Session 6: Understanding debt and how to borrow wisely

Introduction

In Session 4 you explored the first type of borrowing that many young people have direct experience of – the student loans used to finance further and higher education study.

In the video Bobby draws together the themes of the session. In this and the next session you’ll explore other types of borrowing that people use, including loans for cars and mortgages for property. You’ll look at the different types of lending institution too, including the ones to avoid!

The build-up of personal debt is a controversial subject. Some people unfortunately find they cannot afford to repay their debts – or, at least, cannot repay them on time. But for the vast majority of people, debts are manageable and the money borrowed is used to buy things that simply could not be afforded from savings.

In this session you look at what’s involved in borrowing (and repaying) money, at how interest rates work, at the financial institutions that are involved in setting rates, and at how debt can be used sensibly to support your goals and aspirations.

Download this video clip.Video player: mmmft_1_video_week6_intro.mp4

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Transcript

BOBBY SEAGULL:

So what's involved in borrowing and repaying money, and how can debts be used sensibly to support the various things you want from life? In Session 4, we looked at the first time borrowing many young people have direct experience of- the student loans used for college and uni. In this and the next session, you'll explore the other types of borrowing that people use, including loans to buy cars and mortgages to buy property. We look at the different types of lending institutions, too, including the ones to avoid.

Borrowing money means a build-up of personal debt, and it's a very controversial subject. Some people unfortunately find they can't afford to repay their debts, or at least repay them on time. But for most of us, debts are manageable and mean you can buy things that you simply couldn't afford from just saving up. You also look at the factors that determine how much it costs to borrow money, specifically the interest charged by lenders, but there are good and bad debts. This session will help you to discover when borrowing makes sense and when it doesn't.

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By the end of this session, you should be able to:

• understand who you can borrow from and what debt products are available
• know when borrowing is sensible and when it is reckless
• understand what determines the cost of borrowing money
• understand the ranking of debt products in terms of the interest rate charged.