Hi, I'm Mrs. Wheelhouse, and welcome to our series of lessons on math and personal finance.

I'm really excited to look at this with you.

So let's get started.

By the end of today's lesson, you'll be able to describe different sources of financial advice, including how they may differ in terms of independence and reliability.

Now, we've got some keywords on the screen.

And if these are unfamiliar to you, you should pause the video now while you have a read through.

Our lesson has two parts today.

We're gonna begin by looking at how we decide how to purchase an expensive item.

Sometimes people may want or need to purchase something that costs more than they can afford based on a single month of income.

One option could be to put some income aside into savings every month.

Once there is enough money saved, it could be used to make the purchase.

Another option could be to borrow money in order to make the purchase.

This usually requires paying back with interest.

The rate of interest is usually reported as annual percentage rate, which refers to the total cost of borrowing for a year.

Large amounts of money can be borrowed and paid back over multiple years.

Examples include mortgages, which are used to purchase property and are typically paid back over 20 to 30 years.

Bank loans tend to be used to borrow over 1,000 pounds.

For example, for a car are typically paid back over one to five years.

Interest rates differ depending on the amount of money and length of time, but are typically between 10% and 15% APR.

Small to medium amounts of money can be borrowed and paid back in less than a year.

Examples include credit cards, which allow users to purchase items for up to a few thousand pounds.

The credit card provider pays for the item and then the customer pays back the provider in a flexible way.

There may be a short period of time where the user can pay back interest free.

However, interest rates usually tend to be higher than with bank loans, around 19%.

Payday loans, these are unsecured loans for typically between 50 to 1,000 pounds.

These are sometimes used by people when they need to borrow money for an emergency and expect that they will be able to pay it back after their next payday.

These loans typically have very high interest rates around 1250% APR.

There's the buy now pay later schemes, which allow customers to purchase an item and then pay for it over time with regular monthly payments.

These may be paid for longer than a year.

While these can sometimes be interest free, they often require the customer to pay back more than the original cost of the item.

Let's do some examples now.

A customer purchases a washing machine that costs 400 pounds on a buy now pay later deal.

The deal requires them to pay 75 pounds back per month for six months.

So, how much do they pay back in total? Well, 75 times 6 is 450.

So in total they're gonna pay back 450 pounds.

How much interest do they pay? Well, they've paid 50 pounds of interest because remember the washing machine only actually costs 400 pounds, but they've had to pay 450 pounds for it.

It's your turn.

A customer purchases a washing machine that costs 800 pounds on a buy now pay later deal.

The deal requires them to pay back 98 pounds per month for nine months.

So how much do they pay in total? Pause the video and work this out now.

Welcome back.

You should have said that in total they'll pay back 882 pounds.

So how much interest do they pay? Pause and work this out now.

Welcome back.

You should have said they pay 82 pounds in interest.

Let's look at this example.

A customer purchases a washing machine that costs 400 pounds using a payday loan.

They then intend to pay back the full amount in a single payment two weeks later.

The interest rate is equivalent to paying 0.

7% simple interest per day.

So, how much do they pay in total? Well, 0.

7% of 400 is 2 pounds and 80 pence.

Now remember, they're gonna pay that per day.

So that's 14 lots of that interest payment.

Added to the original 400 pounds we've got to pay back, that means they'll have to pay back 439 pounds and 20 pence.

It's now your turn.

The customer's purchasing a washing machine that costs 800 pounds using a payday loan.

They then intend to pay back the full amount in a single payment four weeks later.

The interest rate is equivalent to paying 0.

8% simple interest per day.

So, how much do they pay in total? Pause the video while you work this out now.

Welcome back.

Well, the interest was 6.

40 pounds per day.

They're paying that back over 28 days, which means in total they're paying back 979 pounds and 20 pence.

It's now time for your first task.

In question one, a person wants to buy a sofa that costs 600 pounds.

They plan to save up for the sofa by saving a regular amount of money each month until they have enough to pay for the sofa.

In part A, how much would they need to save per month to be able to afford the sofa after six months? In part B, how many months would they need to save for if they saved 75 pounds per month? And then part C, how many months would they need to save for if they saved 65 pounds per month? Pause the video while you work this out now.

Question two, a sofa shop offers their customers a buy now pay later deal.

When customers use this deal, they take the sofa home and then pay the shop a monthly amount of money over an agreed period of time.

Customers can choose whether to pay back over 6, 9, 10, or 12 months.

Now a sofa costs 600 pounds, and the table below shows how much a customer would have to pay per month for this sofa using the buy now pay later deal for each length of time.

So in part A, for each length of time, calculate the total cost of the sofa with this deal.

Pause the video and work this out now.

Part B, Sam says, "The cheapest option overall is to pay back over 12 months because that is the option with the lowest monthly payment." Explain why Sam is incorrect.

Pause the video and do this now.

Part C, explain why the options with the least amount of interest may not be the most suitable option for someone to choose.

Pause the video and work this out now.

Question three, a payday lender allows a customer to borrow 600 pounds.

They allow the customer to pay back the full amount in a single payment at a time of their choosing in the future.

The customer will be required to pay back the borrowed amount, plus 0.

8% simple interest for each day before the payment is made.

How much money would the customer have to pay back if their payment was one week after borrowing the money? One month, which is 30 days, after borrowing the money? Or six months, 183 days, after borrowing the money? Pause the video while you work this out now.

It's time to go through our answers.

For question one, part A, they would need to save 100 pounds per month to be able to afford the sofa.

If they save 75 pounds per month, they could afford the sofa in eight months.

And how many months if they save 65 pounds per month? It'll take 10.

Well done if you've got those right.

Question two, you had to calculate for each length of time the total cost of the sofa.

So, you can see here for six months, the total amount to be paid is 672 pounds.

For 9 months, it's 720 pounds.

For 10 months, it's 750 pounds.

And for 12 months, it's 780 pounds.

So why is Sam incorrect? Well, we can see that the total amount to be paid is the greatest for the 12 months.

Therefore, 12 months is the most expensive option.

So explain why the options with the least amount of interest may not be the most suitable.

Well, it depends on personal circumstances.

For example, the customer may not have 112 pounds of income available per month to pay towards the sofa.

Therefore, it may be better for them to pay less per month over a longer period of time.

Question three, part A, they would have to pay back 633 pounds and 60 pence.

In part B, they'd have to pay back 744 pounds.

And for part C, they'd be paying back 1,478 pounds and 40 pence.

You can see how that interest really piles up.

It's now time for the second part of the lesson, which is on looking at choosing when to pay for something.

Sometimes prices can differ depending on when you pay for it.

Can you think of any examples where time may affect the price of something? Pause the video and have a think now.

Did you say something like this? You might have thought about early bird deals, last minute deals, or paying in a single payment versus paying in monthly instalments.

An annual music festival usually starts selling tickets three months before the festival.

The usual price for a ticket is 150 pounds.

The festival organisers choose to sell a limited number of early bird tickets for a reduced price of 120 pounds.

Why might the festival organisers do this? Pause and have a think now.

While selling some tickets early ensures that the organisers have some money to begin organising the festival.

If the organisers made a loss on the previous festival, then the early bird tickets may allow them to settle any remaining debts.

What benefits does an early bird offer provide for a customer? Well, they can save 30 pounds on their ticket.

But why might a customer choose to wait and buy a ticket at full price? Hmm.

That doesn't seem to make sense, does it? Pause the video and have a think about that.

Welcome back.

What did you come up with? Well, you may have said something like this.

They might want to wait and see which bands are playing before deciding.

Ah, so if they don't know who's playing at the festival, maybe they don't wanna spend 120 pounds on a ticket for bands they're not interested in.

That does make sense.

They might not yet know whether they're gonna be free on those dates.

Let's do a quick check.

A gym allows their members to pay in two different ways.

You could pay monthly for 24 pounds per month or pay yearly for 260 pounds.

What would be the total cost for a year if a customer chose to pay monthly? Pause and work this out now.

We should have worked out the total cost would be 288 pounds.

So how much would a customer save per year by paying yearly? Pause and work this out now.

They'd save 28 pounds.

Why might a customer choose to pay monthly rather than yearly though? Pause the video and work this out now.

Welcome back.

Did you say something like the customer may not want to commit to a full year.

They might not be able to afford 260 pounds in a single payment.

They may prefer to keep their monthly outgoing as regular as possible.

Any of those would be acceptable, and you may have come up with something different.

That is also right.

It's now time for our final task.

Question one, a car insurance company offers one of their customers two options for the same level of car insurance for a year.

Option A, make a single payment of 618 pounds to be insured for the year, or option B, make 12 monthly payments of 70 pounds and 25 pence to be insured for the year.

Part A, what is the difference in the total annual cost between option A and option B? In part B, explain why a customer might choose option A.

And in part C, explain why a customer might choose option B.

Pause the video while you work on this now.

Question two, a holiday cruise company schedules a seven-day cruise to start on the 1st of June.

The company usually charges 1,200 pounds per person to go on the cruise.

If the cruise is not sold out by one week before the start date, the company offers the remaining places for 750 pounds per person as a last minute deal.

Part A, what benefit does the last minute deal provide for the cruise company? Part B, what benefit does the last minute deal provide for a customer? And then in part C, Laura says, "Rather than paying full price, I would just wait until 25th of May and buy my ticket using the last minute deal." What problem could there be with Laura's plan? Pause a video while you work on this now.

It's time to go through our answers.

Question one, part A.

Well, the total cost of option A is 618 pounds, and the total cost of option B is 843 pounds.

So the difference between the two options is 225 pounds.

So, why might someone choose option A? While it's cheaper overall for the whole year, you'd save 225 pounds during the year by choosing to make that single payment.

Now, bearing that in mind, explain why a customer might choose option B.

They might not be able to afford 618 pounds in a single payment.

For budgeting purposes, they may prefer to keep their monthly outgoings as consistent as possible.

Question two, what benefit does the last minute deal provide for the cruise company? While the cruise company would lose money on any places that are left empty, the last minute deal increases the likelihood that they will sell the remaining places and make some money on them.

Part B, what benefit does the last minute deal provide for a customer? Well, they're able to save 450 pounds on their cruise.

That's a good saving.

Now, Laura reckons she can just wait and buy her ticket using the last minute deal, but what problem could there be with her plan? Well, the cruise might sell out before the 25th of May and therefore may not run a last minute deal.

And even if there is one, those tickets might sell really quickly and Laura might not have the time to get one.

It's time to sum up what we've learned today.

Financial terminology can be applied to real values to help understand what is being referred to.

There are a range of financial products that suit different needs and circumstances.

Financial institutions seek to make money from their financial products and services.

When there are options for payment or borrowing, it can be helpful to consider which is cheapest overall.

However, it's also important to consider your own personal circumstances and priorities.

Well done.

You've worked really well today.

I look forward to seeing you for more lessons in the future.

Goodbye for now.