The money muddle

1. The money muddle Aim of activityTo encourage confidence with financial jargon Live Long & Prosper themeFinancial capability Skills for Life coveredFinancial literacy, literacy and numeracy Learning outcomesBy the end of the session, participants will be able to:Explain what APR means Recall the meaning of five key financial abbreviations APR, AER, FSA, IFA, & CAT Identify relevant sources for finding out more about finance Resources requiredTutor notes & handouts Letter Cards Flip Chart Enough pennies for prizes (50 pence should be plenty) Music (optional) Leaflets showing APR rates if you have more than 20 minutes for the workshop Introduction: Don’t be afraid of money (5 minutes)Introduce the learning outcomes of the session with the group. Say that the session is all about having some fun with finance. It may seem boring but some people make a lot of money out of knowing a few very simple things! Jargon is there to stop everyone from getting in on the secret! Explain the rules of the game: Each person has a card with a letter. They must move round the room linking up with others to form words linked to finance - ‘cash’ is one of the words for example. They have five minutes to see how many financial terms they can find. If appropriate, play music during the activity.

2. The money muddle Main content: The money muddle game (10 minutes) If you are able to make a joke with the group tell them there are real cash prizes (This is what the pennies are for). Then remind them of the saying ‘Look after the pennies and the pounds look after themselves!’ You may wish to play some background music – Pink Floyd – Money! Just as long as you can be heard above it! Get everyone to return to his or her seats and use a flip chart to collect all the words. Have some fun, as there should be words like cash, poor, rich and fear, but there could also be other words such as financial slang! Give out a penny for every financial word or term, give out two pence if they get one of the jargon abbreviations (see tutor notes) and give out bonuses for anything you hadn’t thought of or anything funny or silly! Work through the list in the tutor’s notes and explain the terms as you go along. Focus on explaining APR as this is more complicated but also very important. NB Read the tutor notes well in advance, particularly the notes on compoundinterest. You may wish to try out the compound interest calculator at www.invidion.co.uk/interest_loan_calculator.php Conclusion/Review (5 minutes) Have a quick review and see if everyone can remember what the initials APR, AER, CAT, FSA and IFA stand for. You could do a quick two-team quiz, read out as a whole group from an OHP or Flip Chart or ask for volunteers. Try to get leaflets on money management either from the Financial Services Authority (FSA) or try your local Citizens Advice Bureau (CAB) so that anyone who wants to can take something with them to find out more.

3. The money muddle Further information and resources The Financial Services Authority produce a range of consumer fact sheets: www.moneymadeclear.fsa.gov.uk/tools/publications.html The Adult Core Curriculum has information on numeracy and literacy: http://excellence.qia.org.uk/sflcurriculum www.dcsf.gov.uk/curriculum_numeracycurriculum_numeracywww.dcsf.gov.uk/curriculum_literacy The BBC Skillswise website can help with working out percentages:www.bbc.co.uk/skillswise/numbers/fractiondecimalpercentage/percentages/introductionFor more activities on money management:www.bbc.co.uk/raw/money For information on the Financial Capability framework: http://shop.niace.org.uk/adult-financial-capability-download.html For advice on addressing literacy and numeracy issues in the workplace:www.traintogain.gov.uk - find out about Government support for training, or to arrange a visit from a skills broker For more information on Skill for Life for individuals:http://geton.direct.gov.ukwww.move-on.org.uk

4. The money muddle Handout 1 • This handout will remind you of the financial terms that were discussed in the session and give you a little more information. There are also websites to help you find out more. If you don’t have internet access at home you can often use your local library Internet for free or a small charge. You can also get information, advice and leaflets from the local branch of the Citizens Advice Bureau or online by visiting: • www.citizensadvice.org.uk/index/getadvice.htm#searchbox • Compound interest • Compound interest is where the interest is added to the amount borrowed at the end of each year. The next year the interest is worked out on a larger amount. For example if you have borrowed £400 at a compound interest of 5%, after the first year the interest of £20 (5% of £400) will be added to the original £400 to make £420. After the second year interest will be payable on £420, which will be £21 (5% of £420). • AER and APR are both ways of explaining the effects of compound interest charges. • AER (Annual Equivalent Rate) • This is also sometimes called EAR (Equivalent Annual Rate) • just to confuse you! • If you have money in a savings account you will • earn money on it depending on how high the interest • rate is, how often it is paid and how long you leave it • in the account. • Some savings accounts pay interest once a year. Others pay interest monthly or four times a year. The AER shows what the rate would be if interest was paid once a year. • APR (Annual Percentage Rate) • If you borrow money, or buy an item from a shop on credit then you will have to pay interest. The APR shows how much the interest will cost each year. This is supposed to make companies explain any effects of compound interest charges. Compound interest charges interest on the interest and can mean people pay more than they expected in interest charges. APRs should take account of all charges for credit, but they are not foolproof. Always check for extra charges such as payment protection. • As you can imagine companies who would like you to leave money in a savings account are much more enthusiastic about promoting compound interest than furniture or loan companies, who are hoping to take more money off you through compound interest. • TOP Tip! • Always check the AER and the APR

5. The money muddle Handout 2 • Example: • A wardrobe costs £199.00 at a company who has an APR of 24% • This means that if you buy the wardrobe over a year then you will pay £246.76 for it. If you take longer than a year to pay for it, you may end up paying more. Check for compound interest rates. • Top Tip! • The longer you have a loan the more you will pay over time so ask yourself if you really need to borrow money. Saving and buying later may save you money. CAT (Charges, Access and Terms)If a financial product is CAT-marked, it meets the government's benchmarks for charges (no more than 1% a year) and doesn't have any nasty surprises hidden away in the small print. www.direct.gov.uk/en/MoneyTaxAndBenefits/ManagingMoney/PlanningYourPersonalFinances/DG_10013582 FSA Financial Services Authority The FSA is the regulator responsible for managing the conduct of firms and individuals involved in investment activities. They also regulate the mortgage industry. Their website is full of useful tips and guidelines and you can order free materials to help you get the most of your money. www.moneymadeclear.fsa.gov.uk IFA Independent Financial Adviser A person who is licensed to give you advice on the financial products offered by a wide range of companies, not just a single provider. • Top Tip! • Fee-only advisers will give more impartial advice. IFAs who earn their living from commission are more likely to sell high-charging products for a higher amount of commission. • More jargon and the explanations can be found at: • www.nsandi.com/help/financialjargon.jsp#ac

6. Tutor NotesSheet 1 The money muddle The aim of the session is to highlight a couple of areas of financial jargon and hopefully encourage employees to find out more. These notes offer more information for the session and have also been adapted to be given as a handout. We recommend that you visit the FSA (Financial Services Authority) website for further information and ideas for running workshops. www.fsa.gov.uk/financial_capability/our-work/workplace/index.shtml Remember It is important that you do not offer anyone any advice about specific financial issues, as you need to be registered with the FSA to be a financial advisor. Financial advice is a tricky field and it is highly supervised and regulated. These are the terms that you may have to point out to the group as they will probably spot ‘cash’, ‘rich’ and ‘poor’ and maybe ‘fear’ but they may not immediately think of APR, AER, CAT, FSA and IFA. Compound interest Compound interest is where the interest is added to the amount borrowed at the end of each year. The next year the interest is worked out on a larger amount. For example if you have borrowed £400 at a compound interest of 5%, after the first year the interest of £20 (5% of £400) will be added to the original £400 to make £420. After the second year interest will be payable on £420, which will be £21 (5% of £420). AER and APR are both ways of explaining the effects of compound interest charges. AER (Annual Equivalent Rate) This is also sometimes called EAR (Equivalent Annual Rate) just to confuse you! If you have money in a savings account you will earn money on it depending on how high the interest rate is, how often it is paid and how long you leave it in the account. Some savings accounts pay interest once a year. Others pay interest monthly or four times a year. The AER shows the 'true' annual interest rate if you leave all your interest in the account and allow it to compound. Top Tip! Always check the AER and the APR Example: A wardrobe costs £199.00 at a company who has an APR of 24% This means that if you buy the wardrobe over a year then you will pay £246.76 for it. If you take longer than a year to pay for it, you may end up paying more. Check for compound interest rates. Top Tip The longer you have a loan the more you will pay over time so ask yourself if you really need to borrow money. Saving and buying later may save you money.

7. Tutor NotesSheet 2 The money muddle Extra bit If you have enough time you can go into more detail about the APR. Use leaflets from stores offering finance deals to show how much more money something costs with interest. You could even work through the compound interest rate example below. However if you only have 20 minutes then just stick to explaining the terms. Top Tip Practice your percentages before this session! Percentage Here are a few notes to help. Use a calculator Put 1 into the calculator – now divide by 100 – you should get 0.01 This is 1% To find out 15% of £99.00 Put 99 into your calculator and multiply by 0.15 – this should give you £14.85 £14.85 is 15% of £99.00 An easy way to add the percentage to the original amount is Put 99 into your calculator and multiply by 1.15 – this gives you your original sum plus the interest = £113.85 or £14.85 + £99.00 Working out Compound Interest There is a difference between 24% interest charged every month and 24% Annual Percentage Rate (APR). Imagine you borrowed £199 to buy a wardrobe with an interest rate of 24%. The first month you would be charged 2% of that in interest, which would make £202.98 The second month you would be charged 2% on £202.98, which would make £207.04 Third 2% on £211.18 Fourth 2% on £215.40 Fifth 2% on £ 219.71 Sixth 2% on £ 224.11 Seventh 2% on £ 228.59 Eight 2% on £ 233.16 Ninth 2% on £ 237.82 Tenth 2% on £242.58 Eleventh 2% on £247.43 So after a year you would have paid £252.58 for a £199 wardrobe and in reality the interest rate has been 26.82% APR That is why companies have to tell you what the annual percentage rate is! See how compound interest works at www.invidion.co.uk/interest_loan_calculator.php 1% means one divided by a hundred 10% means ten divided by a hundred 1% = 0.01 20% = 0.20 2% = 0.02 15% = 0.15

8. Tutor NotesSheet 3 The money muddle • CAT Charges, Access and Terms • If a financial product is CAT-marked, it meets the government's benchmarks for charges (no more than 1% a year) and doesn't have any nasty surprises hidden away in the small print. www.direct.gov.uk/en/MoneyTaxAndBenefits/ManagingMoney/PlanningYourPersonalFinances/DG_10013582 • FSA (Financial Services Authority) • The FSA is the regulator responsible for managing the conduct of firms and individuals involved in investment activities. They also regulate the mortgage industry. Their website is full of useful tips and guidelines and you can order free materials to help you get the most of your money. www.moneymadeclear.fsa.gov.uk • IFA (Independent Financial Adviser) • A person who is licensed to give you advice on the financial products offered by a wide range of companies, not just a single provider. • Top Tip! • Fee-only advisers will give more impartial advice. IFAs who earn their living from commission are more likely to sell high-charging products for a higher amount of commission. • Please note there is no OHO (see Letter Cards) – this has been added just so the group can make words like cash, poor and rich. But is a sound frequently heard when we think about Money! • More Jargon and explanations can be found at: • www.nsandi.com/help/financialjargon.jsp#acwww.investopedia.com/articles/basics/04/102904.asp