What it means to borrow money

Life Skills · Money & Finance · ages 9-11

Name ______________________ Date ____________

A loan is for $40. Its interest is $3 and its fee is $2. There are no other charges. How many dollars are due in total to repay the loan and pay its charges?
Answer: ______________
What is a loan?
- Money you borrow and must pay back
- Money a bank gives you for free
- Money you earn from a job
If a loan charges no interest, it must also have no fees.
Circle one: True False
A loan charges positive interest, with no fees. When you repay the full loan and its interest, do you pay back exactly what you borrowed, or more?
- Exactly what you borrowed
- More than you borrowed, because of interest
- Less than you borrowed
A family borrows $23,500 to fix their roof at 12% simple interest per year. The full amount stays borrowed for one year, with no repayments or added borrowing. How many dollars of interest are charged that year?
Answer: ______________
Which choice explicitly involves borrowing money with repayments the borrower cannot afford?
- Borrowing for a home with repayments that fit your budget
- Borrowing for sneakers with repayments you cannot afford
- Borrowing a library book that must be returned on time
A family needs a home and can afford the loan repayments. Their current console works, and they have food. Which purchase is the strongest reason for them to borrow?
- Buying a house to live in
- Buying the newest video game console right away
- Buying candy at the store
Lena has $30 available each month after her other planned costs. A laptop loan would require $40 each month. What does this comparison tell her?
- The payment is $10 more than her available money
- The payment fits because the laptop is needed for school
- The payment leaves $10 for her other planned purchases
Interest is added to Jake's loans each month. He makes no repayments and borrows more each month. No debt is cancelled. What happens to the amount he owes?
- Debt grows with interest
- The bank cancels all his debt
- Nothing changes
Mia says: "Borrowing money is always a bad idea." What is wrong with her statement?
- Borrowing is always free
- Nothing, she's right
- Borrowing can help with a needed home if repayments fit the budget; unaffordable repayments create risk

Answer key

For grown-ups. Fold this page away before handing over the rest.

What it means to borrow money W1-mt_bAy4dmP1-A-s1

45 · Add the borrowed amount and both charges: $40 + $3 + $2 = $45.
Money you borrow and must pay back · A loan is money someone lets you borrow. You have to pay it back.
False · False. Fees are separate from interest. A loan can charge no interest and still charge a fee.
More than you borrowed, because of interest · This loan charges interest above the amount borrowed, so the full repayment is larger.
2820 · For one year of simple interest on an unchanged amount, multiply $23,500 by 12/100. The interest is $2,820.
Borrowing for sneakers with repayments you cannot afford · The sneaker loan has repayments the borrower cannot afford. That creates a repayment risk, whatever the loan is used to buy.
Buying a house to live in · The house meets the stated housing need, and the family can afford its repayments. The other purchases do not meet that need.
The payment is $10 more than her available money · $40 minus $30 is $10. The payment exceeds Lena's available monthly money, even if the laptop is useful.
Debt grows with interest · In this case, new borrowing and interest add to the debt. No repayment or cancellation reduces it.
Borrowing can help with a needed home if repayments fit the budget; unaffordable repayments create risk · Borrowing isn't always bad. It depends on what you borrow for and whether you can repay it.