1. PowerPlay Money Managers Lesson 2: My First Car

2. Objectives  By the end of this lesson you will be able to:  Identify costs associated with owning a vehicle  Explain how a car loan works and list the factors that can impact the monthly financing costs.  List several realistic options for transportation for students when attending post secondary school.

3. Materials Needed  Activity Sheet 2.1 “Researching my Dream Car”  Activity Sheet 2.2 “Group Scenario”  Activity Sheet 2.3 “My First Car”

4. Activity 1  Distribute Activity Sheet 2.1 “Researching My Dream Car”  Tips:  Work in groups of 5 or 6 to brainstorm ideas, but each person must give details their own personal dream car.  Choose a more common type of car (not a Lamborghini)  The car must cost less than $70,000  Include a lot of detail:  Type of vehicle (sports car, sedan, truck or SUV)  Colour  Special Features (rims, tinted windows, spoilers or stereo)  Transmission (automatic or standard)  Make groups of 3 and each person will describe their dream car to the others for 1 minute.

5. Activity 2  Now we are going to participate in an activity to see who understands cars best.  As a class we will use an example of a “dream” car to determine the monthly expenses.

6. Overhead 2.1 “Sample Vehicle”  Vehicle:  2008 Chevrolet Cobalt LT  2.2 litre  4 cylinder Calculate the cost to finance, maintain and insure this car.

7.  Distribute Activity Sheet 2.1 “Group Scenario”  Each of you are responsible for determining the cost to purchase, maintain and insure the sample vehicle based on the information provided.  The group or person that calculates the closet estimate wins.

8. Step 1: Financing  Each group determines their estimate of the monthly payment for the vehicle loan.  Estimates are recorded in the appropriate box on your estimating worksheets.  Volunteer to record your responses on the whiteboard.  We will use Overhead 2.2 “Total Purchase Price” to help make accurate estimates.

9. Overhead 2.2 “Total Purchase Price” Vehicle 2008 Chevrolet Cobalt LT 4-door sedan List Price $22,230 Sales Tax, 7% $1,556 GST, 5% $1,112 Total Cost $24,898 10% Down Payment $2,490 Loan Amount $22,408

10. Questions  What is a down payment?  Why would banks want you to have one?

11. Overhead 2.3 ‘Loan Calculator’  To demonstrate how monthly payments are calculated for loans.  Input:  Loan amount  Term in months  Interest rate  Calculate:  Monthly payment  Total interest paid

12. Overhead 2.4 ‘Monthly Loan Payments’ Answers Vehicle 2008 Cobalt LT Loan Amount $22,408 Term (months) 48 Interest Rate 8% Monthly Payment $547 Total of Payments $26,258 Total Interest $3,850

13. Results  Which group was the closest to the actual amount?  What did you learn from this step?  How could you decrease the monthly payment amounts?

14. Overhead 2.5 ‘Impact of Interest Rates’ Loan Amount ($) 22,40822,40822,408 Term (months) 484848 Interest Rate 6%8%10% Monthly Payments ($) 526547568 Total of Payments ($) 25,26026,25827,279 Total Interest ($) 2,8523,8504,871

15. Overhead 2.6 ‘Impact of Payment Terms’ Loan Amount ($) 22,40822,40822,408 Term (months) 364860 Interest Rate 8%8%8% Monthly Payments ($) 702547454 Total of Payments ($) 25,27926,25827,261 Total Interest ($) 2,8713,8504,853

16. Questions  What does this exercise tell us about financing?  What is the advantage of using different payment terms?  When would it be appropriate to use a shorter term?  Do people have different interest rates?  Yes, different banks compete with each other by offering lower rates.  By shopping around people can sometimes get lower rates.

17. Step 2: Insurance.  In your groups estimate the cost for insuring the vehicle.  Volunteer to record responses on the whiteboard.  Would the insurance cost more for a sports car than a sedan?  Absolutely

18. Overhead 2.7 ‘Monthly Insurance Costs’ Vehicle 2008 Cobalt LT Years with good driving record 2 Rate class To work or school >15 km Monthly insurance cost $270

19. Question  Which group had the closest estimate for the cost of monthly insurance?

20. Overhead 2.8 ‘Insurance Cost Factors’  Factors Impacting BC Automobile Insurance Costs  Rate classes  Where you live  Your claim record  The vehicle you drive  Additional coverage  Source ICBC.com

21. Step 3: Maintenance  In your groups estimate the cost for maintaining the vehicle.  Consider the different types of expenses associated with operating a vehicle (i.e. gas maintenance and tires).  Volunteer to record responses on the whiteboard.

22. Overhead 2.9 ‘Monthly Maintenance Costs’ 2008 Cobalt LT Fuel$140/month Maintenance$35/month Tires$28/month Total$203/month Sources: Canadian Automobile Association Driving Costs 2007 Edition and M.J. Ervin & Associates Inc. Gasoline costs based on national average on Nov. 20, 2007. All Costs are based on 18,000 km driven annually.

23. Questions Which group had the closest estimate? What are the hidden costs associated with owning a vehicle?

24. Overhead 2.10 ‘Total Monthly Costs’ Vehicle 2008 Cobalt LT Financing$547 Insurance$270 Maintenance$203 Total Costs $1,020

25. Discussion  How realistic is owning a new vehicle for young adults?  What are other forms of transportation?  Purchasing a used car.  Borrowing parents car.  Using transit system.  Using a bike.

26. Homework  Distribute Activity Sheet 2.3 ‘My First Car’  Due at beginning of next class.  Don’t forget to have your parents sign the sheet!