North Dakota State University
NDSU Extension Service

Kids and Money Newsletter - Loans


Loans

Loan Language

Have you ever wished for something that cost more money than you could pay? You may have wished to charge it or BORROW money. Adults do that when they need something that costs a lot.

Let's pretend you can borrow money or get a loan. You get a loan from a LENDER to buy your first car. You, the BORROWER, will have to sign a paper that says you promise to pay back the money by a certain time. You can do it either in small TIME PAYMENTS or one big payment. The lenders will also charge you some money for letting you use their money. This is called INTEREST. It makes your car cost more.

The LENDER may also have you promise to give him or her something valuable that you own if you don't pay back the money you borrowed.

Often this is the thing you bought with the borrowed money. This thing is called COLLATERAL. A lender can REPOSSESS or make you give back the collateral. For example, you may have to give the lender your car back if you don't make your loan payments. They also get to keep the money you've already paid toward its purchase. Not making payments is called DEFAULTING on your loan. If you do this, you will have a bad CREDIT RATING and many lenders won't give you another loan. Too bad, you will have to ride your bike or walk!

Credit Language

Can you match each word with its meaning?

Time Payment, Borrow, Defaulting, Interest, Repossess, Loan, Collateral, Lender, Good Credit, Borrower

a) The cost of using or borrowing money.
b) Money or property given to a person who agrees to give it back by a certain time.
c) Paying a loan in small parts on a schedule.
d) You have this if you pay back loans as agreed.
e) The property that you promise to give the lender if you can't pay back the loan.
f) The person who gets money.
g) The person who furnishes money.
h) Not paying your loan.
i) Taking the property that was promised when the loan is not repaid on time.
j) To use someone else's money or property for a time.


Answers: Credit Language: (Time payment-c), (Borrow-j), (Defaulting-h), (Interest-a), (Repossess-i), (Loan-b), (Collateral-e), (Lender-g), (Good Credit Rating-d), (Borrower-f)


Kids and Money Newsletter - Loans


Money and Your Kids

a newsletter for parents


Loans

Credit's Younger Cousin

Children begin to learn about credit when they learn to borrow things from others and return them quickly and in good condition. A family rule about borrowing can save many bad feelings and prepare the way for wise borrowing later.

Guidelines for the Parent's Bank and Trust

  1. Make sure your child knows which is a handout and which is a loan. (Make no empty threats!)
  2. Give loans thoughtfully. Sometimes money mistakes may offer a chance to teach about credit.
  3. Be serious about repayment.
  4. Consider and discuss time payments and a small interest charge.
  5. Write it down.
  6. Don't lend additional money to a borrower who isn't paid up or who has a bad credit rating!
  7. Appropriate collateral orrepossession may be appropriate in some cases. This may work for the "I'll pay you later" syndrome.

Buy Now -- Pay Later

For children (parents too!) "buying now" is a lot more fun than "paying later." We live in an economy where some businesses make credit available for teens and sometimes even twelve year olds. Parents are left with the task of teaching children about limited resources in the midst of a market filled with unlimited choice.


What can you do?

Most fifth graders know that anything borrowed should be returned. Most children understand that money can be borrowed; they may not know about collateral, repossession, repayment schedules or interest. They may not know you are making payments on credit.

Since many fifth graders may not have studied percentages in math, a lesson about interest may or may not be understood.

You will want to explain these terms, but the best teacher your child can have is your good example.


For more information the following publication is available at your county office of the NDSU Extension Service.
HE-260, "Credit-Using It Wisely"


Brought to you by the NDSU Extension Service.
See your county extension agent for more money management information and other family economics programs.


April 1996


NDSU Extension Service, North Dakota State University of Agriculture and Applied Science, and U.S. Department of Agriculture cooperating. Sharon D. Anderson, Director, Fargo, North Dakota. Distributed in furtherance of the Acts of Congress of May 8 and June 30, 1914. We offer our programs and facilities to all persons regardless of race, color, national origin, religion, sex, disability, age, Vietnam era veterans status, or sexual orientation; and are an equal opportunity employer.
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North Dakota State University
NDSU Extension Service