Hello everyone.

My name is Ms. Wyatt, and I'm so pleased that you could be here today for our lesson.

Welcome to today's lesson on what are the implications of borrowing money, from the unit, how can we manage money well? By the end of today's lesson, you will be able to explain the different types of borrowing and the dangers attached to borrowing.

We'll be using the following keywords throughout our lessons today, and some of these words may be new to you, but please don't worry, as I'm here to guide you.

Our key words are borrow, interest, overdraft, and loan.

Borrow means taking money from a lender with the intention of paying it back.

Interest means the extra money you have to pay when you borrow money, acts as a fee for using it.

Overdraft is when you spend more money than you have from your bank account.

And a loan is a sum of money you receive and agree to pay back with interest.

This lesson today on what are the implications of borrowing money is broken up into two parts, with the first part exploring what are the different types of borrowing? And then the final part of the lesson looks at what are the dangers of borrowing money? So when you're ready, let's begin today's lesson.

When we borrow money, we are taking money from a lender with the intention of giving it back.

You could borrow money from many different people or places, including family members, friends, banks or building societies, finance companies, credit card companies, payday lenders and employers.

So you could borrow money from lots of different people or places.

Individuals, businesses and governments can all borrow money, but their needs and amounts are usually different.

A business, for example.

So a business might need to borrow money to stay open during difficult times.

For example, many businesses closed during the COVID-19 lockdowns, and may have borrowed money to continue operating until they could reopen.

And we also have governments.

So governments may need to borrow to balance their budget, where the country's expenditure is greater than its income.

So this means where the country's going out is bigger than what it's getting in.

So most governments across the world borrow money.

So let's check our understanding.

Governments may need to borrow money if their expenditure is more than their, is it A, outgoings, B, income, or C, salaries? So governments may need to borrow money if their expenditure is more than their what? Pause the video and make your decision from our list.

Okay, time for our answer.

So hopefully we said governments may need to borrow money if their expenditure is more than their income.

So if we said B, income, we would be right.

Individuals borrow money for lots of different reasons, including for buying a house.

So in order to get a mortgage, you will need to borrow money from the bank.

Going on holiday or for special events.

Education, for example, university tuition fees.

Fashion, for example, the latest trainers.

Technology, for example, for a new phone.

And buying a car.

So there's lots of reasons why people borrow money.

There are many ways to borrow money, each with its own risks and benefits.

So credit is borrowed money, okay, so this is what it's known as, credit.

Normally you pay back the money you borrowed plus extra, known as interest, and this is how the lender makes a profit.

Sometimes you get 0% interest for a short period of time, but it often rises after that.

So adults will sometimes use credit cards or online accounts to buy things, okay? So credit is borrowed money.

Credit can also be used for large items through a hire purchase agreement, where you agree to pay off the item over time.

However, you don't fully own it until the full amount is paid.

So you have to keep paying it off until you've managed to pay it all off, and then that's when you can own it.

For example, Jasjit's family wanted to buy a sofa costing 960 pounds, but didn't have the funds to pay in full upfront.

They used a hire purchase agreement to pay 40 pounds a month over two years.

If they pay in time, there's 0% interest.

However, if their circumstances change and they can't pay within the two years, the interest rate rises to 30%.

So this means if they kept on paying each month as they had agreed, so 40 pounds a month over two years, they'd get it paid in time, and therefore there's no interest on it, okay? And so this means they don't have to pay back what they borrowed and also a little bit more.

But if their circumstances have changed and they end up not managing being able to pay within the two years, the interest rate does rise to 30%.

So they've got to pay back for the sofa as well as 30% interest rate.

So true or false, some adults use credit cards to pay for everyday goods and services? Is that true or is it false? Let's pause for a second and have a think.

Okay, so some adults use credit cards to pay for everyday goods and services is actually true.

Some adults do use credit cards to pay for everyday goods and services, and this is just the way that they pay things off.

Other common forms of borrowing are a short or long-term loan, so it can be secured or unsecured, an overdraft, credit union, and all of these types of borrowing involve paying interest.

That means a lump sum on top of what you've already borrowed.

So short-term loans are small amounts borrowed for a short period, usually a few weeks or months.

They often have high interest rate, so you end up paying back much more than you borrowed, and people typically use them for emergencies and repay in instalments.

For example, a short-term loan might be used to repair your property for safety reasons.

They are often called payday loans because they are meant to last until payday.

We then have long-term loans.

So long-term loans are borrowed money that is paid back over several years.

They are usually used for big expenses, like buying a house, a car, or paying for university.

The loan for buying a house is called a mortgage, and a loan for university is called a student loan.

So you might have heard of these words before.

Since they take longer to repay, they often have lower monthly payments, but more interest over time.

So what is the difference between a secured loan and an unsecured loan? Can we have a go at explaining your answer in one sentence? So pause the video here now, and try and explain the difference between a secured loan and an unsecured loan.

Okay, hopefully you've had enough time now to tell me what the difference is between a secured loan and an unsecured loan.

So we said a secured loan requires valuable property as collateral in case you can't repay, and is usually used for big purchases, whereas an unsecured loan does not need any collateral and is usually used for smaller amounts.

Okay, so we've got a secured loan, which is usually used for big purchases, and an unsecured loan, which is usually used for a small amount.

Well done if you managed to explain the difference.

So an overdraft.

So an overdraft lets you spend more money than you have in your bank account, up to a set limit.

Some accounts have a large overdraft, and some have no overdraft facility at all.

An overdraft is a type of short-term borrowing, where you only pay interest on the amount you use.

If not repaid quickly, it can become very expensive due to high fees and high interest rates.

So not every single bank account has an overdraft, some don't have any at all, but others do.

Secured loan requires valuable property like a house or car as collateral in case you can't repay.

Secured loans are usually used for big purchases.

And unsecured loans do not need any collateral, but usually have a higher interest rate because it's riskier for the lender.

Unsecured loans are more common for smaller amounts, like personal loans or credit cards.

For example, Harpreet has agreed a 500 pounds overdraft with her bank, therefore, if she spends all of her money, she can dip into the overdraft to borrow without being charged interest.

This is a great safety net for Harpreet, but the bank will charge for a lot of interest if she borrows more than this limit, so she has to be really careful.

It is also not a good idea to get used to borrowing money, as she might start to rely on it.

So it's great that she has a 500 pounds overdraft within her bank, and this means that she can dip into it if she needs to, but it's also not a good idea to get used to borrowing that kind of money, okay, as you might become reliant upon it.

We then have credit unions.

So a credit union is a nonprofit financial group where members can save money and borrow at lower interest rates.

It offers loans and other financial services similar to a bank, but focuses on helping its members rather than making profits.

Borrowing from a credit union can be cheaper and more flexible than borrowing from other lenders.

So let's have a go at matching the words to their definitions.

So we have short-term loan, long-term loan, overdraft and credit union, and then we have A to D choices on the right hand side.

So let's pause the video now and have a go at matching the words to their definitions.

Good luck.

Okay, let's go through our answers now.

So starting with short-term loan.

Hopefully we match this up to borrowed money repaid quickly.

Well done.

We then have long-term loan.

This matched up to money repaid over several years.

We then had overdraft, and this matched to, A, spending more than your account balance.

And then we had finally credit union, which matched to non-profit financial group.

Well done if we managed to match the words to their definitions correctly.

For this task, I would like us to have a go at completing the missing words using the words in the box below.

So we need to fill in some sentences because there are some gaps.

So I'm gonna read through it with some blanks in there, and then we're gonna have a go at doing this ourselves.

So, "There are many different types of borrowing, for example, a blank card allows people to buy things now and pay later, but if they do not repay quickly, they face high interest.

A hire purchase order lets people buy blank items in instalments, but they do not fully own them until the final payment.

Short-term loans helping blank but often have high blank, making them expensive if not repaid quickly.

Long-term loans like blank take years to pay back with lower monthly payments, but more total interest.

An overdraft is borrowed money from your blank account, but it can be costly if not repaid.

A credit union is a non-profit financial group that offers cheaper blank than banks." So let's pause the video now and have a go at completing the missing words using the words in the box below.

Enjoy.

Okay, so it's time for answers now.

Hopefully we've managed to complete our paragraph.

So the first missing word was credit.

So, "There are many different types of borrowing, for example, a credit card allows people to buy things now and pay later, but if they do not repay quickly, they face high interest." Our next blank was expensive.

So we had, "A hire purchase order lets people buy expensive items in instalments, but they do not fully own them until the final payment." The next blank was emergencies.

So, "Short-term loans help in emergencies, but often have high interest, making them expensive if not repaid quickly." We then had, "Long-term loans, like mortgages, take years to pay back with lower monthly payments but more total interest.

An overdraft is borrowed money from your bank account, but it can be costly if not repaid.

A credit union is a nonprofit financial group that offers cheaper loans than banks." So we had credit, expensive, emergencies, interest, mortgages, bank and loans.

Hopefully we've got them in that order.

Well done if we have.

We have now looked at the different types of borrowing, and it's time to start to look at the dangers of borrowing money.

So when you're ready, let's go.

The government and businesses have to decide how to borrow money and consider their options to ensure they run smoothly.

Businesses have to consider their shareholders, and the government has to consider its citizens when making financial decisions.

We also need to make some considerations before borrowing money.

Considerations involve asking yourself questions like, do I really need to borrow this money or can I save instead? How much do I need to borrow and can I afford to repay it? What is the total cost of borrowing, including interest and fees? What is the interest rate? Is it fixed or variable? So this means it can go up and down, or if it's fixed, it stays.

How long will it take to repay the loan? And how much will I pay in total? Are there penalties for late payments or repaying early? What happens if I cannot repay the loan? Is this the best borrowing option available or are there cheaper alternatives? Will this borrowing affect my credit score? And am I borrowing from a trustworthy and responsible lender? So when it comes to borrowing money, we do have to take a lot of considerations into why and when and what about this if we are borrowing money, and some of these questions may help you consider what are your options.

Laura says, "My Uncle wanted to buy a house but decided to wait until he saved more money as he was worried he might not be able to make the monthly repayments.

He plans to build an emergency fund before taking out a mortgage, to ensure he can handle any changes in his circumstances." Sam says, "I know that some people get themselves in debt because their income does not balance with their expenditure." So how much they're paying and how much they're actually being paid.

"It can be difficult to get out of debt if you borrow money.

When I'm older, I'm always going to put some money aside for emergencies as I'd be worried if I was constantly in debt.

Although you can't always predict what your needs and situation will be when you're older." It's a very good point from Sam, isn't it? She's saying I want to be able to put some money aside just in case there are some emergencies with money, as I'd be worried to get into debt.

But like Sam says, we don't know what's gonna happen in the future and we can't always predict what our situation will be.

So which question would you not ask before you borrow money? Is it, do I really need to borrow money or could I save it? Is it, what is the interest rate for the money I borrow? Or is it, can I ignore the repayment terms? So which question would you not ask before you borrow money? Let's pause the video and have a think about our answer to this question.

Okay, so the question that we would not ask before we borrow money is C, can I ignore the repayment terms? It's not a sensible question to be asking before you borrow money.

Question A and question B, however, are sensible questions to be asking before we borrow money.

Well done if we got that right.

When we borrow money, we need to also consider the dangers of borrowing.

So we have high interest rates.

So borrowing often comes with extra costs, making repayments more expensive.

The longer you take to repay, the more interest you will be charged.

Some loans, like payday loans or credit cards have extremely high interest rates, so this means that the money you borrow also comes with an extra cost.

So this makes your total repayment more expensive and more money than you actually borrowed.

We also have the risk of debt, so this is the danger of borrowing money.

If you borrow too much, it can be hard to keep up with payments.

Missing payments can lead to penalties, making the debt even larger.

Taking new loans to pay off old ones can trap you in a cycle of debt, and your debt can get higher, which is called debt accumulation.

We also have the impact on our credit score.

So failing to repay on time can lower your credit score.

A low credit score makes it harder to borrow in the future.

Some landlords check credit scores before offering you rental accommodation, and it's harder to get long-term loans like mortgages with a low credit score.

We also have the risk of losing assets, so our things.

If you fail to repay a secured loan, the lender can take your home, car or valuables Repossessed assets that often sold for less than their value, leaving you in debt.

Losing essential assets can create serious financial and personal difficulties.

And we also have the danger of stress and mental health issues when it comes to borrowing money.

Worrying about debt can lead to anxiety and stress.

Financial pressure can affect your relationships with family and friends.

And constant debt struggles can lower overall quality of life and wellbeing.

For example, Ana got really anxious when she realised she had forgotten to pay her bills and had gotten into debt.

Ana worried about it all the time, and it really affected her quality of life.

Ana says, "I wish I'd just paid my bills on time instead of spending the money on a holiday.

It really made me stressed.

I couldn't sleep properly for months." So we might sympathise with Ana and think, well, she wanted to go on a holiday and how exciting and fun is that? But she's now sort of regretting that now and saying, actually, I wish I'd paid my bills in time instead of actually spending all that money on a holiday, because now I'm struggling with anxiety and stress, and I couldn't sleep properly for months.

So let's fill in the missing words here.

We have, "Borrowing often comes with extra costs, making repayments more expensive.

These are called high blank blank.

If you can't keep up with the payments, you risk getting into blank.

A low blank blank makes it harder for you to borrow in the future." So let's pause the video and have a go at filling in our missing words.

Okay, it's time for answers now, so let's go through them together.

So, "Borrowing often comes with extra costs, making repayments more expensive, and these are called high interest rates.

If you can't keep up with the payments, you risk getting into debt.

A low credit score makes it harder for you to borrow in the future." So our missing words were interest rates, debt and credit score.

Well done if we recognised that.

All lenders should be registered with the Financial Conduct Authority or the FCA, who monitor the way financial companies carry out their business.

There are people and companies that are not registered and are illegally lending money at very high interest rates, and they are nicknamed loan sharks.

They try to convince people who do not have enough money to repay to take out loans so that they are then owed a lot of interest.

Loan sharks might take illegal actions to reclaim their money, so it is important to all always check that that company you are borrowing money from is registered with the FCA.

So we need to make sure if we do ever come to borrowing money, that the person in the company that we're borrowing it from is registered with the Financial Conduct Authority.

So what does the FCA stand for? Is it A, Financial Conduct Authority, B, Financial Consumer Agency, C, Financial Control Association, or D, Financial Compliance Agency? Pause the video and make your decision from our list.

Okay, so hopefully we've remembered that FCA stands for Financial Conduct Authority.

So well done if we said it was A.

For this task, Joe is considering a credit card or loan for luxury items, and is also applying for a mortgage.

Now, we need to write to Joe explaining the risks associated with this type of borrowing.

So Alex says you might want to warn Joe about getting further loans out, so you could mention debt accumulation and loan shots to prevent debt.

So we want to try and just let Joe know that these are the risks associated with this type of borrowing, okay.

So he's applying for a mortgage, but he is also considering a credit card or a loan for luxury items at the same time.

So we just need to make him aware of the risks of this.

So pause the video and let's have a go at writing to Joe to explain the risks associated with this type of borrowing.

Okay, so you might have said some of the following.

"Hello, Joe.

If you're considering taking out a credit card or loan, it's important to be aware of the risks.

High interest rates can make it harder to pay off debt, leading to debt accumulation where the amount owed keeps growing.

Missing payments on both a credit card and mortgage can hurt your credit score, making future borrowing more difficult and expensive.

Make sure you're confident you can repay your mortgage and any loans before committing, as falling behind could risk losing your home or other assets.

Financial stress can also affect your wellbeing.

Avoid payday loans or loan sharks as they can use illegal methods to recover money.

Make sure any lender is registered with the FCA, and focus on budgeting sensibly to stay on track with repayments." So well done if you manage to write to Joe and explain the risks associated with this type of borrowing, and mentioning things like high interest rates, and debt accumulation, and your mental wellbeing.

Good job.

We have now come to the end of our lesson on what are the implications of borrowing money.

I would like to try and summarise this now into a few sentences for us.

When borrowing money, options like credit cards and hire purchase orders come with high interest rates, and that can make repayment expensive.

Short-term loans can help in emergencies, but often have high interest, while long-term loans, like mortgages, spread out repayments over time, with lower monthly payments but more interest overall.

Overdrafts allow spending beyond your balance, leading to fees, while credit unions offer lower rates, unlike risky loan sharks that operate outside FCA protections.

The dangers of borrowing include high interest rates, debt accumulation, and the risk of losing assets with secured loans.

Missing payments can damage your credit score and cause stress due to financial pressure.

So today has been a really important lesson for what are the implications of borrowing money, and I hope you have taken lots from today.

Thank you for your efforts, and I hope to see you in the next one.

Bye-bye.