Debt & Credit – A matter of Interest Read Money & Youth page 79-88

It was Mr. William Shakespeare of course!! 1. Who was the author of the statement, “Neither a borrower nor a lender be.” It was Mr. William Shakespeare of course!!

2. Based on the graph on pg. 79, does this adage still hold true 2. Based on the graph on pg. 79, does this adage still hold true? Explain. No, this adage is not true anymore. Many companies and people are greatly involved in lending and borrowing money nowadays.

3. Define the following terms. Debt, Debtor, Credit, Creditor a liability; something you owe Debtor someone who borrows Credit an asset (ie. Money) Creditor Someone who lends (ie. Credit card company)

There are more funds available People tend to be better off today 4. Describe 5 reasons in general why borrowing has increased in the past 10 years. There are more funds available People tend to be better off today Higher prices Ability to pay is better than before Greater ability to carry debt Better understanding of debt management

Unexpected expenditures The “big” buys such as a car or house 5. From the “Why Do People Borrow” section, list 6 reasons why people borrow money. Unexpected expenditures The “big” buys such as a car or house Investment Education and training Opportunities Rainy days

6. List 6 types of debt/credit and give a short description of each. 1. Credit card – financial institutions that allow you to “borrow” money immediately up to a certain limit Interest is paid on any unpaid balances May charge an annual fee Usually a higher interest rate   2. Charge accounts – usually offered by retail stores (The Bay, Sears, Imperial Oil) Usually the highest interest rates on any unpaid balances 3. Consumer loans – loans for making large purchases (car, boat, house) that can be paid over longer periods of time (months to years)

Types of debt/credit continue. 4. Mortgage loans – used for property such as a house. Paid back over many years (i.e. 25 years) and must be renegotiated every so often (6 month to 7 year terms) 5. Business loans – loans to start, improve, or expand a business 6. Installment buying – making monthly payments (which include an interest charge) until the purchase is paid for

7. List 6 sources of credit. Family and friends Financial institutions – banks, trust companies, insurance companies, brokers Mortgage and loan companies Retailers Yourself Credit unions

8. Define the term ‘cost of credit’ The amount of interest that is paid on a loan

9. What are the two main factors that determine the cost of credit? The interest rate and the period of time over which debt is paid back

10. Define the terms ‘prime rate’ and ‘down payment’. Prime rate – the rate of interest that a financial institution charges to their largest and most reliable customers Down payment – the amount of money you can pay at the time of the purchase to lower the amount of money that needs to be borrowed 

11. What are the 3 C’s in Credit Worthiness? Give an example of each. Capital – the equity of your (value of house minus the mortgage), stocks, bonds, cars, that are you could liquidate and that you could secure a loan with (collateral) Character – Are you a borrower that is responsible and who will honour your debt (reliable) and make regular payments are you married? Do you have dependents? How long have you lived at your present address? Capacity – your ability to carry debt, sufficient income, your assets and income will be compared with your carrying costs

**Regardless of your credit worthiness, your credit rating can overpower it-especially if it is less than favourable.