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Financially Defined . Credit is the granting of money or something else of value in exchange for a promise of future repayment. We Use Credit . Questions . How does the use of credit–a loan–affect a borrower’s balance sheet? How does the use of credit–a loan–affect a borrower’s budget?

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financially defined
Financially Defined

Credit is the granting of money or something else of value in exchange for a promise of future repayment.

questions
Questions
  • How does the use of credit–a loan–affect a borrower’s balance sheet?
  • How does the use of credit–a loan–affect a borrower’s budget?
  • What are some advantages and disadvantages of using credit to finance purchases?
concepts
Concepts
  • Assets
  • Budget
  • Credit
  • Liabilities
  • Net Worth
concepts1
Concepts
  • Budget— An itemized summary of probable income and expenses for a given period. A budget is a plan for managing income, spending and saving during a given period of time.
assets liabilities net worth
Assets – Liabilities = Net Worth
  • Assets – Anything an individual, business, or organization owns that has commercial or exchange value
  • Liabilities – Money an individual, business, or organization owes; same as debt
  • Net Worth – The difference between the total assets and total liabilities of an individual, business, or organization
sandra s balance sheet
Sandra’s Balance Sheet

Sandra is a high school senior. By paying off her car and starting a savings account, Sandra believes that she is well on the way to wealth creation. Use the balance sheet below to calculate Sandra’s net worth. Put the items below in the appropriate section of the chart and use the formula Assets – Liabilities = Net Worth to calculate her wealth.

slide14

Sandra’s Budget

  • Sandra added three loans to her balance sheet. In addition to affecting her net worth, each loan will have an impact on her monthly budget
  • How would her budget be affected if Sandra borrowed $3800 to buy a car—a loan that adds a $120 monthly car payment for 48 months?
slide15

Sandra’s Budget

  • How would her budget be affected if she took out $12,000 in student loans to pay for college, therefore adding a $125 monthly loan payment for 120 months?
slide16

Sandra’s Budget

  • How would her budget be affected if Sandra charged $450 on a credit card to pay for a spring break trip and pays off the balance in 10 months with a $50 monthly payment?
slide18

Use Credit Wisely

Should Patrick borrow?

slide19

Use Credit Wisely

Debra’s Degree Dilemma

slide20

Use Credit Wisely

Carlos’ Comic Conundrum

slide21

Use Credit Wisely

Veronica’s Vehicle Vexation

questions1
Questions
  • How does the use of credit–a loan–affect a borrower’s balance sheet?
  • How does the use of credit–a loan–affect a borrower’s budget?
  • What are some advantages and disadvantages of using credit to finance purchases?