residents of Canada?
The answer to all of these questions fall within the subject matter
of economics. An adequate understanding of economic issues is
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becoming more and more essential to everyday living.
The dictionary definition of economics is “the science that deals
with the production, distribution, and use of goods, money,
natural resources, and services”. This definition does not provide
a real understanding of the subject. One important element of
economics is missing from the definition – scarcity. Without
scarcity, there would be no need to study economics.
The website listed as the first resource in this section claims three
reasons to study economics: economics is interesting, economics
is useful, economics is a good basis for a career.
The second website listed some statements as “We all make
economic decisions every day of our lives, and economics can
help to improve our decision making. Economics offers a way of
thinking about the world that enables us to make the best of what
we have,” and “Economics provides you with the knowledge and
insight necessary to understand the impact of developments in
business, society and the world economy. It enables you to
understand the decisions of households, firms and governments
based on human behaviour, beliefs, structure, constraints and
need.”
Scarcity – in economics, the term scarcity refers to anything that
is available only in a limited supply. Almost everything in our
world is scarce. On an individual basis, time and money are our
most scarce resources. If there is a limited amount of a resource or
commodity, a decision must be made about how to use that
commodity.
1.2 To define, describe, and
demonstrate how scarcity is the
basics of economics and the
entire world.
For example, there are only 24 hours in a day. However, a certain
amount of time has to be set aside for sleeping, eating, studying,
working, recreation, etc… A decision has to be made about how
best to use the time available. Also, not many people have
unlimited monetary resources, so we must decide how to allocate
it over various purchases.
Resources are used to produce goods and services. These
resources that belong to a country can be classified into three
groups: land, labour, and capital.
Land – Includes more than just square kilometres; it includes all
water, animals, vegetation, minerals, everything!
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Labour – Refers to the population of a country that can produce
work, or will be able to produce work in the future. Labour also
refers to the variety of skills, level of education, and technical
training of the population.
Capital – Refers to man-made items that are used to produce
goods and services. Despite the seemingly large amount of these
capital goods, (computers, factories, tools, vehicles, power plants,
airports, etc…), any country will still have a limited amount of
these, and decisions have to be made to determine how to allocate
their usage.
Direct costs are simply the price or cost incurred by a buyer to
obtain the product. If you buy a slurpee, the direct cost of that
item is a) the costs incurred in driving to get it, b) the cost of the
slurpee, and c) the costs incurred in driving home. However, there
could be another cost involved, too.
Unlike most costs discussed in economics, an opportunity cost is
not always a number. The opportunity cost of any action is simply
the next best alternative to that action - or put more simply, "What
you would have done if you didn't make the choice that you did".
1.3 To identify direct costs and
opportunity costs, and identify
them in daily decisions in
everyday life.
I have a number of alternatives of how to spend my Friday night:
I can go to the movies; I can stay home and watch the baseball
game on TV, or go out for coffee with friends. If I choose to go to
the movies, my opportunity cost of that action is what I would
have chose if I had not gone to the movies - either watching the
baseball game or going out for coffee with friends.
Note that an opportunity cost only considers the next best
alternative to an action, not the entire set of alternatives.
Opportunity costs are usually easier to understand if you have an
example: if a shipwrecked sailor on a desert island is capable of
catching 10 fish or harvesting 5 coconuts in one day, then the
opportunity cost of producing one coconut is two fish (10 fish / 5
coconuts). That is a simple example, but much more detailed ones
are available online.
A free market is a market in which prices of goods and services
are arranged completely by the mutual consent of sellers and
buyers. By definition, in a free market environment buyers and
sellers do not coerce or mislead each other nor are they coerced
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by a third party. (Wikipedia)
1.4 To understand the free
market system, and factors that
influence it.
The free market revolves around a topic called the price system.
This simply means that businesses will try to sell their products
for the highest possible profit. This may seem bad at first,
however, when competition arises, these prices often naturally fall
to a level that is marginally profitable for these companies.
This permits efficiency in price changes. Every consumer is
giving their input without knowing it, by purchasing sale items, or
not purchasing items that are overpriced. This also permits
consumers to transfer information to sellers. If competition
ensues, businesses are more likely to research and adopt the most
efficient and cost effective ways of creating their good.
The disadvantage of the market system is that consumers may not
always make the well-informed choices that they should.
Advertising helps bridge this gap, but this can be faulty or
misleading, too.
Another disadvantage is when competition does not exist.
Businesses can hold natural monopolies on a product, and
especially if their product is a required one, they can reach huge
profit margins for a short time.
Hopefully, in this situation, the government would step in. When
a company has a huge profit margin for even a short period of
time, they will typically be “undersold” by other companies
willing to sell a similar product for a cheaper price, thus forcing
the other companies to compete with their prices as well.
1.5 To be able to explain
supply and demand and the
factors changing them.
The essence of supply and demand is simply when a product is
highly desired in a market (in high demand), naturally producers
and sellers of that product can charge higher prices for it, and
likely make more money, because that product will be scarce.
Conversely, when a product is not highly desired in a market (in
low demand), producers will often have to lower their price just to
clear the good out, or turn any profit at all.
Similarly, this works in the reverse direction. If a product is very
scarce, regardless of how many people actually desire it, it can
often be sold at a high price because it is very difficult to find
(and implicitly difficult to product or manufacture).
If a product is abundant (and implicitly easy to produce or
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manufacture), it will often be a very competitive market where
producers scarcely make a profit, but hope to sell a large quantity
of their item.
Many things will affect supply and the marketplace accordingly.
Price, production costs, technological change, government
regulations, psychology of owner, and weather conditions.
Factors affecting demand are: price, change in price of substitute
(or comparable) products, change in the price of complementary
(items that are needed to use the product, ie. gas for a car),
incomes, tastes and preferences (of individual or society),
expectations of future prices (sales, dollar fluctuations, market
fluctuations), numbers and characteristics of buyers, expectations
of future incomes, and taxes on income.
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Resources
http://en.wikipedia.org/wiki/Free_market
Working with Economics, 6th ed. H. Richard Hird
http://www.netmba.com/econ/micro/cost/opportunity/
http://economics.about.com/od/opportunitycosts/f/opportunitycost.htm
http://www.palgrave.com/skills4study/subjectareas/economics/why.asp
http://whystudyeconomics.ac.uk/faq/economics.htm
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This page is intentionally left blank for notes.
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Module 2: Decision Making and Money Basics (Core)
Suggested Time: 5-10 hours
Level: Introductory
Prerequisite: None
Module Overview: This module will be used as an introductory Module in the Personal
Finance Curriculum in which students will be introduced to foundational knowledge. This
knowledge will be used as a platform and is required in order for students to fully understand
concepts regarding Personal Financial concepts and the decisions that are incorporated into
managing Personal Financial matters.
Every day a student encounters situations where decisions must be made. These decisions may
be simple or more complex, such as “should I buy a new car or a used car?” That is why
decision making is an imperative component when dealing with personal financial matters. This
module will provide students with an opportunity to learn more about the decision making
process, and factors, both internal/external, that affect the decision making process. Students
will also be able to explore common decision making strategies and economic influences on
decision making. Risks associated with decision making will be discussed as well as basic
economic terms such as opportunity cost, distinguishing between needs and wants, cost benefit
analysis, and the 2 different kinds of money, tangible and intangible. Essentially, the goal of this
module is to provide an understanding and an awareness of the factors that can influence
decisions, introduce basic decision-making methodologies, and provide structured practice in
analyzing a problem, identifying options, and making a decision.
Module Objectives:

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
To demonstrate an understanding of the decision making process that must be used when
making decisions regarding an individuals resources (money), and then display,
implement, and apply those strategies.
To demonstrate an understanding of the different components of the decision making
process and the factors that influence a decision
To help students understand the basic economic terms and functions that influence
decision making in Personal Finance
To help students become aware of the risks associated with decision making regarding
their resources
Common Essential Learning Foundational Objectives:



To allow students to use various strategies to create awareness of their thought process
(CCT)
To strengthen understanding within the Personal Finance curriculum by applying
knowledge of numbers and their interrelationships (N)
To take on more responsibility for their learning as their competence develops (IL)
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Learning Objective
Notes
To begin this module, a fun, easy quiz should be taken as a pretest. This quiz will show both, students and teachers, how much
knowledge pertaining to Personal Finance each student holds.
2.1 To evaluate how much
students already know about
money, saving, and goal setting
This quiz will cover topics such as debit cards, interest rates,
school loans, etc. The quiz can be taken at
http://www.yourmoney.cba.ca/tsam/en/tsam/know_yourself/popq
uiz/
Students should be well aware of the decision making process in
order to make mature decisions in terms of personal financial
matters.
Teachers should introduce and explain the decision making
process and explain how it is relevant when making decisions
concerning student’s resources. The Decision Making Process
consists of the following steps:
2.2 To identify some of the
decisions students are trying to
make and apply the decision
making process
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Identify the problem
Gather information and list the possible alternatives
Consider consequences of each alternative
Select the best course of action
Evaluate the results
In order for students to be able to understand the process, teachers
can ask students to identify three decisions they are trying to
make. Examples may include:

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
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Going to a party
Moving away from home
Buying a car
Buying a home
Finding a new job
Students should attempt to apply the decision making process
(Appendix A) and work through one of these decisions.
2.3 To identify and role play
various decision making
strategies
Students should be familiar with the various decision making
strategies that can be used and applied when making decisions.
Teachers should facilitate a brainstorming sessions in which
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students must list as many strategies as possible. Teachers can
then give students a matching activity in which they must link the
decision making strategy to the definition (Appendix B).
In order to practice decision making strategies, students may role
play using important decisions identified in Learning Objective
2.2.
Teacher should initiate a class discussion and ask students to
determine how well they think their strategies worked.
Teacher should explain to students the purpose of exploring
various decision making strategies is important. When students
are going to make their own decision regarding their resources,
these strategies will be advantageous. The following scenario can
be used as an example:
spontaneity
Choosing the first option that comes to mind; giving little or no
consideration to the consequences of the choice. This may be
used by some students when trying to find a new car. When a
student first gets their license, all they are really concerned about
it getting that car, whether used or new. The excitement
overlooks the process of exploring different options and finding
the most REASONABLE choice
2.4 To analyze a decision and
identify the steps being used in
the decision making process
and the decision making
strategies being used
2.5 To implement the decision
making process by setting both
short term and long term goals
Students should become very familiar with the steps in the
decision making process. Everyday, they will be making decision
regarding their resources so they must be able to implement the
decision making process to real life situations.
Ask students to observe their parents, older siblings, or guardian’s
decisions for one day. This can involve going to the grocery
store, bank, running basic errands, and/or at work. Have students
identify the decision making strategies being used and also have
students document the decision making process using the sheet
provided (Appendix A).
It would be a good idea for students to get their ideas on paper in
order to apply, understand, and implement the decision making
process.
The following web site helps students organize and set both short
term and long term goals.
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http://www.yourmoney.cba.ca/tsam/en/tsam/know_yourself/settin
g_goals/
Once students have completed this activity, they can use the steps
in the decision making process to evaluate their goals.
2.6 To determine and identify
different factors that might
influence a student’s choice of
strategies
Each time a student is going to make a decision, there will be
internal or external factors that will influence their decision.
Factors may include:
 Values: what is important to you or your family? E.g.:
Getting a degree or getting a job straight from high
school
 Peers: the people you know influence your decision.
E.g.: Your friends have been working all summer and
want to go on a trip before the school year starts. Can
you afford to? Are you financially stable?
 Habits: you are accustomed to doing it this way. E.g.:
Go to school all day, and then have to go to work,
come home and do homework all night.
Teacher may also want to distinguish between internal and
external factors. For example, internal factors may include
individual’s values, whereas external factors would include the
influence of peers.
See Appendix C for a complete list of factors.
Students must be aware that economic conditions influence
decisions regarding student’s limited resources. The teacher must
emphasize that all decisions are centered on economic terms and
actions.
2.7 To investigate the different
economic influences on
decision making
Using the internet, Students can possible economic conditions that
they feel might be influential when making decisions regarding
their resources. (Appendix D)
Research may include the following:

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

Higher prices result in more expensive goods and
services and lower buying power of the dollar
Increases in consumer spending for certain goods and
services can result in additional jobs in those industries
Lower interest rate encourage consumer spending
High unemployment results in less consumer spending
A growing GDP usually indicates expanded economic
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growth in a country
While students are researching, they can fill in the economic
conditions influence sheet (Appendix E) in which they fill in
o The economic condition
o Trend
o Possible influences that these conditions may
have on their personal financial decisions
For example:
1. Economic condition= low interest rate
2. Trend= encourages consumer spending
3. This will influence my personal financial decision because I
will be willing to spend more money on products and services
Resource:
http://www.practicalmoneyskills.ca/moneyskills/students/pdfs/s_l
esson01_makingdec.pdf
Students should be able to distinguish between a NEED and a
WANT. They must be able to recognize that all their unlimited
wants and needs cannot be satisfied by their limited resources,
such as money.
An example activity: Students can be given a scenario in which
they are given a certain amount of money and they must choose
products or services from a list of things, or they could go back
through the previous day and list all the products or services they
2.8 To analyze and compare the encountered. Examples may include, buying lunch at school,
difference between needs and
buying a new pair of shoes, or getting a haircut. Either way,
wants, and define both
students must have a certain amount of money left over to give
opportunity cost and cost
back to the teacher. (Sample assignment: Appendix F)
benefit analysis
Students must also be able to define opportunity cost.
Opportunity cost refers to what a person gives up when a decision
is made. The cost, or trade off, may involve one or more of your
resources (time, money, effort, etc.)
Students could now go back through the list of products and
services given or ones they used/consumed in the previous day
and look at which activities/products they chose. They can now
determine and list what the opportunity cost was associated with
their decisions. For example, if a student chose to spend their
money on a new pair of shoes, the opportunity cost was not
getting a needed hair cut, or not eating lunch that day.
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Students must also be able to understand cost-benefit, and apply
it. Cost benefit analysis is an important technique for appraisal.
It will help students determine whether a planned action will turn
out good or bad. Students will be faced with decisions everyday;
they must be able to recognize the costs and benefits pertaining to
every decision.
Students can be given a list of scenarios, and for each, the must
determine both the costs and benefits and determine whether the
costs will overshadow the benefits or vies-versa.
Example:
 Student wants to play for the high school soccer
team
 Costs: not as much free time to do other things, cost of
equipment, sacrifice of weekends for tournaments
 Benefits: become a better athlete, keep fit, making new
friends, teamwork
Assignment: Cost-Benefit Analysis (Appendix G)
The time value of money can be used to measure financial
opportunity costs using interest calculations.
2.9 To investigate the time
value of money and how it can
affect students’ decision
making process
For example: spending $1,000 from a savings account that pays
4 percent interest a year means an opportunity cost of $40in lost
interest.
Calculation: $1,000 x .04 (4 percent) x 1 year = $40
Over 10 years, that $40 a year (saved at 4 percent) would
have a value of over $480 when taking into account compound
interest.
Students should be aware that interest rates can be used for many
personal financial matters. They can range from credit card
balances to home ownership.
Teachers do not have to go in-depth with this learning objective
since it will be covered in more depth in later Modules. The main
goal here is for students to realize that interest rates do exist and
will influence and impact student’s financial decisions.
2.10 To explore the risks
associated with decision
making
Risks are associated with every decision regarding an individual’s
resources. More applicable, are the risks associated to personal
and financial decision making.
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A jigsaw activity may be used in which each student in a home
group must become an expert on one of the following risks:
 Income risk
 Inflation risk
 Interest rate risk
 Liquidity risk
 Personal risk
Once each student has had time to research their required area,
they will then go back to their home group and teach their peers
about their risk. At the end of this activity, each student will have
had a chance to teach their peers, and be taught by their peers. (A
full description of each risk: Appendix H)
Resource:
http://www.practicalmoneyskills.ca/moneyskills/students/pdfs/s_l
esson01_makingdec.pdf
Now that students have gained knowledge pertaining to decision
making, they have completed the first initial stage that is required
in order to make mature and productive decisions regarding their
resources.
Remind students that the decision making process is vital in terms
of Personal Finance because students will be making decisions
everyday concerning their unlimited resources. They must have
pre-requisite knowledge that will assist these students in making
2.11 To identify and distinguish
rational decisions and evaluating all alternatives and outcomes.
between the two different kinds
of money
The next step is to gain direct knowledge pertaining to Personal
Finance by becoming experts on money and all components’
associated with money (which the following modules will cover).
Students should be aware of the different kinds of money. They
should know that money can be tangible and intangible. An
example of tangible money would be a coin or a bill, whereas an
example of intangible money would be a bank deposit slip.
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Appendix A: The Decision Making Process
Name: __________________
Date:___________________
THE DECISION MAKING PROCESS
Identify the problem
→
Gather information and list possible alternatives
→
→
→
→
Consider the consequences of each alternative
→
→
→
→
Select the best course of action
→
Evaluate the results
→
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Appendix B: Decision Making Strategies (Can be used as a matching activity)
Agonizing: Accumulating so much information that analyzing the options becomes
overwhelming.
Avoidance: Choosing the option that is most likely to avoid the worst possible result.
Compliance: Going along with family, school, work, or peer expectations.
Desire: Choosing the option that might achieve the best result, regardless of the risk involved.
Destiny: Letting outside forces decide; leaving the decision up to fate.
Inspiration: Doing something because “it feels right” or because “it just seems like the right
thing to do.”
Intention: Choosing an option that will be both intellectually and emotionally satisfying.
Procrastination: Postponing thought and action until options are limited.
Security: Choosing the option that will bring some success, offend the fewest people, and pose
the least risk.
Spontaneity: Choosing the first option that comes to mind; giving little or no consideration to
the consequences of the choice.
Synthesis: Choosing the option that has a good chance to succeed and which you like the best.
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Appendix C: Factors that influence a decision
A. Values
■ What is important to your family, others in your culture?
B. Peers
■ People you know
■ Pressure for positive or negative behaviors
C. Habits
■ You are accustomed to doing it this way
D. Feelings (love, anger, frustration, ambivalence, rejection)
■ If you do make a certain decision
■ If you don’t make a certain decision
E. Family
■ Your family’s preference
■ Decisions other family members have made
F. Risks and consequences
■ What (or how much) you stand to win
■ What (or how much) you stand to lose
G. Age
■ Minor
■ Adult
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Appendix D: Economic Conditions that influence decision making
These economic factors may influence personal and financial decisions:
Consumer prices: changes in the buying power of the dollar, inflation
Consumer spending: demand for goods and services
Gross domestic product (GDP): total value of goods and services produced within the country
Housing starts: the number of new homes being built
Interest rates: the cost of borrowing money
Money supply: funds available for spending in the economy
Stock market index: indicate general trends in the value of stocks
Unemployment: the number of people without employment who are willing to work
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Appendix E
Name:________________
Date:_______________
Researching Current Economic Conditions
Changing economic factors affect the decisions we make. Using newspaper business
pages, Internet, or other sources of economic news, obtain information about
current economic trends that influence various saving, investing, spending, and
borrowing decisions. For example, higher interest rates make borrowing more
expensive; however, higher interest rates make saving more attractive.
Economics factor
Recent Trends
Possible influences on
personal financial decisions
Interest rate
Consumer Prices
Other
Other
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Appendix F
Name: ________________
Date: _________________
Economic Influences on Decision Making
1. List all the activities you took part in yesterday…
2. List any products or services that were purchased…
3. From question 2, list everything you consider to be a need vs. everything you consider to
be want…
4. From the list of activities you took part in, list the opportunity cost of each…
5. Explain the cost-benefit analysis of going to a Rolling Stones concert on a school night…
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Appendix F: Answer Key
Name: ________________
Date: _________________
Economic Influences on Decision Making
1. List all the activities you took part in yesterday…
 Homework, driving, running, class, coaching
2. List any products or services that were purchased…
 2 ice caps, gas, gum, time for the parking meter
3. From question 2, list everything you consider to be a need vs. everything you consider to
be want…
 Need: gas, parking money
 Want: ice caps, gum
4. From the list of activities you took part in, list the opportunity cost of each…
 Going class: could have stayed home and worked on homework vs. not behind
 Running: staying fit vs. time to work on homework
 Coaching: gave up watching my favourite tv shows, time away from school
5. Explain the cost-benefit analysis of going to see a Rolling Stones concert on a school
night…
 Cost: staying up late on a school night, the cost of ticket
 Benefit: Participating in a once in a life time event, may get the go back stage
- 24 of 201-
Appendix G: Cost Benefit Analysis Scenarios
1. Regina hosting the 2012 Olympics (Look at all sides, including tourism, new sporting
complex that needs to built, accommodation, traffic control ie: widen certain roads, intersections,
etc.)
COST:
BENEFITS:
2. Once you are done high school, you really want to take a trip to Europe for 3 weeks (include
factors such as: saving, summer job, going alone, friends, exchange rate, accommodations,
transportation, etc.)
COSTS:
BENEFITS:
3. You just got your license and you are really excited to buy a new car. However, you have
only saved enough to buy a used one; this includes the money you borrowed from your parents.
There is no warranty, but it is in your price range.
COSTS:
BENEFITS:
- 25 of 201-
Appendix H
Risks Associated with Decision Making
Risks are associated with every decision. The following are common risks related to personal
and financial decision making:
Income risk: changing jobs or reduced spending by consumers can result in a lower income or
loss of one’s employment. Career changes or job loss can result in a lower income and reduced
buying power.
Inflation risk: rising prices cause lower buying power. Buying an item later may mean a higher
price.
Interest-rate risk: changing interest rates affect your costs (when borrowing) and your benefits
(when saving or investing).
Liquidity risk: certain types of savings, guaranteed investment certificates (GICs) and
investments (real estate) may be difficult to convert to cash quickly.
Personal risks: factors that may create a less than desirable situation. Personal risk may be in
the form of inconvenience, embarrassment, safety, or health concerns.
- 26 of 201-
Resources
Canadian Bankers Association. http://www.cba.ca/en/default.asp
Canadian Foundation for Economic Education. Resources and programs available for
downloading and purchasing. http://www.cfee.org/en/
Practical Money Skills. http://www.practicalmoneyskills.ca/moneyskills/
Your Money. http://www.yourmoney.cba.ca/en/tsam/
- 27 of 201-
This page intentionally left blank for notes.
- 28 of 201-
Module 3: Banking Services (Core)
Suggested Time: 15 – 20 hours
Level: Introductory
Prerequisite: None.
Module Overview:
This module will introduce the student to the variety of products and services that banks have to
offer. Students will be given the opportunity to explore, investigate and make decisions about
which financial institutions supply the best service for their banking needs. Students will
become familiar with the variety of means to monitor the activity on their account and reconcile
their records to those of the banks.
Foundational Objectives:




To understand the basic products and services that financial institutions offer.
To compare and evaluate the services offered by the different financial institutions in
Canada.
To explore the use of technology in banking and how electronic banking aids the
individual in monitoring and tracking account activity.
To be able to understand one’s bank statement and the procedures used in completing a
bank reconciliation.
Common Essential Learnings Foundational Objectives:





To enable students to make sound decisions about their banking choices that which will
carry-forward to adulthood. (IL)
To educate students on modern ways to do banking, through the internet, telephone and at
ABM’s. (TL)
To enable students to understand bank terminology and jargon and to promote the use of
appropriate communication skills through class presentations. (COM)
To promote decision making characteristics which students will use to make sound
choices in terms of what financial institution to use, and what types of accounts are
appropriate. (CCT)
To use mathematics skills in doing a bank reconciliation and tracking activity in a bank
account. (NUM)
Learning Objective
Notes
Banks are part of everyday society in Canada. They provide
services which help us monitor and control our spending. They
provide a safe and secure place for us to store our money. They help
us earn interest and budget our spending.
- 29 of 201-
Teachers need to find out what students already know about banks.
A variety of instructional strategies could be used to determine what
the student already knows, including:
 Pretest
 Whole class discussion
 Brainstorming
 KWL
3.1 To identify and
understand the variety of
services that banks offer. Questions to ask the students may include:




Why do we have bank accounts? See Appendix A
Why do banks exist?
What do banks offer?
What are the advantages/disadvantages of using a bank?
Teachers should find out who in the class has a bank account, and
why they chose to bank with that financial institution. Ask the
students that don’t have a bank account about where they keep their
money.
Introduce products and services that banks offer (www.cba.ca):











Chequing accounts
Savings accounts
Loans
Electronic funds transfers
Cheques
Interest
Money Orders
Certified Cheques
Overdraft Protection
Pre-authorized payments
Bill payments
Teachers may want to go further to explain the difference between a
chequing account and a savings account. See Appendix B for a
description of the three types of accounts, including the rare
‘combination account’.
3.2 To introduce,
identify, and define
terms commonly used in
Introduce a variety of terms used in the banking industry. Please
refer to Appendix C: ‘Terminology list’.
Teacher could use a variety of instructional strategies to teach the
- 30 of 201-
banking.
terms, such as:


A matching exercise
A worksheet
Credit Unions are very popular in Saskatchewan. It’s important for
students to understand the difference between a Credit Union and a
bank.
A Credit Union is very similar to a bank with the major difference
being that they are member-owned and they are provincially
regulated, rather than banks which are federally regulated.
3.3 To differentiate
between a bank and a
Credit Union.
Services between Credit Unions vary as some are more specialized,
while others are more general.
Teachers could provide students with a brochure from both a Credit
Union and a bank. Ask the students to compare the language used
and the services offered that differentiate the two.
For more information that distinguishes between the two types of
financial institutions, refer to:
 http://www.cba.ca/en/viewPub.asp?fl=6&sl=23&docid=35&pg=
3
 http://www.saskcu.com/
The banking industry offers the individual consumer a variety of
choices to think about when selecting a financial institution. It is
important to select a bank based on your individual needs.
3.4 To identify the
contributing factors that
impacts an individual’s
choice of financial
institution.




Which bank is close to you?
Which has the most convenient ABM’s?
Which has the lowest fees?
Which offers the product suite that you need?
When comparing the different financial institutions, look at the
following features (www.practicalmoneyskills.ca):





Monthly fees
Per-transaction charges
Balance requirements
Interest rate
How rates are calculated
- 31 of 201-










How soon you can draw against a deposit
NSF cheque charges
On your cheque
On a cheque you deposited
ATM charges
Debit card charge
Stop payment fees
Charges for printed cheques
Locations/number of branches
Bank hours
Teachers could give students the opportunity to compare two
different financial institutions of their choice based on the above
questions.
Teachers could do this as a jigsaw activity where each member of
the group becomes the ‘expert’ on their financial institution.
Appendix D has information for researching a chequing account for
different financial institutions.
It may be useful to invite a bank representative to come to your class
to speak about bank services.
Students need to come up with a list of questions that will help them
identify the purpose of the account they want to open (www.cba.ca):
3.5 To explore, identify
and choose which type
of account to open.
i. Do you only want to build your savings? In that case, you
may want an account where you will get interest.
ii. Do you expect to do many transactions? If so, your best
choice is likely an account in which you pay a flat fee service
charge.
iii. Do you want to use the account mainly for savings, but maybe
write a cheque now and again? Your best choice may be a
combination account for which you pay a service charge
every time you write a cheque.
iv. Will you make withdrawals and bill payments at your branch?
v. Will you use the ABM?
vi. Will you use telephone banking?
vii. Will you use Internet banking on your computer?
viii. Will you use a debit card for purchases?
ix. How many transactions will you do each month?
x. What will you pay in fees each month?
xi. What type of records do you want to keep?
xii. Do you need to have your cancelled cheques returned?
- 32 of 201-
xiii. Can you keep track of your account activity with a basic bank
book or a monthly statement?
Appendix E has a worksheet to help students evaluate a bank based
on its location and service charges and it compares the services of
two different banks.
Look at ways to reduce your service charges. The Canadian Banker
Association lists the following ideas for saving money on service
charges:
3.6 Identify the variety
of fees that apply to a
chequing account and
explore methods and
ideas on how to reduce
your charges.




Always use ABM’s from your bank.
Ask about service plans that meet your needs.
Make one large withdrawal rather than many small ones.
Ask about accounts that waive service charges if you
maintain a minimum monthly balance.
 Ask about youth/student service plans
 Don’t use overdraft (usually $5 + 21% annual interest)
Look at an online calculator that compares the major financial
institutions service fee plan at:
http://consumer.ic.gc.ca/epic/site/oca-bc.nsf/en/ca00669e.html
Give students a few scenarios where they have to choose between
banks strictly based on the bank’s service charge packages. Please
refer to Appendix F for an activity using the above online
calculator.
3.7 To determine the
types of identification
needed to open a bank
account and to
demonstrate how to fill
out an application for a
bank account.
Banks take privacy and security very seriously. They also have
governmental regulations that they must follow. If you do not have
proper identification, you will be denied services. It is important for
students to know what identification is required to open an account.
In order to open a new bank account, or to simply get a new bank
card (if yours is lost), you must provide specific identification.
Appendix G has a chart that highlights the type of identification
needed to get a bank card. The teacher could ask students to
identify the types of identification they already have.
For legal, regulatory purposes, banks need to collect certain
information about its clients to meet federal regulations around
money laundering.
- 33 of 201-
Appendix H has an example application form that will need to be
filled out to get a bank account, but an actual application form from
a local bank is desirable.
With today’s technology, there are many methods with which an
individual can do their banking. They can do their banking:
1.
2.
3.
4.
At the branch
On the internet
On the phone
At an ABM
The teacher could also add: Electronic Banking (direct deposits,
preauthorized payments, Interac).
There are advantages and disadvantages to each method of banking.
The Canadian Bankers Association provides a useful summary of
each method, and adds several tips to maintain the privacy and
security of an individual’s accounts. A jigsaw activity where
students teach the class about the advantages and disadvantages of
each method of banking could be used.
3.8 To learn about the
advantages and
disadvantages of the
different methods for
how an individual can
do their banking.
Please refer to Appendix I to find the Canadian Bankers
Association’s summary or at:
http://www.cba.ca/en/viewpub.asp?fl=3&sl=251&tl=253&docid=19
&pg=9
For interesting statistics on how Canadians do their banking, refer
to:
http://www.cba.ca/en/viewDocument.asp?fl=6&sl=111&tl=&docid
=526&pg=1
Or:
http://www.cba.ca/en/viewDocument.asp?fl=6&sl=111&tl=&docid
=247&pg=1
For some humour, cartoonstock.com has some cartoons based on
using a bank machine:
http://www.cartoonstock.com/directory/b/bank_machine.asp
3.9 To educate students
about how to do online
banking.
Many Canadians are turning towards doing their banking online.
Each of the major banks in Canada encourages its customers to use
online banking to monitor the activity on their accounts.
- 34 of 201-
Students should explore the world of online banking. Each of the
banks offers an online tutorial on how to use online banking. Here
are the links to the various online tutorials:
1. http://www.cibc.com/ca/demos/welcome.html
2. http://www.rbcroyalbank.com/RBC:Re726Y71A8UAAQvoZxs/
online/index.html
3. http://www.tdcanadatrust.com/webtour5/screen1.jsp
4. http://www8.bmo.com/BMOOnlineTour/english/english/takeato
ur.html
5. http://www.scotiabank.com/cda/content/0,,CID10637_LIDen,00
.html
Each student should have the opportunity to explore one of the
demos. A questionnaire could be developed asking questions about
how to: transfer money, pay bills, retrieve account history, change
your address, change your password, etc…
Individuals need to protect their bank accounts from theft. There are
numerous ways that a fraudster could gain access to a person’s
account. Teachers could ask students what they already know about
ensuring the security of their account. Students could be asked to
create a poster describing ways to maintain security for one of the
following banking areas.
3.10 To identify
techniques to maximize
the security of your
accounts.
Teachers need to explore safety techniques with students. There are
certain security tips associated with:
 Using online banking
 Using Telephone banking
 Writing cheques
 Using ABM’s
 Using Interac Direct Payment
Appendix J has some practical tips for ensuring the security of your
account.
3.11 To demonstrate
how to write a cheque
properly.
Although cheques are not being used to the same extent they were in
the past, they are still used in Canada and students may start using
them as soon as they get their first apartment. For the most part,
rent is still paid with a cheque.
Students need to learn how to write a cheque. The teacher should go
over the basics of how to write the cheque as well as how to endorse
- 35 of 201-
it. Practicalmoneyskills.com provides a useful description of how to
write a cheque. This description is available in Appendix K.
3.12 To demonstrate
how to keep a running
balance in a chequing
account.
In a typical bank account, you may find transactions such as, debit
purchases, cheques clearing, EFT deposits, ABM deposits, debit
purchases, payments, etc… It is important for the student to know
how to keep a running balance of their account.
Online banking is very useful for helping students monitor the
activity in their account, but many banks do not provide a running
balance.
In Appendix L, you will find an activity that asks students to keep a
running balance of an account. Appendix M has an answer key.
Students should know that it is important to monitor the activity on
their account. They have 60 days from the date a transaction was
posted, or should have been posted to an account to notify the bank
of the error.
3.13 To be able to
complete a bank
reconciliation.
One way to guarantee that the individual and the bank have the same
information is to do a bank reconciliation. A bank reconciliation
matches and compares figures from the individual’s records (cheque
register) to the bank statement. Upon completion, the balance of
your records and the bank statement should match.
A bank reconciliation has a four step process:
 Obtain the current balance from your bank statement.
 Add any deposits that you have recorded in your cheque
register but that are not on this statement.
 Subtract any outstanding cheques (cheques you have written
but that have not yet cleared the banking system).
 Compare the result with the current balance in your cheque
register.
Refer to Appendix N for a bank reconciliation activity and
Appendix O for the answer key.
3.14 To understand your
legal obligations in
terms of how you use
your bank account, and
how the banks protect
against fraud and theft.
Unfortunately for everyone, there are individuals who abuse the
banking system. There are numerous example of bank fraud, from
copying cards, to depositing empty envelopes. Banks take fraud and
security matters very seriously, and a one-time need, may have long
lasting ramifications for your banking.
- 36 of 201-
For example, if you make a deposit for $500, but there was nothing
in the envelope (empty envelope), then you withdraw the $500, you
are committing a fraud. This will stay with you forever.
Students need to understand the ways that banks protect against
fraud, by;
 Placing holds on an account
 Limiting the ability to withdraw cash or use Interac
 Account restrictions – (ex: can only deposit)
 Blocking an account
 Account messages that limit ability to apply for new
products
- 37 of 201-
Appendix A (Source: http://www.cba.ca/en/viewPub.asp?fl=6&sl=23&docid=19&pg=2)
Why have a bank account?
Safety and Security: A bank is a safe place to keep your money when you are not using it. Your
money and your personal information are protected.
Savings: A savings account is a way to save your money so it will be available for both your
short-term and long-term needs.
Earn interest: On some bank accounts, the bank pays you a sum of money called interest. This
interest helps your money make more money. The more money in your account and the longer
you leave it in, the more interest you will earn.
Access to a variety of banking services: A bank account is not just a place to store money.
Many people use banks to process transactions and do other financial activities. For example, if
you have an account called a “chequing account,” one of the ways you may pay bills is by
cheque. This is a written order to the bank to pay a certain amount of money from your account.
To pay your rent, for instance, you can write a cheque and mail it – rather than go to a bank, take
out cash and bring it to your landlord yourself. There are many different banking services you
can use, including getting assistance from your bank's customer service representatives, paying
bills, using banking machines, making direct debit purchases and having direct deposit of money
owed to you. Many of these services are discussed in this booklet.
Record-keeping: With a bank account, you receive account records to help you keep track of
your money. This way, you know how much you spend and what you spend it on.
Convenience: A bank account offers convenience in helping you manage your money. For
example, with a bank account you will be able to get a bank card, also called a debit card, which
allows you to use over 16,500 banking machines across Canada. Banking machines provide 24hour access for making deposits, withdrawals, paying bills and transferring money.
A bank account also gives you access to telephone or Internet banking, where you use your
phone or computer to do things like pay bills, transfer money between accounts and get updates
on your account.
It's a good reference: When you need a loan or want to apply for a credit card, your bank
account shows how you have handled your finances in the past. This is a good reference that may
help you get your loan or credit card application approved.
- 38 of 201-
Appendix B (Source: http://www.cba.ca/en/viewPub.asp?fl=6&sl=23&docid=19&pg=3)
Banks offer three general types of accounts:
i. savings account
ii. chequing account
iii. combination account
Each bank has different names for these accounts. But whatever name is used, each type of
account will have most of the same features. Look at these features and your personal needs to
decide which suits you best. Then, look at the service charges.
One type of account you may wish to consider is the joint account. This is an account opened by
two or more people who can each put money into it. One or more people may have to sign when
taking money out.
The Savings Account
If you want to save some money for your short-term needs, think about opening a savings
account. This type of account is a good choice if you don’t need to use your money right away or
you don’t intend on having much account activity in a month. The bank will pay you interest.
The amount of interest will vary, depending on the type of account you choose and interest rates
in general. You may take your money out any time.
The Chequing Account
If you want to keep some money handy for paying bills or personal expenses, you should think
about opening a chequing account. This type of account is good for money you expect to need
from day to day. You may take your money out at any time in person, at a bank machine, by
writing a cheque or by direct payment. Chequing accounts usually have lower service fees than
savings accounts. Some chequing accounts do not pay interest and some do (a chequing account
usually pays a lower rate of interest than a savings account). Ask your bank for more
information.
The Combination Account
If you want to save some money but you also want to keep some handy to cover expenses and
manage your day-to-day finances, you should consider opening a combination account. This type
of account is part savings and part chequing. You may take your money out any time in person,
at a bank machine, by writing a cheque or by direct payment. Interest is usually paid on these
accounts on amounts above a set level.
- 39 of 201-
Appendix C (Source: adapted from: www.practicalmoneyskills.ca Lesson 6, Teachers guide)
Banking Terminology:
Account Money deposited with a financial institution for investment and/or safekeeping
purposes.
Assets Items of monetary value (e.g., house, land, car), owned by an individual or a company.
ABM Acronym for automated banking machine.
ATM Acronym for automated teller machine.
Balance An outstanding amount of money. In banking, balance refers to the amount of money in
a particular account. In credit, balance refers to amount owed.
Bank An establishment for lending, issuing, borrowing, exchanging, and safeguarding
money.
Certified cheque A cheque issued by a bank, drawn on its own funds rather than on one of its
depositors.
Chartered bank Non-governmental financial institutions. Sometimes called full-service banks
because they provide a wide range of services, such as chequing and savings accounts, credit and
loan arrangements, and safety deposit box rentals. Chartered banks also sell and redeem savings
bonds.
Cheque Any written document instructing a bank to pay money from the writer’s account.
Chequing account An account for which the holder can write cheques. Chequing accounts pay
less interest than savings accounts, or none at all.
Credit Union A member-owned financial institution, either provincially or federally chartered.
Often more competitive than banks and trust companies because its nonprofit status makes its
operating costs lower.
Debit Card A banking card enhanced with ATM (automated teller machine) and point-of-sale
(POS) features that can be used to purchase goods and services electronically. The card replaces
cash or cheques. Transactions are deducted from the cardholder’s bank account either
immediately or within one to three days. Depending upon the type of card, a debit card may
require a signature or entering a PIN number into special equipment. Debit cards may also be
used to make Interac® Direct Payments (IDP).
Internet banking (cyberbanking) Allows a person to conduct banking activities such as
transferring money between accounts or paying bills from their personal account using the
Internet.
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Interest The fee paid for the use of money. Interest may be paid, for example, by an individual
to a bank for credit card use, or by a bank to an individual for holding a savings account; interest
is expressed in terms of annual percentage rate (APR).
Joint account A savings or chequing account established in the names of more than one person
(e.g., parent/child, wife/husband).
Mortgage A long-term loan obtained by individuals to buy a home that legally transfers
ownership from the debtor to the creditor until the debt is paid.
NSF Non sufficient funds
NSF cheque (bounced cheque) A cheque that a bank has refused to cash or pay because there
are not enough funds to cover the amount written on it, in the account of the person who wrote
the cheque.
Overdraft A cheque written for more money than is currently in the account. If the bank refuses
to cash the cheque, it is said to have “bounced.”
Passbook (Bankbook) A booklet given by the bank to the depositor to record deposits,
withdrawals, and interest earned on a savings account.
Personal identification number (pin) It is a unique number or code entered by a
customer when using an ATM, or accessing INTERAC®, PLUS® or CIRRUS® service.
Reconciliation Checking all bank account papers to make sure that bank’s records and yours
agree.
Savings account A bank account that accrues interest in exchange for use of the money on
deposit.
Service charge A monthly fee a bank charges for handling an account.
Stop payment A request made to a bank to not pay a specific cheque. If requested soon enough,
the cheque will not be debited from the payer’s account. Normally there is a charge for this
service.
Withdrawal An amount of money taken out of an account in cash, by cheque or debit card, or
by automatic withdrawal.
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Appendix D
Information needed to compare chequing accounts
Fees:
What are the monthly service plans and what are the associated charges?
What are the per use charges with the account of choice?
How much does it cost to order cheques?
Are there fees for simply inquiring about your account?
Are there fees for using the ABM, online banking, telephone banking or at the teller?
Other charges:
What are the costs associated with overdraft protection?
What is the stop payment fee?
What does it cost to get a certified cheque or money order?
Location:
Where is the branch located? Is it close to your home, school?
What are their hours of operation? Are they open on Saturdays?
Does this bank have many ABM’s available in your city / town?
Interest:
What is the interest rate earned on your account balance?
Do you have to maintain a minimum monthly balance to earn the interest?
What happens if your balance drops below the minimum?
How is the interest calculated? Compounded monthly? Daily? Annually?
Restrictions:
Is your deposit insured by the Canadian Deposit Insurance Company (CDIC)
Are your deposits held? If so, for how long?
How much do you have access to after you deposit your funds?
Special features:
Will the bank issue a temporary cheque?
Does the bank offer overdraft protection?
Are there discounts for students / youth?
- 42 of 201-
Appendix E
Help for choosing a chequing account
Bank #1
_______________
Bank #2
_______________
_______________
_______________
_______________
_______________
_______________
_______________
_______________
_______________
_______________
_______________
_______________
_______________
_______________
_______________
_______________
_______________
_______________
_______________
_______________
_______________
_______________
_______________
_______________
_______________
Account #1:
Name:
Monthly Charge:
Interest paid? Rate?
_______________
_______________
_______________
_______________
_______________
_______________
Account #2:
Name:
Monthly Charge:
Interest paid? Rate?
_______________
_______________
_______________
_______________
_______________
_______________
Account #3:
Name:
Monthly Charge:
Interest paid? Rate?
_______________
_______________
_______________
_______________
_______________
_______________
_______________
_______________
_______________
_______________
_______________
_______________
_______________
_______________
_______________
_______________
_______________
_______________
_______________
_______________
_______________
_______________
_______________
_______________
Name of the bank:
Where is the nearest location to your:
Home:
School:
How many ABM’s are available?
What hours are they open?
Are they open on Saturday?
How many branches are there in your city?
Do you qualify for a youth account?
If so, what are its features?
Do you qualify for a student account?
If so, what are its features?
What types of chequing accounts do they offer?
How can you do your banking? Any fees?
ABM’s
Telephone Banking
Online Banking
In Branch
Cost per withdrawal;
At bank-owned ABM
At other FI’s ABM
At bank teller
Free Cheques?
Stop Cheque fee?
- 43 of 201-
Appendix F
Compare service charges for different financial institutions
Please go to:
http://consumer.ic.gc.ca/epic/site/oca-bc.nsf/en/ca00669e.html and
What is your lowest monthly balance? ($)
How many paycheques are directly deposited to your account each month?
How many cheques do you write each month?
How many Interac direct payment purchases do you make each month?
How many pre-authorized debits are made each month?
Choose the type of banking you perform each month (Choose all that apply):
Branch, Bank machine, Phone banking, Computer banking
$200
2
1
15
6
Choose all
Click :
Withdrawals
Bill payments
Transfers between deposit accounts
Account history enquiries
2
0
1
0
Withdrawals your Institutions bank machines
Withdrawals at other institutions bank machines
Bill payments
Transfers between deposit accounts
Account History Enquiries
5
3
0
0
0
Bill payments
Transfers between deposit accounts
Balance enquiries
Account History Enquiries
0
0
2
0
Bill payments
Transfers between deposit accounts
Balance enquiries
Account History Enquiries
5
5
5
3
- To be assigned by teacher
Best type of account:
Name
Service Charge
Second best type of account
Name
Service Charge
_________
_________
_________
_________
- 44 of 201-
Appendix G (Source: http://www.cba.ca/en/viewPub.asp?fl=6&sl=23&docid=19&pg=8)
Opening your bank account
Identification is needed to meet federal laws and it helps the bank ensure that only you and those
you authorize have access to the money in your account. You can provide identification in two
different ways:
You can provide two pieces of identification. One piece must come from Part A of the list on
page 10. The second piece may come from Part A or Part B;
OR
You can provide one piece of identification from Part A, and have confirmation of your identity
by someone of good standing from the community where the bank is located, or a client of that
bank in good standing.
- 45 of 201-
Appendix H (Source: www.practicalmoneyskills.ca Lesson 6, In-class Activities)
Opening a Chequing Account
- 46 of 201-
Appendix I (Source:
http://www.cba.ca/en/viewpub.asp?fl=3&sl=251&tl=253&docid=19&pg=9)
Using your account and ways of banking
Once you have opened an account, you have many options on how to use it to do your banking.
Banking At Your Branch
Doing your banking at a branch means going in person where a customer service representative
will handle your needs. There are many activities you can do at a branch – three common ones
are: (1) making deposits, (2) making cash withdrawals, and (3) cashing cheques. Let's look at
each of these.
Making Deposits
Making a deposit means putting money (cash or cheque) into your account. To do this, you may
be asked to fill in a deposit slip.
Some banks, however, are “paperless”, meaning you bring your deposit to the customer service
representative and a deposit slip is completed for you by that representative. You will be asked to
sign this deposit slip showing the amount of your deposit. You may request a receipt for this
transaction to keep as a record of your deposit or you may have your passbook updated showing
the deposit. Some “paperless” banks may ask you to swipe your debit card and enter your PIN at
the counter, allowing you to make your deposit electronically on the PIN pad.
When you deposit a cheque, there may be a delay before you can take the money in cash. This is
called a “hold” on the money being deposited. This is to give the bank time to make sure that the
cheque is good. If you are a regular customer at the bank and deposit a federal or provincial
government cheque, there should not be a delay. But if you are a new customer and deposit a
cheque written on an account at a different bank, you can expect to wait a number of days before
you can take the money out of your account.
Making cash withdrawals
Making cash withdrawals means taking money out of your account in person. One way to do this
is to fill in a withdrawal slip. Every bank has a different form, but all of them ask for the same
type of information.
In the same way you make “paperless” deposits, you can also make “paperless” withdrawals at
some banks. A customer service representative will help you by completing a withdrawal slip.
You will be asked to sign this withdrawal slip showing the amount of cash you have received.
You may request a receipt for this transaction to keep as a record of your withdrawal, or you may
have your passbook updated showing the withdrawal. Other “paperless” banks may ask you to
swipe your debit card and enter your PIN at the counter, allowing you to make your withdrawal
electronically on a PIN pad.
Cashing cheques
- 47 of 201-
If you are cashing a cheque which has been made out to you, you must endorse it. Endorsing
means signing it on the back. Here is how to endorse a cheque:




Look at the face (front) of the cheque. Note how your name is spelled.
Turn the cheque over. On the back, sign your name.
If you are depositing your cheque, print “for deposit only” and the account number on
the back.
Be sure to sign your cheque at the bank in front of the customer service
representative. The reason to do this is because once the cheque is endorsed, anyone
can cash it.
Writing cheques
One way of paying for things or taking money out of your chequing account is by writing a
cheque. A cheque is a written order to the bank to pay a certain amount of money from your
account. It is important to remember that you must have the money in your account on the day
the cheque is dated. It is illegal to write a cheque if you know there will not be enough money in
the account to cover the amount. A cheque is not money but it is used like money. To take
money out by cheque, you must fill in a cheque. It may be a personalized cheque or a nonpersonalized cheque. It is usually better to use a personalized cheque if you have one.
Holds on cheques you deposit
Banks may apply “holds” on funds deposited by cheque to provide an opportunity for the cheque
to clear – in other words, to make sure that the person or company who wrote the cheque is still
willing and able to cover the amount of the cheque. Holds help protect depositors and banks
from losses due to invalid cheques – for example, those returned as N.S.F. or those written for
fraudulent purposes.
The hold period must allow time not only for the cheque to clear through the automated cheque
clearing system, but also to be manually returned to the branch of the account holder who cashed
it.
When you open an account, or upon request, your bank will give you a statement of the bank’s
hold policies explaining the maximum amount of time it can take for a cheque to clear and have
the funds deposited to your account.
Direct deposit
Direct deposit means that money that is owed to you (like paycheques and government cheques)
is electronically put into your account. Direct deposit ensures that you have instant access to your
funds, and there is no hold on them because the funds are guaranteed. Clients expecting to
receive money from federal, provincial or municipal governments can ask for payment by “direct
deposit”. As well, many companies arrange to pay their employees through direct deposit.
Electronic banking
- 48 of 201-
Banking in Canada has changed dramatically over the past few years. In the past, you would visit
your branch and a teller would handle your banking. Today people conduct only 30 per cent of
their business in the branch. The rest of the time they use self-service banking – the Automated
Banking Machine, banking by telephone, through the Internet on a personal computer or making
purchases with a debit card. This type of banking has become popular because it is more
convenient and saves time and money on service charges.
Automated Banking Machines
Most banks today offer self-service banking through ABMs. You can find ABMs in banks,
shopping malls, gas stations, convenience stores, supermarkets, airports, train stations, etc. In
most cases, ABMs can be used 24-hours a day, seven days a week. Full-service ABMs can be
used to:
4. withdraw cash
5. deposit cash or cheques
6. pay bills
7. transfer money from one account to another
8. get your account balance
9. some allow you to update your passbook or obtain an account statement
10. machines with an Interac logo allow you to access your account from another financial
institution’s ABM
The cost of using an ABM depends on your bank. Most banks charge a transaction fee which is
deducted from the account. To save on these service charges, you can sign up for a monthly
service plan which allows you to conduct a certain number of transactions for a set fee. Plans
vary according to your financial institution.
- 49 of 201-
How to use an ABM
 You must fill out an application form at your bank.
 Your bank will give you a special card (a debit card) and a number called a Personal
Identification Number (PIN). If you want to create your own PIN, most banks have a special
machine where you can choose the number yourself. You will also get a cardholder
agreement.
 Your PIN is your electronic signature – the same as your signature on a cheque. That’s why
it’s important to keep this number private. Don’t write it down on the card or in your wallet.
Never tell anyone your PIN and never let anyone use your card.
 Every bank has different rules about how much money you can take out at one time, when
deposits will be credited to your account, etc. Ask for details when you apply for your debit
card. Different customers get different limits, too, depending on their past experiences in
using financial services.
 Your cardholder agreement will tell you what to do if your card is lost or stolen.
 When you want to use an ABM, push your debit card into the slot and follow the instructions
on the screen. The exact words that come up on the screen may be different, depending on
where you bank. But the meaning will be similar.
 You will be asked to press in your PIN. If you make a mistake, a message will let you know
that the PIN is incorrect. Begin again. If you punch in an incorrect PIN a certain number of
times, the machine may not allow you to try again or it may take your card. You will have to
go to your bank during regular hours and get a new PIN or a new card.
 Once you have correctly entered your PIN, you will be asked to press the key for the type of
transaction you want to do (withdrawal, deposit, bill payment, transfer).
 Press the account you want to access (chequing, savings, etc.).
 Next, enter the amount using the number keys. Some ABMs have pre-programmed numbers
in amounts varying from $20.00 to $200.00. If you want to make a pre-programmed amount
withdrawal, all you need to do is press the amount button.
 The machine will ask you if the amount is correct. If it is, press the “OK” key. If not, press
the “CORRECT/ CHANGE” key or press “CANCEL” and start over.
 When you are finished, remove your card, cash and transaction record.

The transaction record is a slip of paper with the details of what you just did and the balance
left in your account. Always check it right away to make sure it is correct. Then use it to
check your next account statement or passbook update.
If you have a problem when using an ABM, get help as soon as possible. Most problems are
easy to solve. Quickly report any problems so that the bank can solve them.
TIP: When choosing your Personal Identification Number (PIN), make sure it is not
obvious. Don’t pick your address, telephone number or birth date.
- 50 of 201-
Interac ® Direct Payment
When you have a debit card, you can also use it to pay for purchases in a store. This is called
Interac Direct Payment (IDP). This way of paying for things has become very popular over the
past few years. Many stores, gas stations, supermarkets and movie theatres have a small machine
called a point-of-sale terminal.
When you swipe your card through this machine and key in your PIN, money is automatically
transferred from your account to the store’s account. You have now paid.
This is a safe and convenient way of shopping because you no longer need to carry large
amounts of cash or a cheque book.
Using direct payment:








When you buy something or want to pay for a service at a shop that accepts Interac Direct
Payment, you will be asked to “swipe” your card through a point-of-sale terminal. This also
may be done by the merchant.
You will then be given a PIN pad and asked to verify the amount of the purchase (Is the
purchase amount OK? If it is, press “OK”.)
Next you will be asked to choose an account – savings or chequing – from which the funds
are to be withdrawn.
You are then asked to enter your PIN. Use your hand or body as a shield to prevent others
from watching you enter your PIN in order to protect your personal information. This
number and your bank account number and balance remain confidential and secure. The
merchant has no way of knowing any of this information.
You are asked to press the “OK” button and are notified when the transaction is finished. The
money for the purchase is directly taken from your account and credited to the merchant’s
account.
For some point-of-sale terminals, you may be asked to pay a fee to use them. The cost of this
fee will be displayed on the keypad, and you will be asked if you want to continue with the
transaction. You can press “YES” to pay the fee and continue the transaction, or you can
press “NO” to cancel the transaction. It is your choice to continue the transaction or cancel it.
You are given a printed record of the transaction. Save this record and either write it in your
cheque book register or save it to compare against your monthly bank statement.
If you don’t have enough money in your account to cover the purchase, your transaction will
be denied. There may also be a daily limit on how much you can purchase with IDP.
- 51 of 201-
Telephone banking
This is a quick, easy and convenient way to do your banking 24-hours a day, seven days a week.
You can bank from home, work or even when you’re out of town using a telephone.
For telephone banking you need an account and a debit card. To get started, just visit a branch or
call your bank’s 1-800 telephone number for more information on how to register. You choose a
personal password or access number that you use every time you phone the telephone banking
number. Do not share this information with anyone. You can register your bank account(s) and
the account number of each bill you will be paying, for example, your phone bill, credit card,
hydro bill, tax bill, etc.
Service charges vary depending on how much you use telephone banking. Some banks may
include this as part of a service plan or may offer the service free if you maintain a minimum
monthly balance.
Once your account is set up, all you have to do is dial the number and follow the voice
instructions. You will be asked to enter your debit card number and your confidential access
number.
With telephone banking, you may be able to:
 pay bills and transfer funds immediately
 check your account balance and activity
 get an interim bank statement or hear a list of your recent transactions
 make postdated bill payments
 check past bill payment and postdated bill payment information
With telephone banking, you also have the option of talking to a banking representative who can
help you:
 apply for a loan, a mortgage or renew a mortgage (during certain hours – check with
your bank)
 order cheques
 request a stop payment on a cheque
 find out if a cheque went through your account
 sign up for a service plan
 invest in GIC and term deposits
Each bank may offer different services and different ways to access telephone banking. Ask your
bank for details about the services they offer through telephone banking. What you cannot do
with telephone banking is deposit or withdraw cash.
- 52 of 201-
Banking by computer (Internet banking)
Now you can also do your banking through the Internet on your computer.
You can:
 transfer money between your accounts
 pay bills
 make postdated bill payments
 check on your account balance or activity
 download your transactions to financial software (Quicken, Money)
There are two ways you can do your banking by computer: through a special computer
connection to your bank using its software or through your bank’s website. Either way, if you are
interested in doing some of your banking activities through your computer, ask for more
information at your bank. What you cannot do with computer banking is deposit or withdraw
cash.
If you are thinking about computer or telephone banking, consider the following:
 What are the access fees?
 What is the transaction fee each time you access the service?
 Which service package best meets your needs?
- 53 of 201-
Appendix J
Security Tips
Cheque safety




Do not sign a blank cheque or write a cheque payable to “Cash” before you go to
the bank branch or ABM. If it is lost or stolen, it may be cashed by anyone who
presents it.
Never lend anyone a cheque or deposit slip from your cheque book.
Never sign the back of a cheque (endorse) until you give it to the customer
service representative. If it is lost, anyone could cash it.
If your cheques are lost or stolen, notify your branch immediately.
ABM and Direct Payment security tips






Your debit card is the key to your
account(s). It is for your personal
use only. Keep your card in a safe
place and never let anyone else
use it.
Protect your Personal
Identification Number (PIN). It is
your electronic signature. Never
write it down – memorize it.
When you decide on a PIN, avoid
the obvious – your telephone
number, date of birth, address,
etc.
Never tell anyone your PIN. You
are the only person who should
know it.
Always conduct your ABM
transactions when and where you
feel most secure. If you are
uncomfortable about using the
machine for any reason, do it
later or go to another location.
To ensure privacy when
conducting an ABM or debit
transaction, shield yourself to
prevent others from watching you
enter your PIN.






After finishing an ABM or debit transaction,
remember to take your card and, if provided,
your transaction record.
When making a withdrawal from an ABM,
count the cash received and put it away
immediately before leaving the machine.
If your card is lost, stolen or not returned by
an ABM, call your financial institution
immediately. Most institutions have 1-800
telephone numbers and/or 24-hour service for
lost or stolen cards.
Each customer has their own daily limit for
withdrawals, and you have the choice of
lowering your daily withdrawal limit. Contact
your bank to request this change.
Review your bank statements or passbook
regularly. Report any unusual transactions
immediately to your bank. If you are the
victim of debit card fraud, the matter will be
investigated immediately by your bank. If
fraud has occurred, your money will be
returned to you by your bank.
ABM robberies are not common, but if it
should happen, remember that your safety
comes first. Report the incident to the police
and to your bank.
- 54 of 201-
Security tips for Online and Telephone Banking
Canada’s Internet and telephone banking systems are very secure and customers can safely do
their banking online or on the phone. You can help to protect yourself from fraud by taking a few
simple precautions:




Change your password often and use a combination of letters and numbers in your
password
Never share your password
Always look for the closed lock or unbroken key symbols on your computer when
entering private information. This means your transactions will be securely transmitted
across the Internet.
Always be careful when receiving or responding to unknown e-mails, especially if you
are being asked for your password, SIN or other private information.
- 55 of 201-
Appendix K – (Source: www.practicalmoneyskills.ca Lesson 6, In-class Activities)
How to write a cheque
- 56 of 201-
Appendix L (Source: www.practicalmoneyskills.ca Lesson 6, In-class Activities)
Keeping a Running Balance
Record deposits and keep a running balance in the cheque register below.

On May 26, your balance is $527.96.

On May 27, you write cheque #107 to your landlord, Mrs.Wilson, for $226.00.

On May 28, you use your debit card at Food Mart for $22.52.

On June 1, you write a cheque for $156.32 to Gateway Motors for your car payment.

On June 1, you realize your cheque to Gateway Motors should have been for $165.23, so
you void the first cheque and write a new cheque for $165.23.

On June 2, you write a cheque to your phone company for $62.77.

On June 2, you use your ATM card to withdraw $20.00.

On June 15, your paycheque for $425.00 is automatically deposited.

On June 15, you use your debit card at Gifts Plus to buy a $18.99 birthday present for
your mother.

On June 15, you write a cheque for $246.45 to XYZ Insurance Co. to cover your
insurance premium.

On June 22, you transfer $100.00 online from your chequing account to your savings
account.

On June 24, you use your debit card at Gas Up to fill up your car. You spend $12.88.

On June 28, you use your ATM card to withdraw $30.00 from your chequing account.
Cheque #
Date
Description
Transaction
Deposit Amount
Balance
- 57 of 201-
Amount
opening
527.96
Use the cheque register you just completed to answer the following questions:

What was your account balance on May 30?

Could you have paid your car insurance payment on June 1 instead of June 15? If not,
why?

The love of your life has been in a bad mood lately, and you think an expensive present
might help. You’ve found a leather jacket on sale for $189.00. Can you afford to buy the
jacket on June 8? What will your account balance be if you do?

The hottest new band in town has just released a CD. It costs $21.99. Can you afford to
buy the CD on June 2? What will your account balance be if you do?

What was your account balance after you withdrew $30.00 on June 28?

What was the amount of cheque #111, to whom did you write it, and for what?
- 58 of 201-
Appendix M (Source: www.practicalmoneyskills.ca Lesson 6, In-class Activities)
Keeping a Running Balance – Answer Key
Cheque #
opening
107
D. card
108
109
110
ATM
ATM
D. Card
111
ATM
D. Card
ATM
Date
5/27
5/28
6/1
6/1
6/1
6/2
6/2
6/15
6/15
6/15
6/22
6/24
6/28
Description
Transaction
Amount
Mrs. Wilson
Debit card, Food Mart
Gateway Motors
Void Cheque #108
Gateway Motors
Phone Company
Cash Withdrawal
Deposit
Debit Card, gift for mom
XYZ Insurance
Transfer to Savings
Debit Card – Gas Up
Withdrawal
Deposit Amount
Balance
527.96
301.96
279.44
123.12
279.44
114.21
51.44
31.44
466.44
437.46
191.00
91.00
78.12
48.12
226.00
22.52
156.32
156.32
165.23
62.77
20.00
425.00
18.99
246.46
100.00
12.88
30.00
1. What was your account balance on May 30?
$279.44
2. Could you have paid your car insurance payment on June 1 instead of June 15? If not, why?
No—the payment was $246.45 but the account balance on June 1 was only $114.21
3. The love of your life has been in a bad mood lately, and you think an expensive present might
help. You’ve found a leather jacket on sale for $189.00. Can you afford to buy the jacket on June
8? What will your account balance be if you do?
No—the account will be overdrawn by $157.56
4. The hottest new band in town has just released a CD. It costs $21.99. Can you afford tobuy the
CD on June 2? What will your account balance be if you do?
Yes—$9.45
5. What was your account balance after you withdrew $30.00 on June 28?
$48.12
6. What was the amount of check #111, to whom did you write it, and for what?
$246.45 to XYZ Insurance for a car insurance payment
- 59 of 201-
Appendix N (Source: www.practicalmoneyskills.ca Lesson 6, In-class Activities)
Bank Reconciliation Activity
Use the bank statement, the cheque register, and the reconciliation worksheet on the following
page to balance this chequebook.
- 60 of 201-
- 61 of 201-
Appendix O – (Source: www.practicalmoneyskills.ca Lesson 6, In-class Activities)
Bank Reconciliation Answer Key
- 62 of 201-
This page intentionally left blank for notes.
- 63 of 201-
Module 4: Income and Taxation (Core)
Suggested Time: 10 – 15 hours
Level: Introductory
Prerequisite: Module 2: Decision Making and Money Basics
Module Overview: This module will build upon Module 1 by exploring payroll, paycheques,
deductions off of paycheques and personal income tax.
Foundational Objectives:




To recognize the importance of income
To recognize the importance of payroll functions within the business environment.
To demonstrate an understanding of gross pay and the deductions taken off of
paycheques.
To develop an understanding of personal taxation
Common Essential Learnings Foundational Objectives:




To support students in developing a better understanding of personal, moral, social and
cultural aspects of income. (PSVS)
To support the development of a positive attitude to life-long learning, as it pertains to the
changing economic structure of our society. (IL)
To apply a knowledge of numbers and interrelationships to assist in the calculation and
estimation of income. (NUM)
To enable students to understand and use proper vocabulary and expressions that
characterizes income. (COM)
Learning Objective
Notes
Canada Customs and Revenue Agency publishes “Teaching Taxes
Program” each year. This can provide useful information for this
module for both teacher and students.
Payroll records are required by law. There are both federal and
provincial laws governing the paying of employees.
4.1 To define and determine
why payroll records are
important (COM)
Students should be aware of the consequences of not reporting all
earned income. They should also be aware of what can happen
when an employer does not report employee deductions and taxes
to Canada Customs and Revenues.
Resources:
 “Teaching Taxes Program” Student workbook
 Canada Customs and Revenue – Payroll
- 64 of 201-
Examine what a social insurance card is and the forms that need
to be filled out to apply for one.
4.2 To examine the collection
of necessary data to process
payroll for employers
Examine the TD-1 form that needs to be filled out by each new
employee, so that a net claim can be established, so that income
tax may be deducted from pay.
Resources:
 Social Insurance Fact Sheet
 Social Insurance Form
 2007 Saskatchewan Personal Tax Credits Return (TD-1)
Discuss the various methods by which employees are paid:
hourly, monthly, commission, combination salary, piece work
compensation etc. Examples should be given to students of where
the various methods may be used. Employees may be paid
weekly, bi-weekly, monthly, semi-monthly etc.
 In pairs get students to find jobs that include different
ways in which employees can be paid in want ads.
Students should evaluate which method of earnings is
most advantageous.
 Be sure students understand the difference between
working on commission and getting commission plus
salary.
 Provide examples from the community
4.3 To define and calculate
various methods of gross pay
(COM)
Students should be able to calculate gross wages involving regular
pay, overtime pay, vacation pay, piecework earnings.
 Investigate jobs that work by piece (carpenters, mechanics
etc.). Report on several occupations that earn salary by
piece. Be sure to give descriptions of the job its self, the
amount of money paid for each job and the time it takes to
complete certain jobs.
Students should be able to calculate earnings from straight
commission or base wage plus commission.
Students should be able to determine the difference between gross
pay and net pay.
Students should be able to calculate weekly, monthly and yearly
net pay.
Provide students with examples of limitations within the
workforce (ex. Employee may be docked 15 minutes off their pay
check if they arrive 1 minute late for work.)
- 65 of 201-
Resources:
 Use local want ads from newspapers, advertisements or
the internet.
 Ready for Work
Identify compulsory deductions required by law in Canada,
stating the benefits derived from each and the approximate yearly
minimum and maximum contributions.
 Natives working on a reserve are not subject to federal or
provincial tax deductions. If the employment is off the
reserve, they are subject to deduction of federal and
provincial tax as applicable.
4.4 To examine compulsory
and voluntary employee
deductions from gross pay
Canada Pension Plan (CPP). What is its purpose? (pension due to
retirement, death, orphans benefits, or disability) Note: Both
employer and individual contribute to pension plan.
 Natives working on a reserve and contributing under the
Public Service Superannuation Act (PSSA) are subject to
Canada Pension Plan deductions. Natives working on a
reserve who are not contributors under the PSSA are
ineligible to contribute to the Canada Pension Plan.
 The amount of contribution (deducted each pay period) is
calculated by using earnings for the year, minus a basic
personal exemption. The result is then multiplied by the
contribution rate. You have to pay CPP when you turn 18
and continue until you turn 70.
 What are the current provincial and federal rates of
income tax?
 Resource: CPP/EI Premiums
Employment Insurance (EI). What is its purpose? (benefits for
regular or special job loss, maternity leave, parental leave, and
some benefits for sickness). There is no age limit for EI
contributions.
 Natives employed by the federal government are subject
to deduction for Unemployment Insurance.
 The amount of contribution is a percentage of insurable
earnings (generally, gross pay).
 What are the current provincial and federal rates of
income tax?
 Resource: CPP/EI Premiums
The purpose of income tax: to raise money for federal and
provincial governments. What do they use the money for? Review
and discuss the need to know the net claim code of the employee
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when deducting income tax.
 Resource: Employers Guide – Payroll deductions
Garnishment: What is it? What are the limits? What is the
responsibility of the employer?
Identify voluntary deductions (insurance plans, Canada Savings
Bond, contributions, staff association dues, charitable donations,
maintenance of dependants etc.)
 Resource: Deductions from Pay
If appropriate students may inquire about deductions that are
made on their own or on a relatives pay cheque. (Source
deductions from Revenue Canada)
 Students may bring in their own paycheque to look at.
4.5 To examine the effect of
payroll regulations and The
Labour Standards Act
Students should be aware of deductions that may be affected by
The Labour Standards Act. Some deductions that could be
affected are union dues, group insurance, employee purchases and
health insurance.
Resource: Ready for Work
Students should be aware of the employers’ responsibilities. By
law they must prepare a T4 slip for each employee by the end of
February following the year in which they worked.
4.6 To recognize the
importance of payroll
information in the preparation
of T4 slips and in the
preparation of Records of
Employment for employees
leaving the workforce.
4.7 To become familiar with
the components of the personal
income tax form and its
terminology (IL)
A T4 slip shows gross earnings for the year, CPP and EI
contributions, and tax deducted at source. After the year end data
is taken, balances should return to zero.
Resources:
 T4 Form
 T4 Slip Information
A Record of Employment must be completed when an employee
leaves a place of employment.
Resource:
 Record of Employment (ROE)
Identify the major components of a personal income tax return:
 Calculation of total income
 Calculation of taxable income
 Calculation of non-refundable tax credits
 Self employment sections
 Personal amounts
 Tax payable
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Resources:
 “Teaching Taxes Program” available free from Canada
Customs and Revenue Agency
 General Income Tax and Benefits Guide
Students should prepare a personal income tax return based on
realistic simulations.
4.8 To demonstrate the ability
to do a personal income tax
return
Simulations should be based upon realistic student experiences in
the community (part time jobs etc.)
Resource:
 “Teaching Taxes Program” available free from Canada
Customs and Revenue Agency
Students should be able to explain how they all fit together.
4.9 To summarize and explain
the importance of payroll
functions, gross pay,
deductions off of paycheques
and personal income tax.
Students summarize the need for payroll functions and the need
for income tax. How does each individual benefit from income
tax?
Income tax is deducted by the employer, but is assessed by each
tax payer on a yearly basis.
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Works Cited
Canada Revenue Agency. (2007). Payroll. Online April 7, 2007 at http://www.craarc.gc.ca/tax/business/topics/payroll/menu-e.html
Canada Revenue Agency. (2007). Online April 7, 2007 at http://www.cra-arc.gc.ca/menu-e.html
Canada Revenue Agency. (2007). Teaching Taxes Program. Online April 7, 2007 at
http://www.cra-arc.gc.ca/teachtax/
Canadian Tax and Financial Information. (2007). Taxtips. Online April 10, 2007 at
http://www.taxtips.ca/
Government of Saskatchewan. (2006). Record of Employment. Online April 10, 2007 at
http://www.cbsc.org/servlet/ContentServer?cid=1081944194722&pagename=CBSC_SK
%2Fdisplay&lang=en&c=Regs
Office of the Privacy Commissioner of Canada. (2004). Social Insurance. Online April 7, 2007
at
http://www.privcom.gc.ca/index_e.asp
Saskatchewan Labour. (2006). Ready for Work. Online April 11, 2007 at
http://www.readyforwork.sk.ca/
Saskatchewan Learning. (2003). Accounting 10, 20 and 30: Curriculum Guide. Evergreen
Curriculum. Online April 5, 2007 at
http://www.sasked.gov.sk.ca/docs/account/accounting2003/index.html
Saskatchewan Learning. (1995). Mathematics 10, 20: Curriculum Guide. Evergreen Curriculum.
Online April 5, 2007 at http://www.sasked.gov.sk.ca/docs/secmath/secmath.html
Treasury Board of Canada. (1991). Deductions from pay. Online April 9, 2007 at
http://www.tbs-sct.gc.ca/pubs_pol/hrpubs/TBM_11A/dwnld/6_e.rtf
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This page intentionally left blank for notes.
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Module 5: Introduction to Budgeting (Core)
Suggested Time: 5-10 hours
Level: Introductory
Prerequisite: None
Module Overview: This module will introduce students to the concept of and characteristics of
budgeting, and the importance of financial responsibility in managing their money.
It will help students to recognize that a major factor in being financially solvent is to spend less
than one earns and to save the difference. A personal budget is a tool that can assist an
individual stay within his or her income.
This module will explain budgeting and how sound financial decisions can increase a person’s
standard of living and wealth and outlines the various stages of preparing a budget.
Finally, this module will help students apply decision making to personal financial choices
(planning, maintaining and analyzing money management) through readings, exercises and the
creation of a budget.
Module Objectives:





To understand budgeting and its role in and contribution to personal financial
responsibility, the future, and community life.
Good financial management skills require the abilities to establish a budget and
understand the trade-offs required to adhere to a budget.
To show how budgeting helps consumers balance income, spending and savings goals.
To develop a budget plan that can be used as a planning tool for a use in attaining a
specific opportunity or goal.
To have students apply what they know about budgets to make sound financial decisions.
Common Essential Leanings Module Objectives:




To enable students to use language (listening, speaking, reading, writing) for differing
audiences and purposes relevant to the students, budgeting and financial responsibility.
(COM)
To seek information through a steadily expanding network of options including libraries,
databases, individuals, and agencies. (CCT)
To promote both intuitive, imaginative thought and the ability to evaluate ideas,
processes, experiences, and objects in meaningful contexts. (CCT)
To enable students to think for themselves and to recognize the limits of individual
reflection and the need to contribute to and build upon mutual understandings. (IL)
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Learning Objectives
Notes
Students should be aware that individuals use budgets to
itemize and manage their income, expenses, and
savings. In order to be financially sound, it’s important
to spend less than you earn.
5.1 To define and explore the
meaning of budgeting and
how it relates to problem
solving and financial
responsibility.
Students may complete a checklist or rating scale of
their budgeting skills at the beginning of the course, at
selected intervals throughout the course, and again at the
end of the course. This will help determine the progress
made in achieving budgeting skills. This will also help
students identify and assess their personal abilities and
capitalize on those that contribute positively to the
achievement of their goals.
(See Appendix A & B for Budgeting Pre-Test)
When students learn budgeting vocabulary and skills
early, they are more likely to be successful money
managers. Good financial management skills require
the abilities to establish a budget.
Ask students to define key terms they believe are critical
to budgeting success. Encourage students to discuss
each term fully and to use them as springboards to think
of others. Students should have an extensive list of terms
and definitions when they are done.
5.2 To define key terminology
associated with budgeting.
As each term is discussed, students should write the
definition and additional details they feel are important.
This process will help them review for a potential test.
In this activity, students should indicate if they agree or
disagree with the following statements, as the instructor
reads them.

A budget is a record of fixed expenses.

Interest earned on investments should be considered as
part of a budget.

A budget helps you plan for the fun things in your life,
so you can feel good about how you spend your money.

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Flexible budgets are more likely to be followed.

Budgets aren’t necessary to reach your financial goals.
 Savings should be paid first in every budget.
 No one really uses budgets anymore.
 A budget is too much trouble to follow.
 Budgets are too restrictive.
Students could then compare their responses with a
partner and discuss why they chose the answers they
did. (See Appendix E)
To help students understand the trade-offs required to
adhere to a budget and explain how limited personal
financial resources affect the choices people make.
Some budgeting characteristics are learned and gained
through experience, while others seem to be innate. In a
class discussion, students should examine the budgeting
characteristics identified and assign them (with reasons)
to the categories of learned and innate.
Teachers may also wish to explain the concept of
Opportunity Cost at this point.
5.3 To evaluate the
consequences of personal
financial decisions and
explore types of expenses
Discuss the differences between Needs vs. Wants (See
Appendix M for a sample activity called “Do I
REALLY need that?)
Discuss the difference between needs and wants and
give a few examples. (For example, we need clothing;
but we may want the latest fashions. Teachers may wish
to direct the discussion toward buying a home. What are
the needs and wants of a family?) As you discuss, write
the students' answers on the blackboard.
Types of Expenses
• Fixed Expenses: These expenses occur regularly and
don’t change from month to month. Examples of fixed
expenses are rent and car payments.
• Flexible Expenses: Like fixed expenses, flexible
expenses occur on a regular basis. The difference is that
with flexible expenses, you have some control over how
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much you spend. Examples of flexible expenses include
food and gasoline.
• Discretionary Expenses: This is money that you
choose to spend – like money for CDs or movies or
having pizza with friends. It also includes the money
that you save.
(See Appendix K for activity)
The difference between a family and individual budget
should be introduced.
Teachers may wish to conduct a brainstorming session
around the critical items that are present in a family and
individual budgets.
5.4 To examine the skills
necessary for using financial
information for individual or
family use.
A good personal budget:
• covers basic expenses that occur on a routine basis
• has money available for unexpected expenses, and
includes regular savings for future expenses.
Tips for sticking to a personal budget:
• Keep your budget in mind when you shop!
• Be prepared to make large purchases by saving money
over time.
• Compare prices for similar items at different stores.
(See Appendix I for sample budget and Appendix P for
activities)
The concept and process of Decision Making was
introduced in Module 1. Teachers may wish to review
this procedure and emphasize the importance of setting
reasonable aspirations, targets, and deadlines.
5.5 To help students prioritize
personal and financial goals.
A financial planner could be invited to the class to
discuss the importance of setting financial goals.
Students should be heavily involved in making the
arrangements for visit. Prior to the visit, students should
be involved in developing questions to stimulate
discussion.
Students should also be involved in introducing the
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guest, interviewing, making the thank-you statement
afterward, and sending a letter of thanks.
(See Appendix O for “Budget Busters” activity)
Planning for a venture is a key to success. Planning
begins after the careful selection and evaluation of goals
and ideas.
5.6 To identify various forms
of money management.
One of the key purposes of budgeting is to help to
determine when changes are necessary and to allow time
to make them. Are the students able to come up with an
example or two to support this statement?
A teacher may want to involve the elements of critical
and creative thinking.
Creative thinking skills include:




5.7 To understand how
limited personal financial
resources affect the choices
people make and the ways
budgeting can help.
ability to think creatively
ability to solve problems
confidence to make a decision and act upon it
ability to set goals, develop a plan to achieve
them, and carry out the plan
Techniques for problem solving as described by Edward
de Bono can be used at this stage. Awareness of and
experience with the six functions of the thinking hats is
essential for students to see things and view situations in
different ways. Edward de Bono’s “white, blue and
green hat thinking” can be emphasized here.
By wearing the various coloured hats the students would
look at their decisions from various perspectives and
decide if what they want to do is a good course of
action.
(See Appendix L for activity)
Students should examine their current saving and
spending behaviors and patterns to get an idea of how
much money they have on a weekly, bi-weekly or
monthly basis.
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5.8 To begin creating a budget Ask the students to brainstorm the qualities needed to be
successful at budgeting. A concept map could be used
help the students develop a picture of the budget and
what is required.
Teachers may also want to discuss the 3 R’s of money
handling:
Three R’s of Money Handling
 Reality – you’ll have limited amount of time and
money
 Responsibility – handling your money wisely
 Restraint – show restrain and save for what you
want most, not what looks good now
(See Appendix C & D for steps in creating a budget)
Students should monitor and track their spending and
saving habits for a period of time specified by the
teacher. Teachers may also to summarize personal
budgeting practices and demonstrate these skills in a
variety of situations.
5.9 To monitor spending,
income and saving patterns
and habits.
Teachers may wish to use the following activity: Ask
how many students stopped at a store at some point
during the day. Find out how much they spent and on
what. Compute the cost of stopping at the convenience
store every weekday during an eight-week period.
Hopefully they will see the amount of money that was
being wasted by buying coffee or muffins on the way to
school, ask the class how to save money. Students
should realized that if they had bought the items at the
grocery store and packed a lunch daily, the cost over an
eight-week period would drop and they would have
saved money.
This exercise should spark a conversation about
spending habits and how to curb them but still maintain
a fulfilling life.
Many students will already be practicing some of these
budgeting skills. It is important for students to identify
situations where this is occurring.
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For example, if a student is saving for a car, works in (or
has parents working in) a financial institution, or has a
part-time job, he or she can identify budgeting personal
qualities practiced.
(See Appendix J for budget tracking sheet)
Students should set goals for changes they can make
during this course of study or in the future.
Students should be aware of where they are now, what
characteristics they currently possess, and how they plan
to grow.
Do they like to take risks? What risks do they see as part
of their near future? Students should consider ways to
overcome any shortcomings.
Have students prepare a projected budget of income.
Reinforce the usefulness of a recordkeeping system to
verify and modify the budget.
Budgeting is a process that can be accomplished by
following a general step-by-step guide.
5.10 To design a budget for
earning, spending, saving, and
investing.
A general budgeting framework helps answer the
following questions:






What is to be done?
Why is it being done?
Where will this be done?
When will this be done?
Who will do it?
How will it be done?
Elements of a budget could be planned as a jigsaw
activity. The jigsaw structure promotes positive
interdependence and also provides a simple method to
ensure individual accountability. The basic premise of
jigsaw is to divide a problem into sections, one for each
group member. Each student receives resources to
complete only his/her part. The students who are
responsible for the same section join together and form a
new, temporary focus group whose purpose is for the
students to
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1. master the concepts in their section, and
2. to develop a strategy for teaching what
they have learned to the other students in
their original collaborative learning
group.
Teachers may wish to have their students make short
presentations on their projects and turn in a written
analysis. The presentations should show an example of
an individual budget. The students should list the
necessary items in their own budget and be ready to
justify each item. As an extra task, teachers may wish to
give the students a specific amount of money to divide
among their budget.
Have students reconvene one week later to discuss what
was bought and how one might further cut back on
expenses and save money.
(See Appendix F for budget creation, Appendix H for
budget worksheets, Appendix J for budget tracking)
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Key Terminology
Asset - items of ownership convertible into cash; total resources of a person or business, as cash.
Budget – A plan for managing income and expenses
Cash Flow\Decision Making – a measure of the money you receive and the money you spend
Delayed Gratification – is giving up something you want now in return for something better
later
Fixed Expense - a cost that does not change from period to period or that changes only very
slightly. Fixed expenses are usually paid on a regular basis, such as week to week, month to
month, quarter to quarter or year to year. Typical household fixed expenses are mortgage or rent
payments, car payments, real estate taxes and insurance premiums.
Financial planning – the process of defining goals, developing a plan to achieve them and
putting the plan into action.
Goals – are clearly, identified destinations of where you want to go, something you want or
need, which you acquire by taking certain steps.
Gross Income – The total amount of income earned before deductions are made.
Liabilities - anything that is owed to someone else.
Needs – are essentials, the basics such as: food, clothing, a place to sleep.
Net Income – Amount of income left after deductions are taken.
Opportunity Cost - The cost of an alternative that must be forgone in order to pursue a certain
action. Put another way, the benefits you could have received by taking an alternative action.
Scarcity - Insufficiency of amount or supply or a shortage
Variable Expenses – Expenses which vary from week to week or month to month (clothing,
food, etc.)
Values – are simple beliefs and practices in your life that are important to you. Many factors
such as: family, friends, religion, culture, etc. all influence your values.
Wants – simply increase the quality of living, such as: eating out, entertainment, or simply
things that are fun.
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Appendix A
Personal Finance Pretest
Budgeting
Name: _________________________
Date: _______
Class Period: ____________________
Grade: ______
Objectives:
A: Explain how scarcity affects economic decisions.
B: Prioritize personal and financial goals.
C: Construct a plan to achieve those goals.
D: Examine current saving and spending behaviors and patterns.
E: Identify key terms such as gross pay, net pay, deductions and benefits.
F: Explain the types of benefits provided by employers.
G: Distinguish between required and optional deductions.
H: Identify key terms such as disposable income, variable, fixed and period expenses.
I: Develop a budget.
Define scarcity and explain its effects on economy.
Define “goal” and list 2 short-term and 2 long-term personal goals. List 2 short-term and 2 longterm financial goals.
Create a plan to achieve one of the goals listed in your answer to the previous question.
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Appendix B
Name: ________________________________
Budgeting
Directions:
Evaluate the student by checking the appropriate number or letter to indicate the degree of
competency. The rating for each task should reflect employability readiness rather than the
grades given in class.
Rating Scale:
0 No Exposure – no experience or knowledge in this area
1 Not Mastered – requires instruction and close supervision
2 Requires Supervision – can perform job completely with limited supervision
3 Mastered – can work independently with no supervision
0 1 2 3 B. Set goals for a budget and financial
plan
 List the steps of the decision-making
process
 Identify short- and long-term
financial goals
 Identify primary and supplemental
income sources
 Identify anticipated expenses





Notes:
Develop a filing system for personal
finance records
Identify the roles and costs of
insurance in financial planning (e.g.,
auto, property, life, health)
Prepare a personal property inventory
Construct a personal
spending/savings (budget) plan
according to short- and long-term
goals
Describe how cost of living affects
our financial plan
Other:
Other:
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Appendix C
A budgeting plan can help you:






Stay out of debt
Identify areas for potential savings
Provide a cushion for unforeseen expenses
Save money for short and long-term goals
Avoid impulse spending
Establish financial control and direction
Seven Steps towards Developing a useful Budget
Know what you want to accomplish. You must have an idea about what you want out of life,
and you should write down your goals. These goals are the things you should be working toward.
It is not enough to just want to save money: you should know what you are saving for. The first
step in creating an effective budget is to know what is important to you and to write it down in
the form of goals.
Identify Income and Expenditures. Gather all paycheck stubs, statements, payment booklets,
check registers, credit card statements/bills, and receipts. Divide annual salaries by 12 to identify
monthly amounts. Feel free to create your own categories and make “best guess” estimates as to
certain amounts.
Plan. Create anticipated spending amounts for each category. Use our recommendations in the
following list to help you.
Housing: 23-33%
Life/Car Insurance: 4-6%
Food: 12-20%
Charities: 5-10%
Transportation: 7-10%
Personal Debt Repayment: 8-18%
Entertainment/Recreation: 4-6%
Clothing: 4-7%
Savings: 5-10%
Medical: 3-5%
Monitor Your Spending. The second step of creating an effective budget is generating a
statement that accurately reflects your income and expenses for a month or for another specified
period of time. Certain methods of payment are easier to track than others.
Checks and credit cards, for example, leave an automatic paper trail that is easy to examine at the
end of a week or a month. Cash, on the other hand, is more difficult to track because an
automatic physical record is not created each time it is used. To accurately track all expenses,
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you must keep a notebook in which you record expenditures paid for in cash, or better yet, to do
it electronically.
Budgeting software (if available) may also be helpful as you track your expenses. Software such
as Intuit Quicken or Microsoft Money can cut down on the time necessary to follow your
finances. Such software is especially useful if it is tied to your bank and credit card companies
through the Internet. Budgeting software is a great investment that can save you time if it is set
up and run properly, but it is not required to become financially self-reliant.
Implement your budget. Record all income and expenses in their proper categories: accurate
record keeping is a crucial part of good budgeting. Add up all the amounts listed in each
category, and make a note of how much you have left over in each category at the end of each
week. Be financially prudent—don’t buy things that you don't need or that you haven’t budgeted
for. Adjust your plan as necessary to make it work for you. Try to be financially prudent and use
each month as a learning experience to help you do better in the next month.
Review Your Progress. Compare your actual spending to your spending plan. Note any
discrepancies between the two amounts to find areas that need special attention. Examine your
spending to reduce or eliminate some expenses. Look for alternative ways to decrease or increase
savings, income, and expenditures. Your life is constantly changing and that includes your
financial situation. Review your spending plan at least once a month.
Make Changes. As you review your spending plan monthly and assess whether it meets your
changing needs, adjust expenses and/or income to reach your long-range financial goals.
Rework your budget as often as need by:
 Working with a budgeting sheet
 Incorporating unforeseen events
 Comparing planned expenses with actual expenses
 Designing a budget, keeping personal and financial goals in mind
Some tips for maintaining a budget are:
 Become a good consumer
o Learn how to get the most for your money.
 Exercise will-power and self-control
o Try to not indulge in unnecessary spending
 Develop a good record-keeping system and maintain a workable budget
o Evaluate your budget regularly
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Appendix D
The Budgeting Process
Phase 1:
Assess your personal and financial situation
(needs, values, life situation)
Phase 6:
Phase 2:
Review financial
progress and revise
budgeted amounts
Set Personal
and
Financial Goals
Phase 3:
Phase 5:
Compare your budget to what
you have actually spent
Create a budget for fixed and
variable expenses based on
projected income
Phase 4:
Monitor current spending (saving, investing) patterns
Phase 1: Assess your personal and financial situation
What are your needs vs. wants, what do you value and what is your current situation?
Phase 2: Set Personal and Financial Goals
You will need to first identify and prioritize some of your personal and financial goals. Ask
what are my goals? And why should I set goals? Remember goals help you get what you want;
they help you reach your destination.
Goals are separated into three goal ranges:
Short-term goals (1-4 weeks)
Medium-term goals (2-12 months)
Long-term goals (1 year or longer)
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What are the goal setting guidelines?







Prioritize your goals.
Educational Goals
Social Goals
Financial Goals
Family Goals
Health/Physical Goals
Recreational Goals
List your goals
What goals are the most important to you?
Next to your goals indicate whether they are short-term goals, medium- term goals, long-term
goals.
What can you do to work toward your goals?
Next to your top 6 goals, identify what can you be doing now to work toward this goal.
What resources do you need to achieve your goals?
Personal (abilities, skills, time, education, etc.)
External (money, car, tools, etc.)
Next to your top 6 goals, identify what resources you need to achieve each goal.
To obtain your goals you need to know how you will be able to financially achieve them.
Phase 3: Create A Budget For Fixed And Variable Expenses Based On Projected Income. You
will want to create and maintain a personal budget that supports your personal and financial
goals. You will first need to identify and estimate any current sources of income. Sources might
include: a job, parents, alimony/child Support, investments
You can also list any near future sources of income.
Knowing your financial situation, answer the following two questions:
How does it feel to be financially dependent?
How does it feel to be financially independent?
If your answers don’t make you feel good, you might want to think about ways you can change
your sources of income.
You also need to be able to identify and estimate your expenses, which will include:
 Fixed regular monthly expenses
 Fixed irregular monthly expenses
 Flexible monthly expenses
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In addition, identify and estimate your future expenses, which you can begin by keeping a record
of everything you spend. You will want to know what financial goals you have for obtaining
those plans. Because of life changes you will need to learn to cope with changes, plan for new
situations that might occur and plan for changing conditions that may increase or decrease your
expenses.
Once you know what your income and expenses are you can keep your personal and financial
goals in mind and set the money aside to help meet those financial goals. Then you can balance
your budget each month by compare your income to your expenses making sure that you income
is GREATER than your expenses.
You will want to continually look at your budget and rework it if necessary to make sure your
budget shows that your income is greater than your expenses.
Now that you have a budget you are on your way to achieving your goals, and you can identify
the steps you need to take and the resources you will need.
Phase 4: Monitor Current Spending (Saving, Investing) Patterns
To do this you can identify and examine your current spending behaviors and patterns by
keeping track of everything spend in one month and are able to answer the following questions:
What did you buy?
Can you see a pattern in your spending habits?
Of what you spent your money on, what were your
NEEDS? And what were your WANTS?
How did you decide what to spend and where to spend it?
Categorize how money is currently spent
(e.g., clothing, food, CDs, car, etc.)
Cash Flow\Decision Making – a measure of the money you receive and the money you spend
Opportunity Cost – choosing one option by giving up another and both may be good
Delayed Gratification – is giving up something you want now in return for something better
later
What might make a habitual Spender turn into a Saver?
What could turn a Saver into a Spender?
Phase 5: Compare the Budget You Prepared To What You Have Actually Spent For the Last
Month
Make sure that you are comparing the budget you have planned for your self to meet your
personal and financial goals is the same as what you are spending your money on. Refer to
phase 4 and change income, expenses, any patterns of spending, saving and or investing that you
need so that your budget and what you spend match.
Phase 6: Review Financial Progress and Revise Budgeted Amounts
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If you are not able to live with the budget you prepare, then revise your budget amounts so that it
will still allow for you to meet your personal and financial goals, yet allow you to be successful
in your current situation.
To make a financial plan, you will need to identify a few factors that are associated with
financial planning.
Theses are: needs, wants, values and goals (covered in Key Terms).
Needs – are essentials, the basics such as: food, clothing, a place to sleep.
Wants – simply increase the quality of living, such as: eating out, entertainment, or simply
things that are fun. However, life can go on with out them.
Needs should ALWAYS come before wants. A good financial plan distinguishes between needs
and wants. Needs and wants for everyone will vary depending in individual values.
Values – are simple beliefs and practices in your life that are important to you. Many factors
such as: family, friends, religion, culture, etc. all influence your values. Once you recognize
your values, you can identify your needs, wants, goals and what is important to you and how you
spend your money.
Goals – are clearly, identified destinations of where you want to go, something you want or
need, which you acquire by taking certain steps. Goals need to be in writing and based on your
values. To do this, define your goals in a “SMART” way.
SMART goals are:
S - Specific
M - Measurable
A - Attainable
R - Realistic
T - Time Bound
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Appendix E
What do you think of when you hear the word “budget”?
Reasons to budget include:
 To determine how much money you have to spend
 To decide how you want to spend your money
 To determine how to spend money in the future
 To learn to live on less than available income
 To stay out of financial trouble
What does it take to budget?
 Choosing a budgeting period
 Estimating expenses and income
 Balancing expenses and income
What does a budget do for you?
 Puts you in control
 Helps you create a visual spending picture
 Helps you prevent impulses spending
 Helps you decide what you can and cannot afford
 Enables you to keep track of how you spend your money
 Helps you create a savings plan
 Helps you decide how you can protect yourself against the financial consequences of
 unforeseen events
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Appendix F
Create Your Own Budget Worksheet
Here is a sample personal budget for you to complete.
Instructions
• First, decide what period of time you are budgeting for.
• Next, estimate your income (from jobs, allowance, gifts, etc.) for that period of time. Write
these items in the “Description” column (A), and the amounts in the “Income” column (B).
• After entering any income, add that amount to the total money you have available (D). That is
how much money you have available now.
• Identify each of your expenses during that time period.
• For each expense, ask yourself if it’s fixed, flexible, or discretionary.
• After entering each expense (A and C), subtract that amount from the total money you have
available. That is how much money you have available now (D).
• Decide how much money you will save during this time period. Enter this as an expense (C).
• Consider what you will do with any extra money you have available after you have identified
all the items you will buy.
• Decide what you will need to do if you don’t have enough money available for all the items
you want or need buy.
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Appendix G
Create Your Own Budget Worksheet
Monthly Budget for: ______________________________________________
A
Description
B
Income
C
D
Expenses
$Available
TOTALS
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Appendix H
Create a budget:
You get your first job, and you’re ready to move into an apartment and live on your own. How
do you know what kind of life you can afford? Will you have enough money to make it in
between paychecks? Let’s see.
Here’s a chance for you to see for yourself how to figure it out. Set up a budget for yourself.
Start by creating a spending diary. Record all of your income and purchases for the next two
weeks and use this information as the basis for creating a monthly budget for you to follow. (Be
aware that it might take a month or two to refine your budget.)
Category
INCOME:
Budget Amount
Actual Amount
Difference
INCOME
SUBTOTAL
EXPENSES:
EXPENSES
SUBTOTAL
NET INCOME
(Income - Expenses)
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Appendix I
Sample Budget
Roy Thomas, a full-time tour guide, has an annual salary of $15,000. After he pays his taxes and
health insurance, his annual salary is $12,000. This is what Roy's monthly budget looks like:
Income (after tax & health insurance)
$1000
Savings interest earned
$
Total Income
$1004
4
Fixed Expenses
Housing/Utilities
$350
Telephone
$ 30
Transportation
$200
Credit/Student Loan
$100
Savings
$ 71
Total Fixed Expenses
$751
Variable Expenses
Clothing/Personal Care
$ 50
Food
$110
Household Supplies
$ 25
Medicine/Health Supplies
$ 18
Entertainment
$ 50
$253
Total Variable Expenses
Total Expenses
$1004
Comparison
Total Cash Available
$1004
Less Total Expenses
$1004
Cash Balance
$
0
Appendix J
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Daily Budget Tracking Worksheet
Date
Item
Income
Expense
Balance
TOTAL
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Appendix K
Further Activities
Graphs, Lists, Charts, and Surveys
 Make a list of your wants and needs. Analyze your list. Arrange your need in order of
priority.
 Graph how you spent all of your money last week. (First make a list of the categories and
dollar amount for each.)
 Survey 25 students outside of your class to discover what they spend most of their money
on. Make a chart of the results.
 If you had a job that paid $825 per month and you were living alone, make a monthly
budget chart to show how you would spend your money.
 If you earned $15 per week as a student, make a weekly budget chart to show the items
and amount of money spent on each.
Discuss the subject of budgeting with students and why it is useful. Many college students
discover too late that they need to learn how to budget their money. Therefore, learning about
budgeting and how to create a budget will be helpful in establishing good money spending
habits.
The reason why people create a budget is to better plan on how to utilize limited financial
resources. A college budget needs to be focused on the income sources and expenses that are
more common for the college student. Use the budget worksheets page included to create a
budget.
A budget is broken down into two main sections, income and expenses. Income includes wages,
money from parents, student loads, scholarships, grants, etc. Expenses include rent, room, and
board, utilities, groceries, shopping, entertainment, car and transportation, tuition, books,
supplies, and other expenses.
For this worksheet, a monthly budget is used. However, monthly, yearly, or a budget for the
school semester may be used in practice.
Compare sources of income to expenses. Is this person above or below budget?
Discussion questions:
 Why is it helpful to have a budget?
 What can someone do if their expenses are greater than their sources of income?
 What can they do with the extra money if they have more income than expenses?
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Appendix L
Financial Plan Assignment
Describe a time when you wanted to buy something but you didn’t have enough money to pay
for it.
Explain ways you could save money for something you wanted to buy.
What are some examples of things you or you family need to buy versus things you’d like to
have?
What are some reasons you might want a written plan for how you are going to spend your
money?
Once you’ve learned how to select the appropriate career, how to determine the amount of
money you will be making and how to read your first paycheck, you will need to start making
the most of your hard earned money. You will want to do this so that you can make your money
meet your goals, whether it be to go to school, get a new car, or house, or become a millionaire
someday. To do this you will need to do some financial planning for the future and budgeting
for the present and near future.
Your assignment is to think through the things you want to accomplish in life. This is not a short
term assignment, and it is likely the most important part of your entire financial plan. The
purpose of this assignment is to have you write down your goals for your future and determine
where you want to be in the next day, week, month, year, or lifetime.
Be very specific with the goals that you set. And while some goals will change over time, many
of the goals which define your future actions need be made only once.
As you think through your goals, recognize that there are many different ways to organize them.
You can organize them by time frame: short-term, less than one year; medium term, more than
one year and less than ten years; and long-term, more than ten years. You can organize them by
responsibility: family, work, education, church, etc. And you can organize them by priorities,
with your highest priority goals first.
Once you have your goals you have to start planning for them in order to make them a reality.
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Appendix M
Do I REALLY need that?
NEEDS
WANTS
3 bedrooms (many children)
Fireplace
Yard
Quiet street
Close to subway or bus
Walk to schools, stores, library
Parking
Big fenced-in yard
No lead paint
Many windows
Part I: Not everyone will have the same needs and wants. Create your own needs/wants list to
consider when buying a home. This activity will help to establish priorities when doing a home
search.
Needs:
Wants:
Part II: Use your needs/wants list to write a paragraph about what you need and what you want
in a house and why.
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Appendix N
Activity 1: Life Expectancy
Use the life expectancy calculator at http://www.livingto100.com/quiz.htm to determine the
expected length of your own life.
All life expectancy tables are built on averages. In fact, of course, some individuals will live
longer and others less than the average person.




What is your life expectancy? Your parents? Your grandparents?
What factors might increase or decrease life expectancy?
How long can you expect to be retired if you retire at 55? 65? 70?
Do you think life expectancy will increase or decrease in the future?
Along the horizontal axis of your timeline, enter your birth date and estimated expiration date.
Activity 2: Work Life Expectancy
Why is the work life expectancy almost eleven years less than the social security retirement age?
[The work life expectancy takes into account many things which are not included in the social
security age. First, a person may leave the work force because of sickness or death. Women
leave the work force to raise children.] The full social security retirement age is 67. This is 11
years more than the work life expectancy of 56 years. The work life expectancy shows the
number of years one expects to be in the workforce earning wages and benefit. The work life
expectancy is therefore a better tool for calculating how much your retirement benefits will be
and how many years you have to save for retirement.
Add your work life expectancy to your timeline: the starting date for your work life and
retirement date. Estimate your annual income over the same period of years and plot. You can
also calculate your parents' work life and social security retirement dates and add them to your
timeline.
Activity 3: Filling out the Time Line
Fit other important dates on your timeline. These might include: [These events can vary.]





Graduation from high school and college
Year married
First car
First child and when the child will go to college and get married
First house and when you expect to stop making payments on your home (~30 years.)
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Appendix O
Have students complete the following “Budget Busters” activity.
1. Give yourself five points if you have a budget.
2. Give yourself five points if you have a checkbook.
3. Deduct a point if you have ever bounced a check.
4. Deduct a point if you bought something this week without comparison shopping.
5. Give yourself a pint if you bought a store brand, rather than a name brand item this week.
6. Give yourself five points if you have a savings account.
7. Give yourself five points if you added any money to your savings account this week.
8. Give yourself five points if you pay your own car insurance (or part of it)
9. Deduct five points if you routinely carry more than $10.00 in your purse or wallet.
10. Give yourself five points if you have a method of recording what you spend.
The students total their points. The winner is the person with the most points. Discuss this
activity as a class.
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Appendix P
“Some Money Facts”
$ The average person spends money three times a day.
$ A movie with popcorn and a soft drink can easily cost $20
$ Just one soft drink a day for .99c adds up to $361.35 in a year
$ What’s the biggest expense item for teenagers? FOOD!
To help students understand why preparing a budget is important, discuss the following example:
How would you like to drive on a road with no rules or guidelines? Perhaps not even
having a map to show you where you are going? When you operate without a personal budget,
you are doing the same thing with your money. You are spending your money without a
guideline or plan.
Activity 1: Collage (you can also give this to students as homework the day before)
Make a collage using clippings from newspapers and magazines which reflect our values about
money. Discuss the following:
 How are values (the money you spend, the car you drive, the activities you enjoy, the
clothes you wear, the friends you choose) expressed in your home?
 What is the predominant theme in the clippings you chose: health, friends, family,
Material comforts, beauty, church, education, etc.?
 Why are these values and goals important to you?
Activity 2: Have all students stand up. If they can not go with out spending money on the
following they need to sit down.
“For the rest of your life you cannot spend money on…. “
(Sit down if they cannot go with out spending money)
Opening day for movies, Manicure/pedicure, Golfing/club memberships, Hairstyles that
have expensive treatments (color, perms, etc.), Cell phones, Going out to dinner 2x a
week, Vacations in high seasons, Name brand clothes
87% of retires are retiring with $10,000 or less
Wealth is not what you spend but your net worth or accumulative wealth, what you have.
80% of millionaires have accumulated slow and steady
What is the portrait of a millionaire?
 Live in same city/town for over 20 years
 Live below their means
 Married 1 time and still married
 Usually owns a chain of stores or similar
At age 20 if you save $200.00 a month at 10% interest you will be a millionaire by the age of 55.
What is your financial plan?
Ways to improve your finances
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


Make more money
Cut your expenses
“Wait and win the lottery” system
You need to be proactive to improve your financial system.
Part of having a financial plan is having a budget.
Discussion:



What is a Budget?
Why do you have a budget?
Have students share their answers in pairs. After students have shared their answer in
pairs have the class discuss their definitions.
A budget shows you where your money goes. Budgets serve as a record and can be a
great help to you when computing taxes. Budgeting strengthens family communications.
Budgeting increases sharing, both in setting a plan and evaluating spending patterns; it is
beneficial, for financial matters can be a real source of conflict and even cause divorce in
some marriages.
Define budgeting terms as students take notes:
Discuss with students what is included in a budget for a family in a given month? Brainstorm a
list and record it on the board (2 volunteers write on board).
How does the typical family spend their money?
Remember living expenses vary depending on where you live, age, and personal goals.
But the typical family spends their income the following way:
Housing
14%
Recreation
Food
22%
Medical/Dental
Clothing
10%
Transportation
Personal
2%
Utilities, Home Repairs
Other
9%
and Improvements
7%
8%
14%
14%
Family Budget Activity: For the next four days students will create a monthly budget project
for a family using the monthly income of $2,000 per month (1 day=1 week, so groups get
installments of $500 each day (week), which they have to deposit in order to use.) If they choose
to be single they get $800 per month ($200 a week). Try to not give them that option unless they
are absent from class or other reasons. The teacher will assign students into groups of four.
Students will decide on their family name that will appear on their paycheck.
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On the fifth day students will have time to develop their journal/folder (in any format they
choose). This should include what their budget looked like, why they chose what they did, how
they adjusted for unforeseen expenses, any other problems they ran into, things they did
particularly well, and things they could have done better.
Using the percent amount next to the each category students will multiply it by their monthly
income to figure out the amount they can spend on a certain category. Once students have
figured out their monthly budget complete the following steps each day.
Students will write a check out for their Utility bills and all other bills. Explain to students that a
bill will be paid by them each day.
Students create budget for expenses on brainstorming list (must find actual products and prices
from newspapers, store flyers, the Internet, old bills (mock), etc.).
Describe what is expected in journal entries.
Students look in newspapers, etc. to find a place to live, food, etc. These prices are to be entered
into the budget.
Working copy of budget should be completed and students should reflect on how their group
came up with such a budget. They should discuss any problems, concerns, benefits, etc. in their
journals.
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Resources
Budgeting Lesson ideas. http://www.uen.org/Lessonplan/preview.cgi?LPid=4606
General Financial Literacy. http://www.uen.org/core/core.do?courseNum=520802#14172
Life Expectancy Timeline.
http://www.econedlink.org/lessons/index.cfm?lesson=EM128&page=teacher
Seven steps to creating a budget.
http://www.bankrate.com/brm/news/financial_literacy/Jan07_budgeting_howto_a1.asp?prodtype
=pfin
National Council for Economic Education (NCEE) Virtual Economics CD Rom – www.ncee.org
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Module 6: Savings and Investing (Core)
Suggested Time: 10 – 15 hours
Level: Introductory
Pre-requisite: None.
Module Overview
This module introduces the students to the basic principles of investing, so that they will have a
general understanding and knowledge on the topic. Students will learn key investment concepts,
and explore the basic investment vehicles and the advantages and disadvantages of each. This
module will help students to understand short-term vs. long-term investing, risk vs. reward, and
simple vs. compound interest.
Foundational Objectives





To implement basic concepts of investing.
To inform students on the importance of investing.
To help students realize and understand the various types of investment vehicles available
to them.
To demonstrate how interest works and how individuals can use interest to their
advantage.
To demonstrate how time can impact your investment.
Common Essential Learning’s Foundational Objectives





To enable students to make smart sensible decisions about investing and what kinds of
investment vehicles meet their financial goals. (IL)
To use mathematical skills for calculating simple interest and compound interest. (NUM)
To develop an understanding of how technology has allowed many changes and
conveniences for monitoring and tracking our investing and savings. (TL)
To promote decision making abilities in trying to match our investing goals with the
appropriate investment vehicles by contemplating our risk tolerance and length of time to
accomplish these goals. (CCT)
To enable students to communicate effectively with each other on group work activities
involving sharing expertise on their chosen investment vehicles. (COM)
Learning Objectives
Notes
Students should have a general knowledge on what investing
means. Ask students for their understanding and opinions of
investing. Get students to brainstorm a list of words that they
think would fall under the category of investing (this can be
done in groups or as an entire class).
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6.1 To develop an understanding
of what investing is and why it’s
important to us.
Let students know that there are many different ways in which
they can invest their money. Find out how many different
types of investment vehicles they know and what they know
about each one (again, this can be done by brainstorming as
group work or as an entire class).
Finally, students need to know why investing is important.
Discuss reasons why people may want to invest their money.
Include things such as tax breaks, increase value of personal
wealth, and saving for retirement. See if students can come up
with other reasons why investing is important.
6.2 To identify the basics of
investing and what individuals
need to know before he/she gets
started.
Students will learn the proper steps to getting started in
investing. They should learn how to:

Develop a personal investment strategy
-knowledge of financial markets
-your financial assets
-your risk tolerance level
-how much you plan to invest
Establish investment objectives
-what do you need from your investment portfolio, and
when you need it
Understand tolerance for risk. This includes factors such as:
-time horizons (time you have to meet your financial
goals)
-cash requirements (extent to which you depend on
investments to meet day-to-day expenses)
-emotional factors (emotional responses to risk and to
changes in the value of your investments)
Understand the importance of diversification
-don’t put all your eggs in one basket
Choose the right asset mix. There are three basic categories of
investment products or assets:
-equity investments
-debt investments
-cash or cash equivalents
Recognize the limits of their investment knowledge
-before investing, assess your own investment
knowledge and experience
-avoid investment products you don’t fully understand
Do their investment homework
-spend time doing your own investment research
Understand basic investment characteristics including:
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-expected return
-investment risk
-marketability
Ask the students the question “Why save?”
Get students to give purpose or reasons for saving money.
Some answers might include:
-in case of emergencies
-to take advantage of unforeseen opportunities
-to help reach financial goals
Explain to students what short-term savings is. Saving for the
short term is generally from one month up to a year and
usually deals with smaller amounts of money. Saving for
short-term goals is generally done with a savings account. Ask
students to give examples of things they might save for in the
short term. Students may brainstorm as individuals or as a
group. Now ask the students how they might go about saving
the required funds necessary.
6.3 To distinguish between shortterm and long-term savings.
Now explain to students what long-term savings is. Saving for
the long term is generally a time period of over a year and
deals with larger money values. Saving for long-term goals
may involve different types of investing. Ask the students to
give examples of things they might save for in the long term.
Once again, students should brainstorm ideas. Get students to
think up ways in which they might save for the funds
necessary.
The teacher should introduce the concept of “pay yourself
first” as a means of saving for both the short and long term.
Explain that this idea requires the individual to practice three
qualities:
-commitment
-discipline
-delayed gratification
6.4 To define and distinguish
between compound interest vs.
simple interest.
Students will learn the general concept of simple interest and
how to calculate it. Inform students of the definition and the
components used to calculate simple interest:
I = Prt
Where,
I = interest
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P = principal
r = interest rate (per year)
t = time (in years or fraction of a year)
Examples of simple interest can be found using the following
link:
http://www.moneyinstructor.com/art/simpleinterest.asp
The teacher can demonstrate a couple examples and then have
students practice work sheets on their own.
Once students have a good grasp of simple interest, the
concept of compound interest will be introduced. Compound
interest is calculated using the following formula:
S = P(1+i)^n
Where,
S = amount
P = principal
i = interest rate per conversion period
n = total number of conversion periods
Examples of compound interest can be found using the
following link:
http://www.moneyinstructor.com/art/compoundinterest.asp
The teacher should demonstrate several examples, as this
concept and calculation is more difficult. Students should
practice compound interest by completing questions on their
own.
Introduce the idea of savings accounts to students as a means
for short term saving. Have students talk to friends, relatives,
and parents about the various methods they use for saving
depending on the financial goals.
6.5 To analyze the basics of
savings, as well as compare
advantages and disadvantages of
saving as opposed to investing.
Discuss the advantages and disadvantages of savings accounts:
 Advantages
-simple way to earn interest
-money is easily accessible
-no risk involved
-can have smaller amounts of money
 Disadvantages
-low rate of interest
-fees, charges, and penalties
-may include a balance requirement
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Teacher and students may add to these lists of advantages and
disadvantages.
Inform students that there are a number of different savings
accounts that vary between financial institutions. Have the
class research different financial institutions and compare and
contrast the features and rates from different savings accounts.
Students will then present their findings to the rest of the class.
Teacher should emphasize the importance of starting to invest
at an early age. Explain how years of compound interest can
add up exponentially. Show investment chart included in
Appendix A.
6.6 To explore the importance of
investing at an early age and
introduce the basic categories of
investing.
Introduce the three main categories of investing which include:
 Cash and cash equivalents (like savings accounts,
treasury bills and money market mutual funds). This
category is virtually risk-free but produces the lowest
returns.
 Fixed-income investments (like GICs or Government
Income Certificates, bonds, and income mutual funds).
This category offers higher returns and provides a
regular source of investment income.
 Equity investments (like stocks and equity mutual
funds). This category contains high-risk assets which
can grow in value if the holder can wait it out, but can
also result in greater losses as well.
Have students research various investments in each category
and compare what characteristics they have and what kinds of
returns they yield.
Show students how we, as Canadians, tend to invest. Refer to
Appendix B.
6.7 To identify the various kinds
of investments vehicles and their
characteristics.
Teacher should introduce the 2 basic types of investments that
investment vehicles fall under. These categories are called:
 Lending investment – when you loan your money to an
institution, a company, or an individual and in return
you receive interest payments, as well as the principal
at the end of the loan period. Examples include
Canada Savings Bonds, GICs, and Corporate Bonds.
 Ownership Investment – means that you become the
actual owner or part-owner of your investment.
Examples include stocks and real estate.
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The teacher can introduce the various kinds of basic
investment vehicles available, as well as their characteristics.
A list of investment vehicles is provided in Appendix C.
A good instructional strategy to use would be jig saw, where
students are divided up into groups with each member of the
group given an investment vehicle to research and study. The
groups are then divided up into groups of students who are all
researching the same topic. After the students have mastered
their topic, they will reconvene back into their original groups
to teach the other members about their findings.
Teacher should discuss retirement plans and their importance.
In Canada there are three types of retirement plans:
 Employer-sponsored retirement plans
 Government pensions
 Your own savings and investments
The teacher should create discussion amongst the class on
topics of retirement such as:
-how much money will you need per year to live off of
once you retire.
-at what age do you plan on retiring.
-what will you need to put away each year to achieve
your goal.
6.8 To introduce and analyze the
importance of Retirement Plans
and how they work.
Give the characteristics of how retirement plans work:
 Federal income tax is not immediately due on money
put into a retirement account or on the interest it
makes.
 Income tax is paid when the interest is withdrawn.
 Penalty charges apply if money is withdrawn before
retirement age.
 Income after retirement is usually lower, so tax rate is
lower as well.
The teacher may want to introduce the students to a retirement
calculator on the internet and let them play around with it. The
teacher can also give scenarios or questions for the students to
figure out on the retirement calculator. This will help them get
more familiar with retirement planning. A retirement
calculator can be found at the following web site:
http://moneycentral.msn.com/retire/planner.aspx
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The teacher should inform students about what investment
fraud is and give examples. Some examples are provided in
Appendix D. The teacher can get students to research more
kinds of investment fraud on the internet.
6.9 To investigate and inform
students on investment fraud.
Discuss with students how someone could protect themselves
from becoming a victim of investment fraud. Some actions to
take include the following:
 Ask questions until your satisfied that you know
exactly what the investment offer is.
 Get a second opinion about the investment from a
trusted advisor.
 Never buy over the phone or online without first
investigating the source of the offer.
 Avoid investment opportunities promising large returns
in a short amount of time that seems too good to be
true. They probably are.
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Appendix A
Suzanne and Jack both save $1,000 per year ($83.33 per month or $19.23 per week). The money
each saves earns 10% interest per year. Suzanne starts at age 22 and stops at age 30. Jack starts at
age 30 and stops at age 65. On the face of it, you might think Jack will look better in the long
run, having saved for a full 35 years (as compared to Suzanne's eight-year effort). But the reality
of long-term savings isn't always what it appears.
The chart below demonstrates the value of starting to save your money early.
In this example, Suzanne only invested a total of $8,000. But by age 65, she will enjoy net
earnings of $380,865. Jack, on the other hand, will have put away a full $35,000 by his 65th
birthday. But his net earnings will be $294,039 -- $86,826 less than Suzanne's. Jack never caught
up.
Age
22
Suzanne
Savings Jack Invests Savings
Invests
1,000
1,100
0
0
23
1,000
2,310
0
0
24
1,000
3,641
0
0
25
1,000
5,105
0
0
26
1,000
6,716
0
0
27
1,000
8,487
0
0
28
1,000
10,436
0
0
29
1,000
12,579
0
0
30
0
13,837
1,000
1,100
31
0
15,221
1,000
2,310
32
0
16,743
1,000
3,641
33
0
18,418
1,000
5,105
34
0
20,259
1,000
6,716
35
0
22,285
1,000
8,487
36
0
24,514
1,000
10,436
37
0
26,965
1,000
12,579
38
0
29,662
1,000
14,937
39
0
32,628
1,000
17,531
40
0
35,891
1,000
20,384
41
0
39,480
1,000
23,523
42
0
43,428
1,000
26,975
43
0
47,771
1,000
30,772
- 112 of 201-
44
0
52,548
1,000
34,950
45
0
57,802
1,000
39,545
46
0
63,583
1,000
44,599
47
0
69,941
1,000
50,159
48
0
76,935
1,000
56,275
49
0
84,628
1,000
63,002
50
0
93,091
1,000
70,403
51
0 102,400
1,000
78,543
52
0 112,640
1,000
87,497
53
0 123,904
1,000
97,347
54
0 136,295
1,000
108,182
55
0 149,924
1,000
120,100
56
0 164,917
1,000
133,210
57
0 181,409
1,000
147,631
58
0 199,549
1,000
163,494
59
0 219,504
1,000
180,943
60
0 241,455
1,000
200,138
61
0 265,600
1,000
221,252
62
0 292,160
1,000
244,477
63
0 321,376
1,000
270,024
64
0 353,514
1,000
298,127
65
0 388,865
1,000
329,039
Value at age
$388,865
65
Value at age
$329,039
65
Less Total
Less Total
$(8,000)
$(35,000)
Contributions
Contributions
Net Earnings $380,865 Net Earnings $294,039
- 113 of 201-
Appendix B
How we invest (according to the Canadian Banker's Association)
40% of Canadians have mutual funds
20% have Canada Savings Bonds
18% have individual stocks
17% have GICs (terms of more than one year)
15% have GICs (one year or less)
11% have provincial savings bonds
8% have other bonds issued by government or corporations
7% have off-shore investments
6% have T-Bills
4% have index-linked GICs.
- 114 of 201-
Appendix C
Options: Lending Investments
(Cash/Cash Equivalent and Income)
Savings Account
An account held with a financial institution
Safe vehicle for short-term savings of any amount
High liquidity (easy to cash)
Canada Savings Bond (CSB)
A special type of bond issued by the federal government, purchased through financial institutions
Available only at specific times
Pay a fixed interest rate, subject to periodic adjustment by the government
Safe, guaranteed by the government and highly liquid (although the new Canada Premium Bond
is only cashable once a year on its anniversary date)
Unlike other bonds, cannot be traded
Available in various amounts and for as little as $100
Government Treasury Bill (T-Bill)
Short-term investment: terms of one month to a year (considered a cash-equivalent)
Safe, government-backed
Don't pay a specified interest rate, rather T-Bills have a face value; you purchase them at a
"discount" (less than the face value) and then redeem it at face value; the difference is your
return
Available in different amounts starting at $1,000
Can be purchased from most financial institutions
Term Deposit / Guaranteed Investment Certificate (GIC)
Term investments offered by financial institutions for a set period
Terms range from less than a month to 10 years.
New "market-linked" GICs guarantee principal, but returns are linked to some stock market
index
Terms range from less than a month to 10 years
Available in various amounts
Bankers' Acceptance (BA)
Short-term debt issued by corporations that is guaranteed by a bank
Highly liquid (terms to maturity of less than a year)
Considered safe, low-risk
Purchased at a discount on the "face value", the amount you will receive when the debt matures
Offer a fixed return, based on the difference between the discounted purchase price and the face
value
Largely used by high net worth individuals, as they are typically available in amounts of
$100,000 and up
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Commercial Paper
Similar to BAs, but without the guarantee of a bank
Available through financial institutions
Government Bond
Issued by the federal and provincial governments and available through most financial
institutions
Set at fixed interest rate, for a specified term
Safe (guaranteed to maturity by the issuing government) and liquid
Come in terms of one to 30 years
Can be sold in the bond market before maturity
Corporate Bond
Issued by a corporation and available through a brokerage house
Set at fixed interest rate, for a specified term
Backed by specific assets of the issuing company
Come in terms of one to 30 years and in various types
Can be sold in the bond market before maturity
Debenture
Type of corporate bond, but not secured by specific company assets. Simply based on the general
reputation of the issuing company.
Mortgage-Backed Securities
Fixed-rate investments that represent an ownership share in a pool of mortgages insured by the
federal government's Canada Mortgage and Housing Corporation
Minimum investment of $5,000; terms range from one to 10 years
Receive a monthly payment that is a blend of principal and interest accruing from the pool of
mortgages
Options: Equity Investments
Stocks
Stocks are issued by corporations where the investor becomes a partial owner of the corporation
by buying shares (also called stocks) of the company. There are two main categories of stocks:
"common" and "preferred." These are described in more detail below. Stocks are traded on stock
exchanges, or over-the-counter markets. Share prices and returns on stocks fluctuate with the
market, and there is no guarantee of income.
Common Shares / Stock
With common shares, investors typically have voting rights
Common shares are usually purchased for potential capital appreciation
If the company makes money, investors share in the profits; if the company suffers a poor year or
the markets decline, their share values may fall and dividends are unlikely
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Blue Chip Stocks are typically stocks of large, stable and actively traded companies with a
record of regular dividend payments
Penny Stocks are low-cost common shares (typically under $1), usually purchased for
speculative purposes and issued by start-up or unproven corporations seeking capital for
expansion
Small-, Mid- and Large-Cap Stocks are the results of corporations of all sizes issuing common
shares to raise money; generally, the smaller the corporation, the higher the risk
Preferred Shares / Stock
Are regarded as bond-like investments
Normally purchased by investors who want a steady stream of dividends, rather than capital
appreciation
Pay a dividend that is higher-yielding than common shares
Value and share price influenced more by interest-rate trends than by company's earnings
Don't typically give voting rights
They are preferred because you get a preferential claim to the assets/profits ahead of common
shareholders
Precious Metals
Gold, silver and other precious metals
Held in form of bullion (the actual metal) or certificates of ownership
Commodities
Bulk goods such as grains, metals, oil and foods
Traded on commodities exchanges.
Derivatives
A security whose value depends on the market value of something else, such as a stock or
commodity
They are complex investments used by sophisticated investors for speculative purposes or to help
manage risk (as a hedge against changing market conditions)
"Options" and "futures" are examples of derivatives; an option gives the investor the right to buy
or sell a specific security at a given price before a specified date; a futures contract obligates the
investor to buy or sell a specified amount of an asset at a set price on a certain date
Options: Mutual Funds
Today, 40% of Canadians hold some $290 billion in more than 1,300 different mutual funds.
A mutual fund is an investment product -- made up of several investors' contributions -- that a
professional fund manager invests in a variety of securities. This pool of wealth might be
invested in a specific market or geographic sector, in blue-chip companies or in small company
stocks. There are also "green" funds that only invest in environmentally friendly companies. The
manager monitors the investments on an on-going basis.
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Because mutual funds are overseen by a manager, investing in them frees up individual investors
from having to continually research and manage their own investments. Mutual funds are also
appealing because they:
Offer access to a wide range of investments
Are widely available (most financial institutions have a broad assortment on offer)
Are easy to buy (you can buy mutual funds through regular account withdrawals at most
financial institutions)
Give you the opportunity to have "instant diversification"
Fees
All mutual funds charge the Management Expense Ratio (MER), which is the annual cost of
managing and operating the fund. But there are other fees, too. It's important to inquire about
them. They include:
Acquisition or disposal fees ("no load" mutual funds are those that don't charge this fee)
Initial fee (this "front-end load" is charged when you buy a mutual fund)
Selling fee (this "back-end load" is charged when you sell a mutual fund)
Options: Real Estate
Some people put their money to work in other areas of investments. Perhaps the most common is
real estate.
With this type of investing, owners may be able to earn rental income and -- assuming real-estate
prices continue to rise -- see their capital investment appreciate over time.
Ways to invest
Buy a house, live in it, possibly spend some time and money improving it, and sell it later at a
profit
Buy income property (such as an apartment block or a commercial building) and rent it out
Buy land and hold it until it rises in value
Advantages
Excellent protection against inflation
Disadvantages
Can be difficult to convert into cash
It's a specialized type of investment that requires study and knowledge of the market
Capital gains
If you're venturing into real-estate investing, you need to brush up on the concept of capital
gains.
Capital gains are profits realized from the sale of a capital asset such as a share, bond or real
estate (if the real estate is not your principal residence). If a share is bought at $26 and sold at
$30, there's a capital gain of $4. These profits are tax-deferred, which means you don't have to
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pay the tax on them until the asset is sold.
In 2000, the Government of Canada reduced the capital-gains inclusion rate from three-quarters
to one-half. The inclusion rate is the portion of a capital gain that is subject to income tax. As a
result, Canada's typical top tax rate on capital gains is now about two percentage points lower
than in the United States.
If you buy property for the sole purpose of renting it out (rental property), you will be required to
pay capital gains tax if there is a capital gain on the property. For instance, if you bought
property for $200,000, and at the time of sale, it is worth $250,000, you will be taxed on the
$50,000 gain on the property. If however, you are selling your principal residence, and make a
profit on the sale, you will not be subject to capital gains tax.
- 119 of 201-
Appendix D
Some of the most common investment fraud schemes include:
West African Letter Scam
Individuals claiming to be high-ranking government officials or royal-family members from
developing nations send an e-mail requesting help removing large quantities of money from an
account. They ask people to show good faith by depositing funds in a mutually accessible bank
account or to provide a bank account number, in which they will deposit the money. The
individuals then drain the bank accounts and head for the hills.
Prime Bank Schemes
Scam artists lead investors to believe that they can participate in a secret trading regime through
the world's most prestigious banks.
Affinity Fraud
With this deception, scam artists hoodwink a group of individuals by joining a common-interest
or ethnic club and pretending to be "one of them."
Promissory Notes
These short-term loans, often sold as insurance products, promise high returns for the benefit of
borrowing your money. The companies offering the "investments" are often non-existent.
Pyramid Schemes
A Pyramid Scheme is a multi-level marketing (MLM) program that cannot support itself because
advancing within the system (and earning money) depends on recruiting other people into it,
rather than selling a product or service.
Offshore Investment Scams
Here, Canadians fall for the oft-heard promise that their Canadian dollars can flourish in an
offshore (usually warm-weather) tax haven. Swindlers convince people to give them money with
extravagant claims that they have no intention of fulfilling.
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References
http://moneycentral.msn.com/retire/planner.aspx
http://www.practicalmoneyskills.ca/moneyskills/students/budgeting.cfm
http://www.moneyinstructor.com/invest.asp
http://www.younginvestor.com/teachers/grades1012/articleDifferentInvestmentsGoals.as
p
http://www.frbatlanta.org/invoke.cfm?objectid=83FD49BB-9AF0-11D5898400508BB89A83&method=display
http://arkedu.state.ar.us/curriculum/pdf/peronal_finance.pdf
http://missouricareereducation.org/CDs/PersonalFinance/persfin.pdf
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This page intentionally left blank for notes.
- 122 of 201-
Module 7: Credit and Credit Cards(Core)
Created by: Andrea Robertson and Lindsay Seidler
Suggested Time: 15 – 20 hours
Level: Introductory
Prerequisite: Module 2: Decision Making and Money Basics, and Module 5: Budgeting
Module Overview: This module provides students with a clear understanding of credit.
It explores credit planning, reasons for an increasing popularity in credit, as well as why
people lend or do not lend money. The importance of credit-worthiness is also examined
along with ways to keep a good credit rating. The primary focus of this module is to
prepare students to be successful decision-makers about credit in their future.
This module will also build upon Module 5 by exploring further the nature of credit
cards, their proper use, and the responsibility required in being credit card holder.
Foundational Objectives:











To develop an awareness of reasons why people use or don’t use credit.
To become familiar with questions that should be asked when planning a credit
purchase.
To increase knowledge of the various types of credit available today.
To incorporate the 20/10 rule when calculating what you can afford.
To distinguish the different types of values that people hold about credit through
the use of interviews.
To demonstrate an understanding of credit cards and the advantages and
disadvantages of having a credit card.
To demonstrate an understanding of the components of a credit card and the
financial responsibilities undertaken when possessing one.
To seek information through a steadily expanding network of options including
libraries, databases, individuals, and agencies
To display an awareness of credit card theft and fraud and ways to protect one’s
credit card.
To promote both intuitive, imaginative thought and the ability to evaluate ideas,
processes, experiences, and objects in meaningful contexts.
To enable students to think for themselves and to recognize the limits of
individual reflection and the need to contribute to and build upon mutual
understandings.
Common Essential Learning’s Foundational Objectives:

To enable students to use language (listening, speaking, reading, writing) relevant
to the students and credit during presentations. (COM)

To seek information from a number of options including family, friends, and
people within the community. (IL)
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
To develop the skills and appropriate mathematics associated with the 20/10 rule.
(NUM)

To promote both intuitive thought and the ability to evaluate scenarios when
answering credit planning questions. (CCT)

To understand the benefit that credit knowledge will serve in their personal lives.
(PSVS)

To recognize the capabilities of the Internet when collecting information and
conducting research, and how they can best be utilized. (TL)

To enable students to understand and use the vocabulary structures and forms of
expression that characterize credit cards. (COM)

To enable students to think for themselves and recognize the responsibilities
attached to being a credit card holder, and the need to thoroughly examine and
analyze a wide range of credit cards before deciding to apply for one. (CCT)

To employ the appropriate mathematics in determining the cost to the consumer
of credit cards. (NUM)
Learning Objective
Notes
Credit is a promise to pay money in the future in exchange for the
right to receive goods &/or services or even money (cash) right
now. Credit is also known as an asset- one that has been loaned
out in hopes that one will pay it back.
Teachers may want to brainstorm with the class what would be
some reasons why people use credit. Brainstorming will vary.
7.1 To introduce the concept of
credit. To explore reasons why
people use credit, and why
people wouldn’t use credit.
To help the class come up with reasons to use credit, the teacher
could bring in some travel magazines, store catalogues or sale
flyers.
Some possible answers may include:
*Pay for ‘big’ purchases
Example: Boxing day sale on TV for one day only and you don’t
have enough money in your account.
*Emergencies
Example: Your fridge breaks down and is full of groceries that
will go bad if you don’t replace it. Or your roof is leaking during
a rainy season.
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* Family Vacations
Example: Someone in your family is getting married in the
Bahamas and since it’s short notice you don’t have enough saved
up.
Now the class will discuss reasons why people wouldn’t want to
use credit. Some examples the teacher may want to give are:
-Debt and financial trouble
-People start to rely on them too much
-Impulsive spending
-Stress and worry about paying it back
-Having to pay it back along with your present day expenses is a
real burden.
-the cost of interest
- ‘Credit dealers’, ‘shady pawnshops’, or ‘loan sharks’ that do not
follow government regulations could charge up to 300% interest!
The teacher can bring in magazines and newspaper for students to
make a collage of 5 items they think would be a good reason to
use credit, and 5 items that wouldn’t be necessary to use credit
for. If there is no access to those items teachers can get students
to just draw or list their items. Students should have an
explanation for each item on their collage/list.
Students should have an idea of what credit is, and why people
may use or not use credit. The class should be divided into small
groups or pairs (depending on the class). First as a class, the
teacher will go over questions that must be asked when planning a
credit purchase. They are:
7.2 To develop an
understanding of questions that
must be asked when planning a
credit purchase.
What goals do you hope to accomplish in making your decision?
What are the alternatives? If any?
What are the benefits of purchasing your item using credit?
What are the costs associated purchasing your item using credit?
And finally the students will make a decision based on their
responses to the questions
The teacher will give students scenarios. They will answer the
credit planning questions before coming to a decision.
*See Appendix A for a worksheet with scenarios and a table with
the questions for students to answer.
Worksheet Modified from Economic Education Web. Found at
http://ecedweb.unomaha.edu/k-12/home.cfm
- 125 of 201-
7.3 To explore what has
contributed to the increasing
popularity of credit.
Teacher could propose a question like “What has increased the
popularity of credit?” Students could break off into small groups
and try to come up with as many reasons as possible for the first
ten minutes of class.
Then, an overhead could be put up with the various things that
have contributed to credit becoming so popular.
Task: During the week, students could interview an older relative,
or neighbour as well as someone younger that has used credit in
the past or is currently using it. They will try to get at least 3
different answers from each person as to why that person thinks
credit has become so popular over the years.
The students could present their findings and the class could have
a discussion on what makes the older generation feel differently
from the younger one, if there is any difference at all. The
interview activity will help the class explore reasons from outside
sources that hopefully weren’t discovered in class. However if
answers are the same it will show support for the overhead
presented earlier. There are no specific right or wrong answers on
this.
*See Appendix B for a sample overhead.
Teachers should introduce some motives for lending such as:
• Family/ Friends- in that they want to be helpful if you are in
need
• Financial Institutions like banks- Interest (money) can be earned
7.4 To be aware of the motives
behind people lending or not
lending money through acting.
Teacher should also introduce some motives people have for not
lending such as:
• May ruin relationships with family and friends if the credit use is
abused
• Have no job/ salary in order to pay back debts
• People no longer have trust in you
• Total debt to service ratio (20/10 Rule)
Students could be paired up and they will have to role-play a
reason why someone would lend money or not lending money,
it’s their choice. They can either use one that the teacher has
introduced or one that they come up with on their own. Their
role-play should be no longer than 2 minutes. Some sample
scenarios are found at Appendix C.
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The scenario that they choose to act out can have sound, visuals,
and props but cannot give away any specific names of people,
places, or things.
(Example: If you are acting out that you are buying a prom dress,
you don’t actually say the word prom dress) The first pair to
guess what is being acted out will receive a point. Someone will
be designated to keep track of all pairs’ scores.
This activity could go on for an entire class, or as long as the
teacher feels necessary.
This gets the class thinking of scenarios and motives that can
surround lending.
Teacher should explain the 3 principal types of consumer credit.
They are:
*Single-Payment credit
*Instalment credit
*Revolving credit.
7.5 To list and understand the
three principal types of
consumer credit.
It is suggested to use Appendix D as a handout for students.
Students could be asked to write a mini quiz the following day to
show their understanding.
*NOTE* This particular objective would not be necessary in
order to do the entire module successfully. However it helps to
supplement the next learning objective.
The teacher may want to consider having a loan or credit expert
from a local financial institution do a presentation on the various
types of credit that are out there today.
7.6 To discover the various
types of credit that are
available.
In addition to that, students could do a matching exercise before
the guest speaker comes to see how much they already know
about the various types of credit.
See Appendix E for a sample matching exercise.
After the presentations, teachers could randomly assign students a
specific type of credit in which they will become experts on.
- 127 of 201-
They could use a computer lab and the Internet in order to find
information on their credit type.
Each student could create a PowerPoint presentation, based on his
or her findings. Students could be involved in evaluating their
peers for the presentations.
Some students may end up doing the same credit source.
The 3 C's of credit comprise your entire financial life.
It is important for students to learn about the 3 C’s of credit
because in order for them to be considered to receive credit, their
Character, Capacity, and Capital (Collateral) will be looked at.
And, being prepared and knowing what they will look at will
improve your chances to get the credit you are hoping for. The
lender views each of the 3 C’s of credit independently as well as
collectively. And, depending on whom you are going through to
get the money, all places have guidelines for analyzing the 3 C’s.
7.7 To identify the 3 C’s of
credit. To analyze whether
someone is credit worthy and
the importance of having good
credit.
An overhead that the teacher may want to use is found at
Appendix F.
Teachers may also want the class to then rate people based on the
3 C’s, as they decide whether or not the person is credit-worthy!
Activity can be found also in Appendix F following the overhead.
* Note: Students need to know that in some instances Collateral is
the term used for the concept of Capital.
Sources:
http://myhomelender.com/3Cs.html
http://www.econedlink.org/lessons/index.cfm?lesson=EM481&pa
ge=teacher
http://www.econedlink.org/lessons/EM481/docs/em481_Who_is_
Creditworthy.swf
There are 3 well known credit bureaus when getting your credit
rated. They are:
•Experian
•TransUnion
•Equifax
Experian is a global leader in providing analytical and information
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services to organizations and consumers to help manage the risk
and reward of commercial and financial decisions. They support
clients in more than 60 countries.
TransUnion is a global leader in credit and information
management. They have worked with businesses and consumers
for over 30 years to gather, analyze and deliver the critical
information needed to build strong economies throughout the
world. The result? Businesses can better manage risk and
customer relationships. And consumers can better understand and
manage credit so they can achieve their financial goals.
7.8 To examine 3 well-known
credit bureaus that keep track
of one’s credit rating. To
introduce the concept of FICO.
Equifax Canada Inc. is the leader in the consumer and commercial
credit reporting and information services industry. Even though
many Canadians have never looked at their own credit report, it’s
very important! Equifax Canada Inc. has designed a Consumer
Information Centre to inform you about credit reporting in
general, how to obtain a copy of your credit report, and helpful
tips on credit ratings.
FICO scores are the credit scores most lenders use to determine
your credit risk. You have three FICO scores, one for each of the
three credit bureaus – Experian, TransUnion, and Equifax. Each
score is based on information the credit bureau keeps on file about
you. Your FICO score can range from 300-850. The higher your
FICO score the lower your payments are due to lower interest
rates. FICO is an acronym for the creators of the FICO score, Fair
Isaac Credit Organization.
Your 3 FICO scores affect both how much and what loan terms
(interest rate, etc.) lenders will offer you at any given time.
Students must know that they have the right to review their own
credit files and correct or challenge any unfavorable items.
The FICO score takes into account various factors in each of these
five areas: payment history, current level of indebtedness, types of
credit used and length of credit history and new credit in
determining credit risk.
Teachers may want to take students into a computer lab to go over
the frequently asked questions found at the Equifax website at:
http://www.equifax.com/EFX_Canada/consumer_information_ce
ntre/faqs_e.html
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7.8 continued…
Depending on class size, the teacher may want to have each
student learn an answer to one or two of the FAQ’s. Then, a
jigsaw activity could take place where each student teaches what
he or she has learned, while learning from the rest of the class.
Sources:
http://www.myfico.com/CreditEducation/
http://www.investopedia.com/terms/f/ficoscore.asp
http://www.experiangroup.com/corporate/about/
http://www.transunion.com/corporate/aboutUs/whoWeAre.page
7.9 To identify ways to
establish and maintain credit
worthiness.
Building a good credit record and maintaining it is an important
step in reaching financial independence and can be established by:
• Making at least the minimum payment due.
• Paying all your debts on time.
• Knowing your financial situation and ability to repay before
you borrow.
• Be honest in filling out credit applications. The only protection
for the lender who has been lied to is to conduct a through
investigation of every applicant.
• Read and understand a credit contract before signing it. It’s
your responsibility to know what you are committing to.
• Accept the consequences of nonpayment or late payment. There
may be a late charge and you owe it. If you default, you may lose
your collateral or other assets.
Source:
http://www.chase.com/ccp/index.jsp?pg_name=ccpmapp/shared/
marketing/page/what_is_credit
Students should realize by now that they should only take on as
much debt as they can afford!
7.10 To analyze the 20/10 rule
in understanding what you can
afford when using credit.
Teachers can introduce the 20/10 rule. A handout for students can
be found at Appendix G. Scenarios of different characters could
be given to the class in order to calculate what they can afford
using credit.
For example, Susie may want to purchase some new clothes for a
new job that she recently got. She believes that it will cost her
around $150. Her monthly net income is $1,000 and her fixed
monthly rent is $400. Will she be able to carry a safe debt load
for the month if she buys new clothes worth $150?
You would take her $1,000 monthly net income x 10% to get
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$100. Her fixed monthly rent (mortgage payment) is not counted
as part of the 10%. So Susie could say that she has a safe debt
load of $100. If she chooses to spend
$150 on new clothes she is spending more than she can actually
afford!
When you use the 20/10 rule you are helping to find what your
safe debt load is. It should be stressed that when you are finding
your safe debt load you don’t take into account any monthly rent
expenses. An excellent activity to go through as a class is found
after the 20 / 10 rule handout.
Students could participate in a fun interactive game on credit
from the Money Talks website found at:
http://www.moneytalks.ucr.edu/english/games/game_credit_matc
h.htm
Other related excellent sites
*http://googolplex.cuna.org/20988/cnote/story.html?doc_id=888
*http://googolplex.cuna.org/20988/cnote/creditscore/start.htm
Teachers should introduce and provide a definition for a credit
card and explain how a credit card differs from a debit card.
(Debit cards were discussed in Module 3: Banking Services)
As a review, teachers should inform students that although debit
cards and credit cards are similar, there is a distinct difference.
The difference is that a debit card draws funds directly from your
chequing account, while a credit card draws funds from an
available line of credit
7.11 To introduce the basics of
credit cards and the difference
between a debit card and a
credit card
Teachers should introduce and explain terminology relating to
credit cards such as annual fee, interest rate, cash advance, grace
period, and minimum payment (see Glossary).
A credit card is first and foremost a convenient and flexible
payment tool accepted at 620,000 outlets in Canada and 30
million locations worldwide. Among its many features it
provides:



Access to unsecured credit (no collateral required against
amounts charged)
Interest-free payment from time of purchase to the end of
the billing period
Instant payment of purchases, allowing for instant receipt
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


of goods and services
24/7 access
Fraud protection
Other rewards and benefits, such as air travel points, car
insurance, damage and loss insurance, and extended
warranty programs
Teachers may also want to discuss the do’s and don’ts of credit
cards at this point:



When applying for a credit card – shop around (look at
various sources)
Read and understand the contract:
- read the contract carefully
- don’t rush into signing anything
- obtain a copy of the contract once you have signed it
- know the penalties for missed payments
Know your cost
- figure out total cost when paying with credit
- make the largest payments possible
- know the penalties for missed payments
- don’t be misled into thinking that smaller payments are
better
Teachers may also want to provide students with background
information about the use of credit cards and statistical
information (See Appendix). The Canadian Bankers’ Association
has relevant and up-to-date information regarding the use of credit
cards (visit the following website:
http://www.cba.ca/en/viewDocument.asp?fl=5&sl=111&tl=&doci
d=246&pg=1)
The following website also has a great quiz on credit cards which
could be used to determine the students’ prior knowledge on
credit cards and then again at the end of the unit as a post-test.
http://googolplex.cuna.org/20988/cnote/plas_surg/start.htm
The Financial Consumer Agency of Canada also has a credit card
quiz which could be given to students or used by the teacher for
additional information:
http://www.fcacacfc.gc.ca/eng/consumers/ITools/Quizzes/CreditCardQuiz.asp?sn
=0
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The four major credit card networks are MasterCard, Visa,
Discover, and American Express.
7.12 To identify and analyze
the major distributors of credit
cards
A jigsaw strategy could be used by having teams of four, with one
member of each team researching the costs and features of a
standard credit card for one of the four major networks (See
Appendix H for instructions and sample worksheet). The
following websites may aid the students in their research:
http://www.visa.ca/en/personal/cardsandproducts/
http://www.mastercard.com/ca/gateway/en/index.html
http://www.americanexpress.com/canada/en/homepage/default.sht
ml?ca_en_nu=global
http://www.discovercard.com/discover/data/home.shtml
Exploration of other networks such as Diner’s Club and Bankcard
could also be undertaken.
A guest speaker from a bank or other financial institution may
also be a useful resource in helping students to understand the
credit cards available.
Students should be familiar with the advantages and
disadvantages of credit cards. Teachers could facilitate a
brainstorming session or research activity with students searching
the Internet or other resources for information relating to the
advantages and disadvantages of credit cards.
Some advantages of credit cards are:
7.13 To determine the
advantages and disadvantages
of credit cards
1. Purchasing Power and Ease of Purchase - credit cards
make it easier to buy items
2. Protection of Purchases – credit cards sometimes offer
additional protection if something one has bought was
stolen, damaged, or lost.
3. Building a Credit Line – having a credit card and using it
wisely will help to build a good credit history
4. Emergencies – credit cards are useful in emergencies and
situations which may lead to the necessity of a large
purchase
5. Other Benefits – bonuses such as air miles, travel
discounts, and special insurances.
Some disadvantages of credit cards are:
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


Blowing your Budget – credit cards encourage people to
spend money that they do not have.
High Interest Rates and Increased Debt – credit card
companies can charge an enormous amount of interest on
each balance that the holder can’t pay at the end of each
month
Credit Card Fraud – credit cards and credit card numbers
can be stolen, and someone can use this information to
rack up debts.
Students should be introduced to a credit card application form
and know what the credit card company requires and how they
will be approved. (See attached pdf file for a sample application
form).
Students should also be aware that banks distribute credit cards
for the major networks, so should they want to apply for a credit
card, they can visit their financial institution to obtain an
application form and discuss their options.
7.14 To examine the credit card
application process
Basic information required when filling out an application form
include date of birth, address, social insurance number, and
driver’s license number.
Teachers may also want to discuss pre-approved credit card offers
that are mailed to prospective clients. Students could bring
samples of these offers, by asking their parents if they receive any
and then bringing those to class. Students could then compare the
different offers being made and spend time reading the ‘fine print’
to see what hidden fees and costs exist with such an offer.
The time companies take to approve a credit card varies
dependent on the type of card. Generally, the better one’s credit
rating is, the faster the response time is for a credit card
application – once the decision has been made, the credit card will
notify the applicant by mail.
7.15 To analyze the
components of a credit card
statement
Students should become familiar with the credit card statement to
ensure they understand the components and what information the
statement provides.
A credit card statement will show all purchases and payments the
holder has made using their credit card. Each statement will
cover a set period of time, usually a month. Purchases and
payments made since the date of the last statement will be shown
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on the current statement.
Other components of a credit card statement include:
 Account Name and Number – reference number that should
be quoted when making inquiries
 Statement Date – transactions up to this date will be shown
 Previous Balance – amount owed on your credit card
statement
 Finance Charges (if any) – interest charges on outstanding
amounts
 New Transactions – details of new transactions
 Payments & Credits – payments made on the account
 Credit Limit – upper limit available on the credit card
 Available credit – amount one can spend (difference between
credit limit and new balance
 Minimum payment (and due date)
 Monthly Interest – the minimum amount due on the account
Students could be given an activity where a credit card statement
is analyzed (See Appendix I for sample activity and answer key).
Students should be familiar with calculating simple and
compound interest based on Module 4: Savings and Investing.
Teachers should explain how any interest accrued on a credit card
works against the holder (as opposed to a savings initiative).
7.16 To investigate the interest
component of a credit card and
discover the impact of carrying
a balance on a credit card.
7.17 To explore the meaning
and purposes of a credit card
limit
Students should also understand that card issuers make money
from the interest payments that consumers are required to pay if
they don’t pay off their bill each month. The more a credit card
holder pays each month, the less their interest payment will be in
the end. An example to illustrate the impact of carrying a balance
and how the amount of the payment made affects the amount of
debt could be used (see Appendix J).
A credit limit is the maximum amount that a credit card company
will allow a card holder to borrow on a single card. Some lenders
will allow a borrower to exceed this limit, but then subject the
borrower to fines or penalties
A credit limit is much more than a cut-off point for spending – it’s
a reflection of how a particular credit card company gauges one’s
credit worthiness and one’s likeliness to charge away on their
credit card.
Students should be aware that they can turn down offers to raise
their credit limit from the credit card companies simply by calling
the issuer and asking them to either stop increasing their limits at
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all times or at one particular time. The main motivation that
credit card companies have for increasing a credit limit is their
bottom line.
Credit limits provide advantages – they serve to protect the
borrower from getting in over their heads and borrowing too
much money and they also protect the lender from being
overexposed to borrower’s getting too far into debt. Credit limits
may also restrict the borrowing capacity of the borrower, reducing
the value of items that they can purchase.
Students should identify and analyze current credit card scams
and theft and come up with ideas on how card holders can protect
themselves. Warnings about credit card scams often come
through email and students should be encouraged to look for these
notices or ask their parents if they have received any.
Students could also page through newspapers or search online for
stories on how credit cards have been stolen and who has been the
victim.
7.18 To explore how credit
cards are stolen
The RCMP website:
(http://www.rcmp-grc.gc.ca/scams/ccandpc_e.htm) has current
statistics on counterfeiting and credit card fraud (See Appendix K
for 2005 statistics).
In 2007 many credit card numbers were jeopardized after a thief
hacked into the database for HomeSense and Winners. Credit
card companies responded to the hacking by issuing new credit
cards to all of their customers. Students should be encouraged to
investigate the scams and also how credit card companies respond
to the crimes.
Students should become aware of the steps they can take if they
find unauthorized transactions their account and how to protect
themselves from unauthorized transactions.
7.19 To determine how to
handle unauthorized
transactions and to determine
ways to protect credit cards
from theft and fraud
Teachers could facilitate a brainstorming session and have
students come up with their own ideas how to protect from credit
card fraud.
The following are ways which credit card holders can protect
themselves from unauthorized transactions:


As soon as you receive a new card, sign the back. Cancel
and destroy any cards you no longer need.
Make sure your monthly credit card statement lists only
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



the transactions you made during the month. If you notice
any unauthorized transactions, report them immediately to
your credit card issuer.
Don't give personal information or your credit card
account number over the phone or the Internet unless
you're dealing with a company you know and trust.
Keep your personal information safe. This includes your
date of birth, your social insurance number (SIN) and all
your other personal identification.
Request your credit file from the credit bureaus at least
once a year to make sure it's accurate.
Keep any record of your personal identification number
(PIN) separate from your credit card and never disclose it
to anyone.
The following are the steps which holders can take if they find
unauthorized transactions on their statement:



Contact the credit card issuer and report the unauthorized
transactions
Check the credit card agreement – the agreement must
explain the maximum liability in the case of lost or stolen
credit cards, or the unauthorized use of the credit card.
Find out if the credit card company has a “zero-liability
policy” on unauthorized transactions.
The following is a list of 10 things that holders can do to protect
their credit cards:






Never leave your cards unattended at work. There are
more credit card thefts in the workplace than in any other
single location.
If your credit card is programmed to access an Automated
Banking Machine (ABM), protect your Personal
Identification Number (PIN) or security code. Don't
write it down, memorize it.
Don't leave your credit cards in your vehicle. A very
high proportion of credit cards are stolen from motor
vehicles.
Always check your card when returned to you after a
purchase. Make sure it is your card.
When travelling, carry your cards with you or make
sure they are in a secure location.
Report lost or stolen cards immediately. Most
fraudulent use of cards takes place within days of their
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



being lost or stolen.
Sign the back of a new card as soon you get it. Destroy
unwanted cards so no one else can use them.
Make a list of all your cards and their numbers. This
key information is helpful when reporting lost or stolen
cards.
Always check your monthly statement. Make sure the
charges are yours.
Never give your card number over the phone unless
you are dealing with a reputable company. The only
time you should give it is when you have called to place
an order.
Students should also be familiar with charge cards offered by
retail stores such as The Bay, Zellers, Canadian Tire, and Sears.
Students should also identify the pros and cons of retail charge
cards and be aware of how these cards differ from credit and debit
cards.
7.20 To explore the nature of
credit cards (retail cards)
distributed by retail outlets
Students should research these cards and compare the costs and
features to that of a regular credit card. The results of the retail
card investigation can be compared to the results from the
“Shopping for Credit” activity in objective 7.12.
The Financial Consumer Agency of Canada has compared the
features of four retail cards at the following website:
http://www.fcacacfc.gc.ca/eng/publications/CreditCardsYou/pdfs/Retail-e.pdf
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Appendix A
Planning Your Credit Purchase
Directions: For each situation listed below, complete questions on the Activity sheet, to
help determine decisions that need to be made when planning to make a credit purchase.
Each person named also is expected to pay all credit card balances and fees.
Situation 1
Jennifer is a senior in high school. Her parents gave her a credit card and told her that she
may
use the card only in case of an emergency. As she was walking across the Mall, she saw
the perfect dress for the senior prom in a store window display. The prom is two weeks
away. The tag on the dress was $125.00. Also on the window was a sign: One day only,
all items 25% off ticket price. Jennifer’s grandmother, a dressmaker, told her if she
needed a special outfit, she would be willing to sew it for her. What should Jennifer do?
Situation 2
Tony spends much of each day in his car commuting from home to school and work. His
parents gave him a credit card to be used only for emergencies. Recently, the radio in his
car went on the blink. He enjoys listening to music on his long drives. He went to the
repair shop and was told it would cost $75.00 to diagnose the problem. To fix the
problem, he would have to pay additional costs for labour and parts. The repairperson
told Tony that his shop had a special sale on a portable CD player for $150.00. What
should Tony do?
Situation 3
Sarah is a college student who had volunteered to drive three members of her debate team
to the state debate championship in a city 75 miles away. As they were approaching a
small town half way to their destination, they stopped at a fast food restaurant to get
something to eat. When they got back into the car, the car would not start. The girls got
out and pushed the car to the gas station next door. Sarah was told her battery was dead
and a new one would cost $80. If the girls pooled all their money, they would have just
enough money to purchase the battery. Sarah could have the car jump-started and hope
that the battery will recharge itself during the rest of the trip. The service station attendant
will accept her credit card. Sarah is responsible for paying all her auto repair bills. What
should Sarah do?
Situation 4
Jason is an honours pre-med student at the state university. He is on a very limited
budget. Each semester, he charges his tuition and fees. He pays for his books with money
in his savings account, which has only $30 left. One of his professors strongly
recommended that he purchase books on an optional reading list that cost $250 to better
prepare him for medical school entrance exams. A high score on the entrance exam may
help Jason get a scholarship to attend medical school. What should Jason do?
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Glossary of Key Terms
Annual Fee A charge levied each year for use of a credit card. It's billed directly to your
monthly statement. However, many credit cards come without an annual fee.
Annual Interest Rate The annual interest rate charged on purchases that don't benefit
from the interest-free period. There is no interest-free period for cash advances or balance
transfers, and interest is charged from the day you withdraw the funds.
Balance Transfer The transfer of an outstanding credit card balance from one card to
another, usually between different institutions. The new card issuer usually charges
interest from the day the amount is transferred to the new card -- there is no interest-free
period.
Cash Advance The withdrawal of funds from your credit card, up to the credit limit
allowed. The amount you withdraw may be subject to daily limits. There is no interestfree period, so interest is charged from the day you withdraw the funds.
Convenience Cheque A cheque provided by the credit card issuer and drawn on your
credit card account. You can use a convenience cheque the same way you would a
personal cheque. When you use a convenience cheque, the transaction is treated as a cash
advance for the purposes of calculating interest charges - there is no interest-free period
and you're charged interest until you pay back the amount of the cheque in full.
Grace Period The grace period is the time between the statement date and the payment
due date, and is determined by the credit card issuer. The grace period usually varies
between 15 and 26 days and is part of the interest-free period. The grace period may not
apply unless you meet certain conditions.
Interest-Free Period The interest-free period on new purchases starts on the date you
make a purchase and ends when the credit card issuer begins charging you interest on that
purchase. The interest-free period includes the grace period determined by the credit card
issuer. It may not apply unless certain conditions are met.
Minimum Payment The minimum amount payable each month on your credit card
balance.
Penalty Interest Rate The rate at which penalty charges are calculated. It only applies to
charge cards.
Prime Rate The interest rate a financial institution charges on loans to its best customers.
Reference Rate A base rate, such as the Prime Rate, used in the calculations of variable
credit card interest rates.
Reward Program A program offered by credit card issuers that gives cardholders
rewards for using their credit card. You collect reward points every time you charge a
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purchase to your card. You can usually redeem these points in merchandise, travel or
cash, depending on the program.
Security Deposit The amount you deposit with a credit card issuer as security to obtain a
secured credit card.
Glossary terms taken from:
http://www.fcac-acfc.gc.ca/eng/publications/CreditCardsYou/glossary_e.asp?pm=1
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ACTIVITY SHEET
What goals do you hope to accomplish
in making your decision?
What are the alternatives?
What are the benefits of purchasing the item
using credit?
What are the costs associated with
purchasing your item using credit?
Make a decision
• Which alternative best matches your goal?
• What do you gain with each alternative?
• What do you give up with each alternative?
Modified Source:
http://ecedweb.unomaha.edu/k-12/home.cfm
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Appendix B
What has contributed to credit becoming so popular?
• People are more willing to take on debt than in the past.
• There are more funds available for borrowing.
Example: the 1930’s (Dirty 30’s) there was no such thing and people wouldn’t even
dream of it. And, today people have the luxury to borrow money.
• People are better off today, meaning a higher ability to pay off debt.
• Borrowing (credit) is popular due to higher prices of things.
Example: As prices of products and services rise so does the need to borrow
* The higher price of gas may cause some people to have to borrow money just in order
to drive their vehicle!
• People are more confident and knowledgeable which gives them belief in using credit.
• Today most households are dual-income allowing the ability to use more credit and pay
it back more easily.
• Lifestyle: People are living more for today, and not waiting for tomorrow!
• People think they need to live up to friends and families spending habits so they use
credit. The saying “Keeping up with the Jones” applies here.
• Can you think of any others?
Source:
The Canadian Banker’s Association – A teaching aid for grades 9 11 (1984
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Appendix C
People lend scenario:
Grandfather writes a cheque to you in order to help pay for your tuition. He feels good
about lending you the money since you are the only grandchild.
People lend scenario:
You have good credit, so the bank has no problem in loaning you some money in order to
finance your first home.
People lend scenario:
A stranger sees that you need some extra change in order to ride the bus. They offer the
money without holding back.
People lend scenario:
Your best friend and you are shopping. She / He recognizes that you don’t have any
money to buy your prom dress/ dress suit so they put it on their visa if you agree to pay it
back later.
People lend scenario:
Zellers hooks you up with a Charge card for their store. They have a high interest, but
because you shop their all the time you think it is a good idea to have. You buy
something at the store, and the cashier emphasizes that you have earned ______ amount
of HBC rewards today for using their card.
People don’t lend scenario:
You have always mooched money from your brother. You don’t have any money to buy
Christmas presents and you ask to borrow some money until you get paid. But, your
brother is sick of lending you money and wants you to finally learn your lesson by not
helping you out this time.
People don’t lend scenario:
You have a credit card in which you have failed to make even the minimum payments on
for several months. You are at the Brick wanting to buy an item and the salesperson
recommends putting it on a Brick card. But, when they do a credit check on you, you are
denied due to all the debt you already have.
People don’t lend scenario:
You have gone to college on student loans, and you owe in total $50,000. You don’t
have a job, and you haven’t paid any of it back yet. You go to a Saturn dealership
thinking it would be a good idea to get a new vehicle, but when they find out that you
aren’t working and have no income, they don’t want to lend you any money for the car.
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Appendix D
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Appendix E
Matching Credit
Match the correct credit type to its proper description by drawing a line that connects the
two.
Charge Accounts
You give your jewelry or other possessions to the
pawnbroker, and they lend you a small amount of
money for a few days. You then have to pay the
money back to retrieve your goods; otherwise the
pawnbroker gets to keep the items.
Consumer Loans
Tend to be from Financial Institutions from any
period of time from 1 month to 7 years.
Pawnbroking
Purchases like “3 Easy Payments of $49.95!” from
infomercials. You must watch interest fees
associated with this type of credit.
Mortgage Loans
Your bank allows you to temporarily take extra
money out of your current account. However you
are expected to pay it back quickly otherwise
interest will be very expensive
Overdraft
Funds that may be used to start, improve, or expand
a business.
Business Loans
Credit accounts from stores like the Bay, SEARS,
or Zellers.
Installment buying
Primarily used when purchasing property.
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Source used in the creation of the worksheet:
http://www.thesite.org/homelawandmoney/money/creditanddebt/typesofcredit
Answer Key
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Appendix F
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Appendix G
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Answer Key - How much can they safely carry?
1.) $1360 x 10%= $136 - $116 = $20 for the month
2.) $3500 x 12 months = $42,000 income for the year.
Then, $42,000 x 20% = $8,400 - $7,000 = $1,400 for the year
3.) $2,500 x 10% = $250 dollars safe debt load for the month.
Then, $250 - $68 car insurance - $ 167 car payment = $15 dollars for the month.
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Appendix H
Names of Team Members: ____________________
____________________
__________________
__________________
Shopping for Credit
Credit card costs and features can vary greatly. This exercise will give you the chance to
shop for and compare the costs and feature of different credit cards.
Directions
Break into teams of four. In your groups, assign each person one of the four major credit
card networks discussed in class (reminder: Visa, MasterCard, American Express, and
Discover). Use the attached worksheet to research the costs and features of the standard
(basic) credit card for the network you have been assigned.
When you are done researching, come back to your team and as a group, answer the
following questions. Hand in one copy per team.
1. Which credit card has the highest annual percentage rate and how much is it?
2. What method is used to calculate the monthly finance charges for the first major credit
card?
3. Do any of the cards have annual fees? Which ones? How much is the fee
4. Is there a transaction fee on any card? If so, which card and how much is it?
5. Is there a minimum finance charge on any of the credit cards? How much is it?
6. Do any of the credit cards charge a fee for late payments? How much is it?
7. Which credit card has the longest grace period? How long is it?
Based on Visa’s Choices and Decisions Activity 8-1
www.practicalmoneyskills.ca
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Shopping for Credit - Worksheet
Directions
Use the following worksheet to record information about your assigned credit card.
Credit Card Network
Company Name, Address, Phone
Website
Locations where card is accepted
Annual Fee (if any)
Grace Period
Annual Percentage Rate
Finance charge calculation method
Credit Limit
Minimum payment
Other Fees (such as late payments)
Other features
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Appendix I
Name: ____________________
Credit Card Statements
A credit card statement provides information such as how and when you’ve used your
credit card, how much you owe, how much interest you’re paying to use the card, how
much your minimum payments is, and how much credit you have left. Knowing how to
read your credit card statement can also help you catch unauthorized charges and/or
billing errors.
Directions
Use the attached credit card statement to answer the following questions:
1. What is the date of the statement?
2. What is the Annual Percentage Rate (APR)?
3. What is the new balance?
4. What was the previous balance?
5. How many charges were made during the billing cycle?
6. How many credits and payments were made during the billing cycle?
7. Were there any charges for late payments? If so, how much were the charges?
8. What is the total amount of the credit line?
9. What is total amount of credit available?
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10. What is the total amount of charges made during the current billing period?
11. What is the account number on the statement?
12. Where should the payment be sent?
Based on Visa’s Choices and Decisions Activity 8-2
www.practicalmoneyskills.ca
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Based on Visa’s Choices and Decisions Activity 8-2
www.practicalmoneyskills.ca
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Credit Card Statements
A credit card statement provides information such as how and when you’ve used your
credit card, how much you owe, how much interest you’re paying to use the card, how
much your minimum payments is, and how much credit you have left.
Knowing how to read your credit card statement can also help you catch unauthorized
charges and/or billing errors.
Directions
Use the attached credit card statement to answer the following questions:
1. What is the date of the statement?
2/13/01
2. What is the Annual Percentage Rate (APR)?
3. What is the new balance?
17.5%
$125.24
4. What was the previous balance?
$168.80
5. How many charges were made during the billing cycle?
Five
6. How many credits and payments were made during the billing cycle?
One
7. Were there any charges for late payments? If so, how much were the charges?
No, there were no late payment charges.
8. What is the total amount of the credit line?
$1,200
9. What is total amount of credit available?
$1,074.76
10. What is the total amount of charges made during the current billing period?
$125.24
11. What is the account number on the statement?
4125-239-412
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12. Where should the payment be sent?
Your First Bank, Box 1234, Anytown, Canada
Based on Visa’s Choices and Decisions Activity 8-2
www.practicalmoneyskills.ca
Appendix J
Understanding Interest
borrowed from http://www.investopedia.com/articles/01/061301.asp
Let’s say John and Jane both have $2,000 debt on their credit cards, which require a minimum
payment of 3%, or $10, whichever is higher. Both are strapped for cash, but Jane manages to pay
an extra $10 on top of her minimum monthly payments. John pays only the minimum.
Each month John and Jane are charged a 20% annual interest on their cards’ outstanding balance.
So, when John and Jane make payments, part of those payments go to paying interest and part
goes to the principal.
Here is the break down of the numbers for the first month of John’s credit card debt:





Principal: $2,000
Interest: $33.33 ($2,000 x (1+20%/12))
Payment: $60 (3% of remaining principal balance)
Principal Repayment: $26.67 ($60-33.33)
Remaining Balance: $1,973.33 ($2,000 - $26.67)
These calculations are done every month until the credit card debt is paid off.
In the end, John pays $4,240 in total over 15 years to absolve the $2,000 in credit card debt. The
interest that John pays over the 15 years totals $2,240, higher than the original credit card debt.
Here is the break down of the numbers for the first month of Jane’s credit card debt:
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




Principal: $2,000
Interest: $33.33 ($2,000 x (1+20%/12))
Payment: $70 (3% of remaining principal balance + $10)
Principal Repayment: $36.67 ($70-33.33)
Remaining Balance: $1,963.33 ($2,000 - $36.67)
Since Jane paid an extra $10 a month, she pays a total $3,276 over seven years to absolve the
$2,000 in credit card debt. Jane pays a total $1,276 in interest.
The extra $10 a month saves Jane almost $1,000, and cuts her repayment period by more than
seven years! Every little bit counts. Paying twice your minimum or more can drastically cut down
the time it takes to pay off the balance, which in turn leads to lower interest charges.
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Appendix K
Credit Card Fraud Statistics (From the RCMP website: http://www.rcmpgrc.gc.ca/scams/ccandpc_e.htm)
Overview
At the end of fiscal year 2005, approximately 56.4 million credit cards were in circulation
across the country, with a sales volume exceeding $190.6 billion (MasterCard and Visa).
Payment card counterfeiters are now using the latest computer devices (embossers,
encoders, and decoders often supported by computers) to read, modify, and implant
magnetic stripe information on counterfeit payment cards.
Phoney identification has been used to obtain government assistance, personal loans,
unemployment insurance benefits and for other schemes victimizing governments,
individuals, and corporate bodies.
Payment Card Partner Losses by type 2005
Category
$ Loss
$14,771,080
Lost
$26,112,623
Stolen
$7,856,411
Non receipt
$8,909,580
Fraudulent applications
$126,824,292
Counterfeit
$88,364,181
Fraudulent use of account
$7,305,414
Miscellaneous, not defined
TOTAL
$280,143,582
No. of accounts
25,363
40,827
3,803
4,872
114,795
147,911
5,069
342,640
$ Avg. loss per account
$586.75
$638.86
$2,041.71
$1,733.24
$1,050.02
$595.86
$1,496.07
$798.00
CATEGORIES OF CREDIT CARD FRAUD
The criminal use of credit cards can be divided into the following categories:
Counterfeit credit card use: This represents the largest category of credit card fraud,
involving Canadian issued cards, with 37% of all dollar losses. Organized criminals have
acquired the technology that allows them to "skim" the data contained on magnetic
stripes, manufacture phoney cards, and overcome such protective features as holograms.
Cards lost by or stolen from the cardholder: Lost and stolen cards represent 23% of all
card fraud losses. Typically the cards are stolen from the workplace, vehicles, health
clubs, golf clubs, etc.
Fraud committed without the actual use of a card (no-card fraud): No-Card Fraud accounts
for 10% of the all losses. Deceptive Telemarketers and now fraudulent Internet Web Sites
obtain specific card details from their victims, while promoting the sale of exaggerated or
non-existent goods and services. This in turn results in fraudulent charges against victims'
accounts. Fraud committed on cards not received by the legitimate cardholder (non-receipt
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fraud): Non-Receipt Fraud where cards are intercepted prior to delivery to the cardholder
account for 7% of all losses. Losses attributable to mail theft have declined as a result of
"card activation" programs, where cardholders must call their financial institution to
confirm their identity before the card is activated. In 1992 this category accounted for 16 %
of the losses.
Cards fraudulently obtained by criminals who have made false applications: Fraudulent
Applications involve the criminal impersonation of creditworthy persons in order to acquire
credit cards. Although false application losses represent only 4% of all losses, the numbers
are increasing
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Module 8: Consumer Protection (Core)
Suggested Time: 15 – 20 hours
Level: Introductory
Prerequisite: None
Module Overview:
This module will provide the opportunity for students to understand and explore methods
for protecting their finances. Students will have the opportunity to explore, discuss and
evaluate ways to protect them from being taken advantage of.
Foundational Objectives:


To understand and explore ways consumers might be able to make informed
decisions to protect their finances.
To explore options when ones financial situation is threatened.
Common Essential Learnings Foundational Objectives:




To enable students to make sound decisions about their purchases that which will
carry-forward to adulthood. (IL)
To educate students on modern ways to do purchasing online. (TL)
To enable students to understand consumer security through role play. (COM)
To promote decision making characteristics which students will use to make
sound choices in purchasing and recognizing scams/frauds. (CCT)
Learning Objectives
Notes
Students are purchasing and using cell phones at a greater rate than
ever before. Students need to be aware of the options available when
deciding which cell phone to purchase and service contract.
8.1 To identify and
understand basic cell
phone requirements and
contracts.
Before signing a contract students may want to consider the
following:







Prepaid vs. monthly payments
Minutes required
Features
The store
Network coverage
Credit check – co-signer needed?
Hardware requirements
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

8.2 To understand
methods for purchasing
online and the need for
security when
purchasing online.
Customer Service
The Contract – is everything promised in writing?
Many Canadians are turning towards doing their purchasing online.
Students could consider the following:
 Paypal
 Delivery policies, tracking shipping
 Sending money orders
 What to do when the seller or buyer does something
suspicious
 Procedures for attainment of cash or item, e.g. personal
exchanges
 Return Polices
 Privacy
 Online auctions
Refer to: PayPal_Safety.PDF (E-Commerce)
Consumer bankruptcies were up by 12%, April 2008 compared to
April 2007 in Canada. Bankruptcy is a legal process by which you
may be discharged from most of your debts. The purpose is to
permit an honest, but unfortunate debtor to obtain a discharge from
most debts, subject to reasonable conditions.
8.3 To identify, define,
and describe the features
and terminology related
to bankruptcy.
There are three different ways to go into bankruptcy:
* voluntary assignment - where insolvent persons make an
assignment of all their assets for the general benefit of all creditors;
* involuntary assignment - when a creditor files a petition in a
provincial court for a receiving order against the debtor's assets,
known as being petitioned into bankruptcy; and
* deemed bankruptcy - when a proposal in bankruptcy under the
Bankruptcy Insolvency Act has failed.
You have to send a copy of the court-issued assignment in
bankruptcy, a Bankruptcy Notice, or document entitled First
Meeting of Creditors to your tax services office.
Usually, the Business Number of a bankrupt client will be closed
after discharge.
The bankrupt has the right to earn a living. For this purpose, the
bankrupt is allowed to engage in or continue a taxable business
activity outside of the estate, after a bankruptcy.
For more information on bankruptcies:
http://www.cra-arc.gc.ca/tax/business/topics/lifeevents/bankruptcy/bankruptcy-e.html
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Identity fraud, the theft and use of personal information for criminal
purposes, is one of the fastest growing crimes in Canada. All
Canadians should be aware of the need to protect their personal
information and ensure their identity and finances are not
compromised.
8.5 To explore scams
and frauds and ways to
protect oneself from
invasion.
Students may explore the following topics:
 Faked E-Commerce Sites
 Phishing
 Pharming
 SMiShing
 Vishing
 Prize Pitch
 Auction Fraud
 Malicious Software
 Wireless Communications
 Public Access Communications
 Job Offers Scams
 False charities
 Counterfeit Cheques
 Counterfeit Money
 Travel Scams
 Shoulder Surfing and Eavesdropping
 Telemarketing Fraud
 900 Scams
A collection agency is a business that obtains or arranges for
payment of money owed to either a persona or a company. Having a
good credit history and credit score is important.
8.6 To explore
collection agencies and
their effects on one’s
credit rating.
Lenders usually review your credit history and score when deciding
whether or not to grant you a loan or credit, and landlords may use
your credit history to decide whether or not they will rent to you.
If your credit history or score is poor, a lender may refuse to give
you a loan or you may have to pay a higher interest rate.
Refer to: Canadian Consumer Handbook 2007.pdf
A will is a legal document in which a person states how his or her
property will be dealt with after death. A will usually names one or
more executors who distribute the property as directed by the will.
Even if someone has few assets, handling the estate is simpler and
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8.7 To explore wills and
estate planning.
less expensive when a will exists.
Key Terms:
 Estate
 Probate
 Living Will
 Executor
 Power of Attorney
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References
http://www.joingod.com/faq/faq.php?answer=199&cat_name=Safety%20and%20purchas
ing%20online&category_id=12#199
http://www.mass.gov/?pageID=cagoterminal&L=4&L0=Home&L1=Community+Safety
&L2=Cyber+Crime+%26+Internet+Safety&L3=Online+Safety+for+Consumers&sid=Ca
go&b=terminalcontent&f=community_Cybercrime_Purchasing_Online&csid=Cago
http://cmcweb.ca/epic/site/cmc-cmc.nsf/en/fe00101e.html#Shopping
http://www.ic.gc.ca/epic/site/oca-bc.nsf/en/h_ca02224e.html
http://reviews.cnet.com/4520-7609_7-5537615-5.html
http://www.googobits.com/articles/p0-1518-a-guide-to-purchasing-a-cell-phone.html
http://www.webgrrls.com/resources/viewarticle.php?newsid=135
http://www.overstock.com/cell-phone-buying-guide.html
http://www.phonebusters.com/english/index.html
http://www.rcmp.ca/scams/canadian_practical_guide_e.htm
http://www.rcmp.ca/scams/student_guide_e.htm
http://www.ic.gc.ca/epic/site/oca-bc.nsf/en/h_ca02228e.html
Plea - http://www.plea.org/
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Module 9: Renting, Leasing, Buying, and Insuring (Big Ticket
Items)
Suggested Time: 5-15 hours (variables depend on group, school, economic status)
Level: Introductory
Prerequisite: None.
Module Overview: This module will introduce students to the differences between
buying and renting property. Students will also explore the advantages and disadvantages
of each and learn what is involved in both processes. In addition to this, students will
learn the importance of protecting their assets through the purchase of insurance.
Foundational Objectives:






To understand the difference between renting and buying, and the advantages and
disadvantages of each, and when to do each.
To investigate the types of resources and research that may be used to evaluate
and plan the purchase of property.
To analyze the costs and benefits of home ownership.
To assess opportunities for home ownership or rental in the community and to
develop those opportunities by applying personal experience, knowledge, and
expertise.
To decide between purchasing, renting, or leasing of a vehicle, and when and why
people do each type.
To understand the costs, risks, and benefits associated with the insurance of a
house, automobile, or other big purchase.
Common Essential Leanings Foundational Objectives:





To enable students to understand the first step in changing spending patterns with
the goal of purchasing a house. (IL)
To help students realize exactly how they are spending their money and how
much of it they are spending. (NUM)
To contribute to the development of critical and creative thinkers. (CCT)
To promote both intuitive thought and the ability to evaluate ideas, processes,
experiences, and objects in meaningful contexts in order to properly identify the
advantages and disadvantages of home ownership vs. rental. (CCT)
To enlighten students as to the costs and risks associated with insuring their large
purchases. (PSVS)
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Learning Objectives
Notes
When students learn terminology and its meaning early,
they are more likely to be successful in their decision
making.
9.1 To understand the
terminology related to buying
or renting property.
Teachers may wish to have a brainstorming session with
the students. Write the terms "to rent" and "to buy" on
the blackboard and jot down students responses. Some
key terms to look for are loan, bank, owe, lease,
contract, security, deposit, mortgage, condominium,
taxes, and foreclosure.
Ask students to define key terms they believe are critical
to buying and renting. Encourage students to discuss
each term fully and to use them as springboards to think
of others. Students should have an extensive list of terms
and definitions when they are done.
As each term is discussed, students should write the
definition and additional details they feel are important.
This process will help them review for a potential test.
Teachers may wish to facilitate another brainstorming
sessions on the pros and cons of home ownership.
Students should be prepared to justify their answers and
discuss why they consider a certain item to be an
advantage or disadvantage.
9.2 To explore the advantages
and disadvantages of home
ownership
Students should be aware that not everyone will agree
with their responses. For example, some students may
think yard work is an advantage (gardening, etc.), while
others may be too busy for it and consider it a
disadvantage. See below for some advantages and
disadvantages.
Advantages




Build equity
Gain tax advantages
Have stable monthly payments
Have a place for your family to live
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
Gain a sense of community
Disadvantages







Usually costs more
Ties up your cash
Selling the house may not be possible during the
first few years of ownership
Moving is more difficult and complicated
You may not have as much flexibility in
choosing a new job location
You will need to spend money on maintenance
and repairs to maintain the home
No guarantee that your home will increase in
value
See Appendix A L & M for more detail
After having learned budgeting and credit in previous
modules students should not factor in saving for a house.
9.3 To determine the factors
that influences one’s decision
to rent or buy.
Factors may include: Time, finances (budgets), short and
long term costs, credit rating, anticipated future costs,
current and future financial situation (new job or job
loss).
See Appendix A, C, I
9.4 To ascertain where to look
for a house for sale
9.5 To compare the monetary
costs of renting vs. buying a
home
9.6 To determine the factors
that dictate where you want to
live
Students should realize that there are many places where
they could find out how to find houses for sale.
See Appendix H for “Where do I look for a house?”
handout.
Students should brainstorm what they think the costs of
running a house vs. an apartment are.
Appendix D for monetary comparison and Appendix E
Ask students to share some of their wants and needs
from their lists.
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Depending on the size of the audience and the time
available you may want to write responses on chart
paper or white board.
Answers may include location, schools, safety, friendly
neighbors, and good investment.
Appendix B for “Neighbourhood” handout
9.7 To determine the most
suitable house or apartment to
suit student needs
Have students write down what is in their “dream
house” looks like and what is inside of it.
Appendix D & G
Invite a real estate agent into the classroom.
Students should make the arrangements. Prior to the
visit, students should be involved in developing
questions to stimulate discussion.
9.8 To understand the various
professionals associated with
real estate and their roles
Students should also be involved in introducing the
guest, interviewing, making the thank-you statement
afterward, and sending a letter of thanks.
Appendix K “What is a Real Estate Agent” handout
Also see Appendix B for “Neighbourhood” handout and
Appendix G for I’ve decided I want THIS house… now
what?” handout. These can be used as basis for
questions.
* PRINCIPAL: How much; depends on your down
payment
9.9 To define and understand
the basics of Mortgages
* INTEREST: How much the lender charges to borrow
the money
* TIME: 15-30 years
* Longer time means smaller monthly payments but
more interest
* Shorter time means larger monthly payments but less
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interest
* POINTS: A percentage of the loan. You can pay
additional percentage at closing, and this will reduce the
interest payments you make over the course of the loan.
The two most common ways to borrow
* FIXED-RATE (15, 20, 25, or 30 years) MORTGAGE:
You agree to pay the same interest throughout.
* ARM (adjustable-rate mortgage): At the beginning of
the loan, you get a lower interest rate (between 1 and 3
percent less), but the figure can rise after the first year.
Some mortgages will protect you from very high
increases. The mortgage will limit how high the interest
can go. This is called a cap. It is either 5 to 7 percent
over market rate or a certain percentage.
Appendix F & J “Mortgage Research” handout
Students should become familiar with the following
insurance terms:
9.10 To understand the
terminology related to
insurance.







Liability
Deductible
Claim
Premium
Act of God
Exclusions
Depreciation
Teachers may wish to have a brainstorming session with
the students to see what the students already know and
to come up with other insurance terms that are not listed
above.
9.11 To understand the need
for insurance.
Students should become familiar with the concept that
insurance is a form of risk management mainly used to
avoid against the risk of a contingent loss.
Students should understand the concept of opportunity
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cost.
They should realize that though you may never need
insurance the cost to you is much more manageable than
should you have to rebuild your home or buy a new car.
Students should become aware that there are two
separate ways to insure you car in Saskatchewan.
Students should become aware that everyone must
insure their car through license plates. Students should
become familiar with the deductible, liability and claims
process with this option.
9.12 To understand the way
car insurance works in
Saskatchewan
Students should also become aware of additional
package policies. There are many companies that offer
different packages in the market. Students should
become aware of some of the basic options such as
deductible, liability, glass coverage and replacement
cost on new vehicles.
Teachers should contact SGI to request a guest speaker
to come in and give a presentation on Safe Driver
Discounts, because many students are unfamiliar with
surcharges and discounts, and how one accident can
severely affect their driver rating.
Students should become familiar with the different ways
that home insurance premiums are based.
9.13 To understand the way
home insurance is sold in
Saskatchewan.
Students should also know what is and what is not
typically covered under home insurance, and the most
common exclusions.
Students should know how an “act of god” is dealt with
by insurance companies.
9.14 To become familiar with
different insurance companies
in their area.
Students should become familiar with the difference
between an insurance broker and a insurance company.
Students should be able to list some of the local
insurance brokers in their area
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Students should be able to list some of the insurance
companies that sell insurance in their area.
9.15 To evaluate different
policies from different
companies.
A teacher may ask a local insurance broker to come in
and show the students the different options they have
available to them when purchasing car or home
insurance.
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Key Terminology
Adjustable-Rate loans: the rate you pay changes according to a set formula as interest
rates fluctuate on the open market.
Amenity: a feature of the home or property that serves as a benefit to the buyer but that is
not necessary to its use; may be natural (like location, Woods, water) or man-made (like a
swimming pool or garden).
Borrower: a person who has been approved to receive a loan and is then obligated to
repay it and any additional fees according to the loan terms.
Budget: a detailed record of all income earned and spent during a specific period of time.
Closing: also known as settlement, this is the time at which the property is formally sold
and transferred from the seller to the buyer; it is at this time that the borrower takes on the
loan obligation, pays all closing costs, and receives title from the seller.
Closing costs: customary costs above and beyond the sale price of the property that must
be paid to cover the transfer of ownership at closing; these costs generally vary by
geographic location and are typically detailed to the borrower after submission of a loan
application.
Commission: an amount, usually a percentage of the property sales price, that is
collected by a real estate professional as a fee for negotiating the transaction.
Credit history: A record of an individual's current and past debt payments.
Debt-to-income ratio: a comparison of gross income to housing and non-housing
expenses; With the FHA, the-monthly mortgage payment should be no more than 29% of
monthly gross income (before taxes) and the mortgage payment combined with nonhousing debts should not exceed 41% of income
Deed: the document that transfers ownership of a property.
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Down payment: The amount of money a buyer agrees to give the seller when a sales
agreement is signed. Complete financing is later secured with a lender.
Fixed-rate mortgage: a mortgage with payments that remain the same throughout the
life of the loan because the interest rate and other terms are fixed and do not change.
Fixer-upper: A house that needs refurbishment or remodeling. It usually sells at a
below-market price.
Home inspection: an examination of the structure and mechanical systems to determine
a home's safety; makes the potential homebuyer aware of any repairs that may be needed.
Inflation: the number of dollars in circulation exceeds the amount of goods and services
available for purchase; inflation results in a decrease in the dollar's value.
Mortgage: a lien on the property that secures the Promise to repay a loan.
Offer: indication by a potential buyer of a willingness to purchase a home at a specific
price; generally put forth in writing.
Pre-approve: lender commits to lend to a potential borrower; commitment remains as
long as the borrower still meets the qualification requirements at the time of purchase.
Principal: the amount borrowed from a lender; doesn't include interest or additional fees.
Real estate agent: an individual who is licensed to negotiate and arrange real estate
sales; works for a real estate broker.
Survey: a property diagram that indicates legal boundaries, easements, encroachments,
rights of way, improvement locations, etc.
Claim: A request for a payment of a loss under an insurance policy
Deductibles: Deductibles are the amounts you pay to cover a loss before you are entitled
to payment by your insurer. Just about every policy has a deductible, usually ranging
from $500 to $5000. The deductible is subtracted from the total amount paid by your
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insurer. For example, if your claim is $3,000 and your deductible is $500, you will pay
$500 and the insurer will pay $2,500. Deductibles are designed to discourage small
claims, since the purpose of insurance is to protect you from catastrophic losses, not
minor inconveniences.
Liability: Liability insurance protects against third party claims for bodily injury and
property damage caused by you.
Depreciation: Depreciation is a measure of the loss in value of an item over time
resulting from wear or obsolescence.
Acts of God: Acts of God are considered natural disasters that could not have been
reasonably prevented or avoided. Most standard forms cover the perils of hurricanes and
tornadoes. Lightning and hail are classified as named perils. Coverage for flood or
earthquake is not automatic in standard policies but may be available in most cases for an
additional premium. Flood or earthquake coverage is likely to be more expensive and
difficult to obtain in areas susceptible to these perils.
Exclusions: Exclusions are items, perils or situations that are not covered by your policy.
Your insurer might exclude anything from long-term mold damage to natural disasters,
computer data or high-speed watercraft. Other common exclusions include avoidable
damage from termites or rodents, water seepage, frozen pipes, intentional damage and
high value items such as art and jewelry.
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Appendix A
Should I rent or buy?
To evaluate whether renting or buying is best for you, let’s consider some of the pros and
cons of each choice.
Renting may be better if:
You move often. Unless you live in one place at least five to seven years, you may lose
money when selling your home. If you cannot sell, you may become a landlord by having
to rent your home.
You are unfamiliar with the area. Before buying a home, you may want to identify a
neighborhood and rent there first to determine its ultimate long-term desirability.
You are low on cash to cover the down payment and initial costs involved in purchasing a
home. Renting now to save for a down payment and closing costs makes sense.
You do not care to commit the time, effort, and expense of maintaining a home.
1.
The costs of maintaining a home greatly exceed those of renting. If you cannot imagine
not calling a landlord to fix the backed-up drain, you should rent.
Buying may be better if:
You are moving to an area enjoying high appreciation in the value of residential property.
If an area’s homes are appreciating at rates of 5 to 10% a year, your home’s increased
value should offset the costs of selling it should you be transferred.
You can afford to buy a home that will allow you to itemize on your tax return and allow
you to deduct other items like charitable contributions. It must be expensive enough that
the interest paid and real estate taxes nearly equal or exceed the standard deduction.
You own pets that may be frowned upon by landlords. It is often difficult, if not
impossible, to rent when you have large dogs or multiple dogs and cats.
You are ready for stability and a sense of community. Buying a home automatically
commits you to an area and a neighborhood. You become interested in zoning laws, tax
rates, the city’s/county’s plans for expansion and growth, and the appearance of your
neighbor’s property.
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Additional Costs to home ownership
Initial fees to be paid upon purchase are:
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
Legal fees including services at $575.00, dispersements at $200.00 and a transfer
tax of $225.00, for a total of $1,000.00
Survey certificate of $500.00
Mortgage application fee of $75.00
Cost of appraisal at $200.00
Cost of appliances new or used
Property tax and water & sewage adjustments
Window coverings
Moving expenses
Hook-up fees for cable, telephone and power
Miscellaneous (lawnmower, shovels, rakes, paint & painting supplies, ladders,
tools, etc...)
And once the home is purchased, the monthly expenses attributed to owning the property
start. Civic Water & Sewer as well as other charges must be paid. So do property taxes
and insurance. And then whether it's summer fall or winter, the property must be
maintained. Lawn mowing, fall cleanup & snow removal are all chores that need to be
done around the home and in many cases some expensive equipment may need to be
purchased to do this maintenance. Then there's the maintenance that the house itself
needs.
Either way, if the homeowner does these task themselves to save money but winds up
with less free time; or pays someone else to do it for them, these are all costs that should
be examined prior to buying.
In today's world, there are many kinds of places to live. Did you list any of these options?
Single-family homes. These come in all sizes, and styles; they may be built on very large
or very small pieces of land (lots); and they may be located in many different types of
neighborhoods.
Multiple family homes. These include apartments, duplexes, and town homes
1.
Apartments, too, come in a variety of styles and sizes. Some are in highrise buildings, others are in smaller buildings with only a few units; some
may be in a huge complex (many apartment buildings clustered together),
others may be in a single building; apartments may be located in an area
that also features other residential properties, or near a commercial center.
Townhouses/duplexes. These are housing units, in which at least two units are attached,
sharing a common wall. Townhouses often come in clusters of 4-8 units in one structure;
duplexes are just two units.
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Mobile/modular homes. Few "mobile homes" today are actually mobile. Most of these
units are set on some type of foundation or footing (pad) in a mobile-home park and are
never moved. Some of these homes are quite spacious, but construction is generally less
sturdy than in a traditional home. However, they offer a relatively low-price option for
someone who wants to own a home.
What Do You Want?
Let's take a look at your housing needs. Use this checklist to help determine what kind of
housing you should consider.
Space needs:














How many bedrooms do you need?
How many bathrooms?
Special purpose rooms desired:
Recreation/TV
Office/study
Sewing/crafts/hobby room
How much storage space/closet space?
Do you need
A garage/carport?
Parking space(s)?
Room for pets?
Space for gardening/flowers?
Room for play/children?
Other outdoors space?
Factors for selecting a home:
There are other factors to consider in deciding what type of housing you want.
[length of time you will live there]
[Future housing needs--parents,
children, etc.]
[distance to work]
[medical facilities]
[places of worship]
[construction of housing]
[access to schools/daycare]
[location - neighborhood,
city, etc.]
[fire & police protection]
[shopping & recreational
facilities]
[city services]
[new/older home]
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Appendix B
Consider the following when looking for a neighborhood:
The “Golden Rule of Real Estate” - location, location, and location! However, only you
can decide which location is good for you. Do you want to be close to work, to shopping,
to public transportation?
Take a tour of different neighborhoods. If you have the opportunity to take a househunting trip, find a good city map and the classified ads section of the local newspaper.
Survey prospective neighborhoods by selecting a dozen homes from the ads, then make a
day of visiting them. The idea here isn’t to find “the” house, but to narrow your search to
the most desirable neighborhood. Remember it’s much easier to fix up a house than a
neighborhood. Contact a licensed real estate agent to help you with this, especially if you
are unfamiliar with the area.
Consider your family’s needs. Considerations in this area include driving time to work,
shopping, recreation facilities, medical care, places of worship, and the availability of
public transportation.
Safety. Talk to potential neighbors in various parts of town and in specific neighborhoods
in which you might be interested. Ask the local police department for comparative crime
statistics.
School Districts. This will be easier if you have determined your definition of a “good”
district and understand your children’s individual needs. Even if you don’t have schoolaged children, don’t overlook the quality of the school district. This factor may figure
prominently in the resale value of your home.
High concentration of military families. These neighborhoods have established
themselves as attractive to military families. With a steady turnover of incoming and
outgoing military families, it may make it easier to sell your home when the time comes.
Neighborhood Feel or “Ambiance”
Ask people about what they like - or dislike- about where they live, and the first comment
is usually about the feel and character of their neighborhood. Don’t underestimate the
impact the local area can have on your enjoyment of a property.
Here’s how to evaluate a prospective neighborhood:
1. Try to visit the neighborhood you’re considering at different times of the week
during work hours, in the evening, and on weekends.
2. Don’t just drive around. Get out of your car and walk. You’ll see and hear things
that you might otherwise miss.
3. People are generally more than happy to share their experience of where they live.
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4. Don’t be shy. Ask people out working in their yards or washing their car what
they think about the area.
5. Check to see if there are children playing outside unattended. A child playing is
often an indication of how safe their parents feel.
6. Is there too much traffic? Being next to an interstate may make it easier to get to
work but it also brings noise and congestion.
7. Consider the noise level. Can you hear airplanes or trains? What about sirens? Are
those children who are playing outside going to make you smile or drive you
nuts?
8. How does the neighborhood look? Are there public utility substations nearby?
9. What about broadcasting towers or junkyards? Even that park that you’re so
happy to be close to might have lights for night games.
In addition, you should consider the availability, location, and condition of the following
services and amenities:
 Sidewalks
 Parks
 Community centers
 Sport facilities
 Playgrounds
 Curbside garbage and recycling pickup
 Home mail delivery
 Snow removal
 School bus stops
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Appendix C
Pros and Cons of Renting:
Now that you know the things to consider when deciding what housing will fit your
needs, lets take a look at the pros and cons of renting versus buying.
Renting has advantages for most people at some point in their lives. This is especially
true when you are starting out on your own as a young, single adult. As we noted above,
renting an apartment involves no responsibility for repairs, maintenance, and other
aspects of home ownership that can be both costly and time-consuming. Rental
complexes may also provide many of the recreational facilities you would like, such as a
swimming pool and tennis court. Apartments and other rental units often provide laundry
facilities, which would save you the initial expense of purchasing laundry equipment.
Another advantage of renting is that it provides more mobility or flexibility. As a young
person, you are more likely to move rather frequently due to job changes and family
changes (getting married, having children), etc. It is easier to move quickly when you are
renting, because leases for rentals are easier to get out of than selling a home. A lease is a
contract between the landlord and the tenant indicating that the tenant has the right to use
a particular living unit for a period of time, such as one year. For this right, the tenant
promises to pay the landlord a specified amount of rent over the period of time of the
rental. Most leases will allow you to "buy out" of the lease by paying a penalty (often an
additional 1-2 month's rent) if the lease is not up when you want to move.
In some cases, the landlord will require no additional rent when you move out early if
another renter suitable to the landlord is found who will assume your lease. Selling a
home when you decide to move is usually a much longer process, taking months and
sometimes years. The length of time depends on a number of factors including the
available supply and demand for homes in an area and the relative demand for the type of
house that you put on the market. For example, if you own a two bedroom older home,
and that type of house is not currently popular in your area, your house will likely not be
sold very quickly.
Another major advantage of renting is that it doesn't require a large outlay of cash. Most
rentals require a security deposit (usually equal to 2-3 month's rent), but that is much less
than is normally needed for a down payment when buying a home. Monthly cash costs
may also be reduced, as utilities may be included in your rent payment.
There are, of course, disadvantages to renting. Some were mentioned in the section on
"housing needs." Can you identify those? List them here:
A major disadvantage of renting is lack of control over the property. The
owners/managers of the property are responsible for repairs and general upkeep; if they
do not do this well and promptly, you might be stuck with unpleasant (or even unsafe)
living conditions (from leaking faucets to broken windows) for some period of time.
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Property owners can raise the rent (with proper notice), making your costs higher. They
can also put restrictions on the property, such as not allowing children or pets, and not
permitting you to do redecorating.
Renting also provides no tax or equity benefits for you. Although you are helping pay the
owner's property taxes through your rent, you cannot claim any deduction for these taxes
on your tax return. The owner is also gaining equity in his/her property, but you are not.
Equity is increased value in any property you own. But, as a renter, you are not building
any equity.
Pros and Cons of Buying a Home:
We've already discussed some advantages of buying a home. List the advantages of
buying you already know:
Many of the advantages of home ownership have to do with your feelings - pride of
ownership; freedom to decorate; landscape and maintain the place to your tastes; security
and independence. All of these are aspects of control - your control over the property in
which you live. But the biggest advantage of home ownership might be financial. There
are several financial advantages including equity; tax deduction for mortgage, interest
and property tax deductions.
Building up financial equity in a home is one benefit of home ownership. Since most
homes increase in value over time, the owner's equity increases. For example, if you buy
a home for $180,000 and its market value increases to $200,000 in three years, the
difference of $20,000 is an increase in your owner's equity. Of course, the housing
market (and economic conditions) vary, so, like any investment, there is no guaranteed
return.
Another way in which buyers increase their equity is through paying off their debt on the
house. Most people do not buy their homes with cash. Instead, they take out a mortgage
(debt) on the house. Generally, they make a payment on the mortgage each month,
similar to the payments make. With home ownership, though, part of that monthly
payment goes toward paying down the debt. As they pay down the debt, buyers gain
more equity in their home.
Tax benefits are the other advantage of home ownership. In Lesson 6, we will discuss the
cost of borrowing money to buy a home. That cost is "mortgage interest" - the money you
pay for the use of someone else's money (usually a financial institution's) when you
borrow funds to buy a house. Although mortgage interest is a large part of your housing
payment, you can deduct this interest from your taxable income on your federal income
tax return and (in some states) on your state income tax return. This can save you a fairly
substantial amount of income tax. In addition, you will pay property taxes on a home that
you own. Those property taxes are also deductible from taxable income on your federal
income tax return and some state income tax returns, and thus offer you additional
income tax savings.
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Appendix D
Should you rent or buy?
Owning a home is the ultimate goal for many of us, but many people think they can't
afford to buy or own a home. Actually, renting is often as expensive as owning in the
short term and more expensive over the long haul. Here's why...
The long-term financial benefits of buying a home are so compelling; it makes sense for
most people to buy as soon as they have saved the minimum down payment. Even if the
mortgage payment is more than your current rent, it is worth scrimping on non-essentials
now to end up with more in built up equity, as opposed to wasted rent money.
How much home will your rent buy you? Rent vs. Mortgage.
Monthly
Rent
Purchase
Price*
Loan
Amount
House
(Principal +
Interest)
Taxes
and
PMI**
Monthly
Mortgage
Payment
Annual
Savings
$1,100
$145,000
$137,750
$761
$304
$1,065
$420
$1,500
$200,000
$190,000
$1,049
$349
$1,398
$1,224
$1,800
$250,000
$237,500
$1,311
$415
$1,726
$888
$2,300
$325,000
$308,750
$1,705
$502
$2,207
$1,116
$3,000
$400,000
$380,000
$2,098
$662
$2,760
$2,880
*5% down, based on the 5/1 Adjustable Rate of 5.25% APR with Zero Points.
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Appendix E
Use the table below to weigh each aspect carefully and to get a clear, unemotional picture
of the financial pros and cons of renting and buying.
Renting
Buying
Taxes
Sorry, your landlord will reap the tax
breaks.
Depending on your situation, your tax
savings can be significant.
Equity
You’re not getting it. Once that rent
money is gone, it’s gone.
Paying the principal amount of your
mortgage each month is in effect a
"forced savings" over time, you’ll
accumulate an amount you can borrow
from, or convert to cash upon selling.
Investment
value
You won’t benefit from any increase in
the value of the property you rent.
It may go up or down, but given
historical trends, you’re more likely to
gain than loose.
Interest costs
No worries here.
Depending on your mortgage terms,
you’ll likely pay a huge amount of
interest over the life of the mortgage
often much more than the amount of
the mortgage itself.
Flexibility
If you want out, just move when the lease
is up.
If you want out, you need to go
through the time consuming and
expensive selling process.
Length of stay
If your job requires you to move a lot, or
if you’re otherwise not ready to commit to
one place, renting makes financial sense.
Given the costs of buying and selling,
you generally need to keep a home for
at least a year in order to avoid losing
equity.
Maintenance
It’s not generally something you need to
worry about.
You need to either do the work, or pay
someone else to do it.
Monthly costs
These are fixed aside from annual rent
increases, you know each month what
your outlay will be.
These are variable there may be
months when you have significant
repair or maintenance costs.
Inflation
impact
Rents typically rise each year.
Because your payments remain the
same for the life of the mortgage (at
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least for fixed interest loans), you’re
repaying it with ever cheaper dollars.
Cash up front
An initial deposit is usually required, but
is small compared to most mortgage down
payments.
Your mortgage down payment and
closing costs can be a major chunk of
change.
Security
You have no guarantees that your landlord
will always renew your lease.
As long as you pay the mortgage, your
housing’s secure. Fail to make
payments, however, and you’ll face the
possibility of foreclosure and loss of
your house.
Capital gains
taxes
You won’t realize capital gains, so it’s not
an issue.
Depending on your situation, most or
all of the capital gains you realize
when you sell your house will be taxfree.
Future
housing costs
Rent never ends.
Staying put and paying a mortgage
long enough gives you the possibility
of "free" housing.
Improvements
If you’re able to make any improvements
at all, you’ll likely pay for it, but the
increase in the property’s value will go to
the landlord.
Remodel and redecorate to your heart’s
content, and all the increase in your
home’s value is yours to keep.
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Appendix F
Fixed-Rate loans
A fixed-rate mortgage is so called because its interest rate doesn't change over the life of
the loan, no matter what rates do on the open market. Many people feel more comfortable
with a fixed rate, because they know their monthly mortgage payments will remain
steady over the years, making at least one aspect of their monthly cash flow predictable.
The downside is that you pay for that comfort: Lenders charge a higher rate of interest for
fixed-rate loans. Why? Because they figure that if interest rates shoot up, they lose the
opportunity to make more money on the funds they are lending you.
The standard fixed loan lasts for 30 years, but if you can handle higher payments and
want to build up your equity in your home faster, you can opt for a 15-year fixed. With a
15-year, you'll get a lower rate and pay much less interest over the life of the loan. The
payments each month, however, will be quite a bit higher since they aren't being
stretched over so long a period.
A fixed rate makes the most sense for those who plan to stay put in their new home for a
long time. You pay a little more in interest, but it is stretched over a longer period so the
monthly effect can be minimal. And if you're buying when rates are low, locking in a
good deal is probably worth it.
Adjustable-Rate loans
Adjustable-rate loans get their name because the rate you pay changes according to a set
formula as interest rates fluctuate on the open market. As noted above, the upside is that
lenders charge a lower rate for such loans because you are taking on some of the interestrate risk. This makes your monthly payments lower -- at least in the beginning. Such
loans provide a way for many buyers to afford a larger loan amount for a given monthly
payment. An adjustable works out wonderfully if rates drop -- something you should
never count on. But watch out if interest rates rise. In a year or two, your payments could
far exceed what you would have paid for a 30-year fixed.
The trick with adjustable-rate loans is to tailor the loan to your needs. Generally, the
cheapest rate out there is on a one-year adjustable. (Well, yes, there are even cheaper
loans that adjust monthly, but those are too esoteric for most buyers.) With a one-year,
your rate can change annually, making these loans particularly risky. Lenders often try to
draw you in with "teaser" rates that are especially cheap for the first year, but which will
almost certainly jump up the next year.
There is a limit to how much an adjustable-rate loan can adjust, however. Lenders limit
the amount the rate can be raised, often to no more than two points a year, with a lifetime
cap of six points. Moreover, if you are willing to endure the hassle and expense of
refinancing after a year, it's possible you'll come out ahead.
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A slightly more expensive option is what's known as a "delayed adjustable." When you
see "3-1 adjustable" or "5-1 adjustable" it means that the loan stays fixed for three or five
years and then resets annually. The same pattern holds for a 7-1 or a 10-1; the longer the
fixed period, the higher the rate. The idea is to match the loan to the amount of time you
plan to stay in the house. For instance, if you expect to move after three years, a 3-1 is a
great option. After 10 years, you might as well opt for a fixed rate. The price difference
will be minimal.
"How much cash am I going to have to produce upfront?"
These days, not much. Ideally, you would have enough cash for a 20% down payment,
closing costs equal to about 3% to 5% of the purchase price, and enough left over to
cover two or three months of monthly housing expenses. That gives you a big chunk of
equity in your house upfront and makes the lender happy -- something that usually
translates into a better deal. The trouble is, coming up with that much cash can be all but
impossible for many first-time buyers. After all, we're talking $40,000 on a $150,000
loan or $70,000 on a $250,000 mortgage. If you do not have a 20% down payment, you
typically have to insure the mortgage, and that costs typically three cents on each dollar
of house value.
The good news is that lenders over the last couple of years have become increasingly
willing to finance as much as 95% or even 97% of a home. The reason: They can now
unload the risk of such loans onto somebody else. To limit their exposure, many lenders
regularly sell their loans to the Federal National Mortgage Association (Fannie Mae),
which then bundles them into securities which are eventually sold to investors. It used to
be that Fannie Mae only would buy loans for 80% financing. But it recently standardized
the lending criteria for 97% financing and will now buy these loans, making lenders
much more willing to provide them to you. It's now common for first-time buyers to put
down only 5%, or $7,500 on a $150,000 loan.
While this sounds enticing, remember that puny down payments have their price. First of
all, you start with very little equity in your home. Also, if you don't have 20% to put
down, you'll probably have to ante up for mortgage insurance (which protects the bank
against default and can top $1,000 a year if you put 5% down on a $200,000 loan).
If you are buying in an urban area or have low to moderate income, look into programs
offered by your city or state that provide below-market loans with little or no down
payment required. If you're really cash-strapped, you can get 100% financing by "piggybacking" a second loan equal to 20% of the purchase price on top of your 80% loan. But
that 20% second mortgage will come at a much higher rate.
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Appendix G
I’ve decided I want THIS house… now what?
Once you have decided on an initial offering price, you are ready to submit a “purchase
and sale agreement” to the real estate agent. This is a signed offer to purchase the house
for a given price under specified terms. You should be sure you understand all the terms
of the contract before you sign it and submit the offer. Real estate agents are required by
law to deliver all offers to the seller, even if an offer is far below the seller’s asking price.
The purchase and sale agreement is a legally binding offer to purchase a property. It
should include at least the following:
• Complete legal description of the property;
• Amount of the deposit accompanying the offer;
• Offering price;
• Size of the intended down payment and how the remainder of the purchase will
be financed (including the maximum interest rate your clients are willing to pay);
• Personal property included. To avoid any misunderstandings or surprises, the
contract should list everything that the owner has said will stay with the house or
that your clients want the owner to leave behind. Advise your clients not to rely
on the seller’s verbal agreement that specific appliances or personal property are
included in the sale;
• Proposed closing date and occupancy date. The contract may include a provision
that the seller will pay rent on a daily basis in the event they haven’t moved out
by the agreed-upon date (usually the closing date);
• Closing costs to be paid by the seller (see Chapter 5 for details);
• Clear title. The contract should state that the purchase is subject to the buyer
receiving clear title to the property. Clear title means there are no legal questions
as to who owns the property.
• All systems in working order. Your clients may want to stipulate that the sellers
are responsible for ensuring that the plumbing, heating, mechanical, and electrical
systems are in working order at closing;
• Length of time the offer is valid (generally three to five days); and
• Any contingencies (may include home inspection, property assessment, gas line
check etc.)
Home buyers are usually expected to submit a “good faith” payment with the offer to
show the seller that they are serious about buying the house. There is no set amount, and
what is customary differs by location. The deposit check should be made out to the real
estate firm that is handling the sale, not to the seller. The earnest money is deposited in an
escrow account to be returned to your clients if the seller does not accept their offer
within a specified number of days. Be aware that you may forfeit this money if your offer
is accepted by the seller and then you decide to back out of the deal.
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Appendix H
Where do I look for a house?
You should check out as many leads as possible about houses that are for sale. This may
include the following:
Word of mouth
You should let your family, friends and acquaintances know that you’re in the market for
a house.
“For sale” signs
Driving or walking around in search of “for sale” signs may be worthwhile, particularly if
you have a good idea of what neighborhood you are interested in. This is a particularly
good way to find houses being sold by the owners.
Newspaper ads
Classified ads in local newspapers are another good source of leads. “Open houses” also
are announced in the real estate section, and you can do some initial shopping and
comparative pricing by spending weekend afternoons looking at houses being shown by
real estate sales professionals.
Shoppers’ guides
Home finders’ directories featuring pictures and brief descriptions of houses currently on
the market may be available at supermarkets, convenience stores, and newsstands.
Helping Your Clients Shop for a Home
The Internet
There are many Web sites that show property listings in Saskatchewan. You can search
by location, property types, and specific features.
Foreclosure sales
When homeowners fail to pay their mortgage, the lender may foreclose and resell the
house in order to recover the unpaid loan amount. Often such homes are sold for a belowmarket price.
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Appendix I
Budgeting for a house (see Module 5 for budgeting)
If you want to buy a house, start by estimating what you can afford and making a budget
to buy. Many prospective buyers find it difficult to accumulate enough cash for a down
payment, especially if they are saddled with heavy debt. With some discipline and
creative strategies, you can probably come up with more cash than you think. Check your
current finances and investigate ways to save and raise extra funds.
1.
Write down your monthly income, savings, and spending.
If you have a lot of high-interest credit debt, try to move your balances to cheaper
cards and plan to spend a year paying off as much of that debt as possible.
2.
Identify your long-term financial goals.
Owning a house may be one, saving enough for retirement may be another.
3.
Make a home-buying savings plan.
Open a savings account just for this purpose and make regular deposits, even if
you put aside just $20 a week.
4.
Look for other sources of down payment funds, such as a Roth Individual
Retirement Account (IRA).
First-time buyers now have access to $10,000 of these funds penalty-free under
certain conditions.
5.
Cut back on non-essential spending.
Your friends and relatives will understand that you can't spend $20 to go to dinner
and the movies if you say you're saving to buy a house. Your children will
understand, too. In fact, saving to buy a house can be a family activity.
6.
Make saving for a house fun.
Chart your progress on paper and post it somewhere to remind yourself of your
goal.
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Appendix J
Mortgage Research
Lender #1
Lender #2
Lender #3
1. Lender and contact
information:
2. Mortgage type (fixed rate,
ARM):
Length of loan:
3. Interest rate and points:
Quoted rate:
Date of quote:
Number of points for this rate:
4. Down payment:
Minimum down payment needed:
5. Early repayment penalties:
Prepayment penalty on the
mortgage loan?
If yes, how much?
6. Closing costs and fees:
Credit report fee:
Application fee:
Appraisal fee:
Other costs:
7. Loan processing time:
Locked-in interest rate
availability:
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How long lock-in lasts:
Time needed after approval to get
money:
8. Lock-ins:
When lock-ins are available:
Any charge for lock-in?
What happens if rates drop?
9. Starting interest rate:
10. Rate adjustments:
Time before interest?
Rate changes?
Frequency of rate changes after
that?
ADJUSTMENT CAPS:
Maximum amount the rate can
change at one time?
Total amount rate can change over
the term of the loan?
11. Change to fixed rate:
Can ARM be turned to fixed rate?
When?
Is there a fee for change?
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Appendix K
What is a Real Estate Agent?
Although these sources will help your clients get started, usually the most efficient
method of shopping for a house is to consult a real estate agent. It is important that you
understand the relationship between a home buyer and a real estate agent. The buyer
typically pays nothing for the agent’s services. Instead, the agent is paid by the seller
(usually a commission based on the sales price of the home) and therefore represents the
seller’s interest in the transaction.
It may be to your advantage to find a real estate professional who will act as a buyer’s
agent — that is, who will represent their own interests. They should know in advance
how the buyer’s agent is paid. Will they be charged a commission?
Or will the buyer’s and seller’s agents split the commission paid by the seller?
A real estate agent can provide your clients with an array of services, including the
following:
• help determine how much they can afford to spend on a house;
• generate computer printouts of houses that meet your clients’ specifications;
• show your clients houses that meet their requirements;
• provide information about communities and neighborhoods, including the prices
and features of houses in the area, location of schools, property tax rates, unusual
building code regulations, and availability of community services;
• present your clients’ purchase offer to the seller; and
• provide referrals to mortgage lenders, settlement agents, professional home
inspectors, and title companies.
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Appendix L
Advantages of Owning a Home
If you are thinking about buying a house, consider the following advantages:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
A house is a form of forced savings (you make payments on an asset that may
grow in value--many families would never accumulate assets otherwise).
Homeowners often have a sense of pride and status in home and community.
A homeowner may have a better credit rating (equity in a home improves the
credit status of the family and can be used as collateral for an emergency loan).
Mortgage payments contribute to an investment, particularly if the property is
located where it increases in value over a period of years.
Monthly payments remain relatively constant for many years (fixed loan), thus
housing costs are stabilized because present and future costs can be estimated and
planned.
Interest on mortgage monies and taxes are legitimate income tax deductions.
The house may increase in value, resulting in a significant gain in net worth.
Ownership may contribute to security, especially in retirement years when income
normally decreases.
A homeowner can borrow against his/her equity, as the value of the house
increases against what is owed on it.
More space may be available for family members and their activities.
A homeowner has freedom to make improvements and changes to the house and
surroundings as desired (although a development or association may have
restrictions and prohibitions).
Home ownership can contribute to the general well-being and sense of "roots" of
the family, especially for children.
Homeowners generally are concerned about community affairs and how they may
affect their property.
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Appendix M
Disadvantages of Owning a Home
The disadvantages of home ownership may outweigh the advantages for some people
because:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
A substantial down payment is needed.
A house requires a big commitment in time, emotions, and money.
The house may decrease in value if the neighborhood deteriorates or changes
quickly; thus resale may be a problem.
The homeowner may have limited money for other purchases or activities since
his or her money is tied up in the house.
Maintenance and repairs may be costly and take a great deal of time and effort.
Owning a house requires money for insurance, and a loss of the house as a result
of a natural disaster (tornado, flood, hurricane) could mean a serious financial
burden.
Some families have difficulty budgeting for maintenance, repairs, home
improvements, and/or home ownership dues.
Real property taxes could increase dramatically.
Total housing costs may take too much of the budget, resulting in potential cash
flow problems.
The family may have higher moving-in costs as new items may have to be
purchased for a house.
The family may feel less secure if neighbors are not near.
The house may be too large after children leave home.
Security may be a problem if you travel a lot.
Unexpected loss of income due to job termination or unemployment may limit
money available for home ownership costs.
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Resources
The Investment FAQ. http://invest-faq.com/articles/real-es-rent-vs-buy.html
Buying your First Home WebQuest.
http://faculty.ncwc.edu/MBrooks/310/Spring04/Kimberly/Final%20Webquest.htm
Christine Clay's Buying a Home Web Quest.
http://coe.west.asu.edu/students/cclay/webquest.htm
The Economics of Homebuying.
http://www.econedlink.org/lessons/index.cfm?lesson=NN121&page=teacher
Home Buying Readiness Sourcebook. http://alri.org/fmf/tools/index.html
Money Management. http://alri.org/fmf/tools/index.html
Helping your clients shop for a home.
http://www.fanniemae.com/global/pdf/housingcommdev/resourceshomeed/chapter3.pdf;j
sessionid=TBYEDKFNK2AWLJ2FECHSFGA
Albertabroker.com
http://www.albertabroker.com/generalinsuranceinformation/basicinsuranceterms/tabid/67
/Default.aspx
SGI Website - http://www.sgi.sk.ca/
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