Lesson Notes By Weeks and Term v5 - Grade 10

Lesson Video

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Performance objectives

• Prepare a personal or household budget.
• Calculate the affordability of goods using different payment methods.
• Analyse and interpret bank statements.
• Understand the basics of saving and investing.
• Calculate simple and compound interest.

Lesson summary

In this week, we will delve into the crucial area of personal and household finance. Understanding how to manage your money effectively is vital for achieving financial stability and making informed decisions about your future. In South Africa, where many families face economic challenges, these skills are especially important. By learning to budget, save, and understand financial products, you can empower yourself and your family to improve your quality of life and plan for a secure future. Many South Africans struggle with debt and financial insecurity; the knowledge and skills gained in this unit will help you avoid these pitfalls and make sound financial choices.

Lesson notes

2.1 Budgets: Income and Expenses A budget is a plan for managing your money. It outlines your income (money coming in) and your expenses (money going out) over a specific period, usually a month.

Income: This is the money you receive regularly.

It can include: Salary/Wages: Money earned from employment.

Grants: Government assistance (e.g., child support grant, old age pension).

Remittances: Money sent from family members working elsewhere.

Investment income: Returns from investments (e.g., interest from a savings account).

Expenses: This is the money you spend.

Expenses can be categorised as: Fixed Expenses: These are expenses that remain relatively constant each month (e.g., rent, bond repayments, loan repayments, insurance premiums, school fees).

Variable Expenses: These are expenses that fluctuate from month to month (e.g., groceries, electricity, water, transportation, entertainment).

Discretionary Expenses: These are non-essential expenses that you can choose to spend on (e.g., eating out, movies, hobbies).

Creating a Budget: List all sources of income and their amounts. List all fixed expenses and their amounts. Estimate all variable expenses. Be realistic and track your spending to get accurate figures. Calculate total income and total expenses. Subtract total expenses from total income.

Surplus: If income is greater than expenses, you have a surplus, meaning you have money left over. You can save or invest this money.

Deficit: If expenses are greater than income, you have a deficit, meaning you are spending more than you earn. You need to reduce your expenses or increase your income to balance your budget.

Example 1: Thando earns a monthly salary of R

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0. Her fixed expenses are: Rent (R2000), Loan Repayment (R500), Insurance (R300), Transport (R400).

Her estimated variable expenses are: Groceries (R1500), Electricity (R300), Entertainment (R200), Phone Bill (R200).

Let's create Thando's budget: Income: R6000 Fixed Expenses: R2000 + R500 + R300 + R400 = R3200 Variable Expenses: R1500 + R300 + R200 + R200 = R2200 Total Expenses: R3200 + R2200 = R5400 Surplus/Deficit: R6000 - R5400 = R600 (Surplus) Thando has a surplus of R

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0. She can save this money or use it for discretionary spending. 2.2 Affordability: Cash vs. Credit vs. Hire Purchase When purchasing goods and services, it's essential to consider the affordability. Different payment methods impact the total cost.

Cash: Paying the full amount upfront. This is generally the cheapest option as you avoid interest charges.

Credit: Using a credit card or taking out a personal loan to pay for the purchase. You repay the amount borrowed plus interest over time.

Hire Purchase (HP): An agreement where you pay for an item in installments, but you don't own it until the final payment is made. Hire purchase agreements typically involve higher interest rates than credit cards or personal loans.

Calculating Affordability: Determine the total cost of the item. If using credit or hire purchase, find out the interest rate and repayment terms. Calculate the total amount you will repay, including interest. Compare the total cost of different payment methods. Consider your budget and determine if you can afford the monthly repayments.

Example 2: A fridge costs R

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0. You can pay cash, use a credit card with an interest rate of 20% per annum, repayable over 12 months, or use a hire purchase agreement with an interest rate of 25% per annum, repayable over 12 months.

Cash: Total cost = R5000 Credit Card: Interest per year = 20/100 R5000 = R1000 Total amount to repay = R5000 + R1000 = R6000 Monthly repayment = R6000 / 12 = R500 Hire Purchase: Interest per year = 25/100 R5000 = R1250 Total amount to repay = R5000 + R1250 = R6250 Monthly repayment = R6250 / 12 = R520.83 Comparing the options, paying cash is the cheapest. Credit card is slightly cheaper than hire purchase, but both options involve paying more than the original price due to interest. 2.3 Bank Statements A bank statement is a summary of all transactions in your bank account over a specific period (usually a month). It shows deposits (money coming in), withdrawals (money going out), fees, and interest earned.

Analysing a Bank Statement: Verify all transactions: Check that all deposits and withdrawals are accurate and match your records.

Identify fees: Look for any bank charges, such as monthly account fees, transaction fees, or ATM fees.

Check for errors: If you find any discrepancies or unfamiliar transactions, contact your bank immediately to report the issue.

Monitor your balance: Keep track of your account balance to ensure you have sufficient funds to cover your expenses.

Example 3: A bank statement shows a debit of R100 for "ATM withdrawal." However, you don't recall making that withdrawal. This is a potential error, and you should contact your bank to investigate. 2.4 Saving and Investing: Simple and Compound Interest Saving: Putting money aside for future use.