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!
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)
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.
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.
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.
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
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