Interested By Interest?

What is Interest?  When you take out a loan you will have to pay back the amount you borrowed and some extra money called interest.  This interest is the charge for borrowing the money.

Interest is quoted as a percentage.  Here is an example to demonstrate how interest works when taking out a loan.

Oscar borrows £10,000 from his bank to buy a new car and the interest rate on the loan is 6%.  Can you see how much money Oscar has to repay to the bank?

6% of £10,000 is £600.

Oscar will have to repay a total of £10,600 to the bank

Why do we have to pay Interest?  The payment of interest is compensation to the lender to:

1. Cover the risk of the loan not being repaid.
2. Cover the cost of profits that could have been made investing the money elsewhere.

Why do I get Interest on my savings?  In the same way we can borrow money from banks they also borrow money from us.

When you have money in your savings account the bank uses it to lend to others.  The bank pay you interest for borrowing your money!

Inflation - What Does It Mean?

Inflation is a word we often hear on the news but what does it mean?

It is one of the most important functions of economics yet many people, including adults, don't understand what it means.

Inflation is defined as the rate of change in the cost of goods and services.

We can use a weekly shopping basket to demonstrate inflation.

Clare does all of her shopping online with one of the leading supermarkets.  As Clare uses the same shopping list each week the price should always be roughly the same, around £100.

Over the next year, Clare notices the price has gone up to £105 each week.

 

This £5 increase over a year is spread across each of the products in Clare's shopping basket.  Can you see the cost of each product has increased by an average of 5%?

This demonstration is a simple illustration of the Consumer Price Index (CPI) which uses hundreds of common items (bread, beer, clothing, tickets, etc...) to measure the rate of inflation.

Why is Inflation important?

The rate of inflation influences how the Bank of England sets the Interest Rate.

High Inflation (> 2%) = high Interest Rates
Low Inflation (< 2%) = low Interest Rates

These Interest Rate changes effect everything from bank accounts, mortgages, benefits and pensions.

Money, Who Knows Best?

Who are the experts, the
Stock Exchange, the
Banks or you?

The world around us changes all of the time, and the world of finance is no different.

In fact sometimes it changes so fast even the experts cannot keep up! But who are the experts, and what do they really know?

Some people think banks are the experts, some think its the government, whilst some think they know all the answers themselves.

In reality its a combination of everyone's opinions and ideas that are used to make important financial decisions. This is the case for everyone from Governments, to large companies, schools and even every single one of you!

A lot of decisions you make in life can be made using the knowledge gained by others. The best bit is, you can copy the part that went well, and learn from the mistakes that didn't quite work out. We never stop learning, even as adults.

Study what others have done before, and ask yourself what you would you have done differently?

It is important to point out though, that what is right for one person, isn't necessarily going to be right for everyone. There are lots of different options to every situation, which means there are lots of different outcomes too.

Lets take pocket money, as an example. If you are lucky enough to get it, some of you will spend it straight away, some of you will save it, whilst some of you may even give it away!

As you get older, it becomes clear that there are more and more demands on your money, such as taxes, bills and having fun. For most of us though, there is only one way to get money, and that is to earn it. Jobs are hard work, and if you are working hard to earn money, it is important to spend it wisely and look after it carefully......and that starts right NOW!

It is never too early to start learning responsible money management.

A Timeline Of Money

We have selected 10 events from the last 4000 years to show how our use of money has changed over time.





Money Timeline

2000 BC - The first coins, pieces of bronze shaped like cattle appeared.

650 BC - The first coins with their value imprinted on them were first made. These were produced in Lydia (present day Turkey).

336 BC - The first coin showing a head of state is minted featuring the face of Alexander the Great.

757 - The pound as a currency originated in the kingdom of Mercia, now the middle of England.

806 - Paper money is invented and briefly used in China.

1279 - A mint is built in the Tower of London and remained there for 500 years.

1967 - The first cash machine was installed at Barclays Bank in Enfield Town.

1983 - The first (modern) £1 coin is produced. It is estimated there are now over 1.5 billion of these in circulation, although 3% of these coins are thought to be fake!

1999 - Two companies, Confinity and X.com launched their payment websites.  These merged in March 2000 to form PayPal.

2011 - The first phones appeared that allowed contactless payments to be made from your mobile.

What Are Shares?

We hear about shares everyday on the news but what are they and why are they important?

A share is a single unit of ownership in a company.  Each person who buys a share actually owns part of the company.

Companies sell shares to raise money and investors buy shares to make money when the company makes a profit.

Unfortunately, companies don't always make a profit.  If you invest your money in a company that loses money you will lose some, or maybe all, of your money.

Why are shares important?


Stock market trading



The companies listed on Junior Trader make up what is called the FTSE 100.  This is a list of the top 100 companies with the highest trading value on the London Stock Exchange.



How well these companies perform is seen as an indication of the strength of UK business.

On the evening news you will generally hear the newsreader talk about the FTSE 100 being UP or DOWN.  Sometimes, if one of the top companies has done really well or really bad, they will mention individual companies as well.

There are no rules saying which companies you should invest in but there are some important things to remember:

• The price of shares can go down as well as up.
• Try not to put 'all your eggs in one basket'.
• Higher returns usually carry the greatest risk.
• Smart investors do lots of research before buying shares.