Interest rates are a fundamental of understanding and managing credit. Like the lesson on budgets (see Money Skills Part 1 at the bottom of this page), it is important to consider the timeframe for managing credit. Students need to understand that credit means they are spending money they don't currently have, and there is a cost which goes with that ability. The cost is in terms of an interest rate, which is based on the percentage borrowed (or in credit). Some interest rates can look very attractive until the calculations are done to work out the actual dollar value to be repaid. Add to that the annual fees, and the cost of credit can really add up.
For example, some credit cards may charge a fee (eg. $60) then charge 15% interest in purchases. 'Ah yes' say your students 'but we'll pay it off every month'.
'Ah,' says the informed teacher 'what if you don't - you forget, you make a purchase then forget you made it, you lose your statement, you don't understand how the bank calculates the interest? Then every purchase you make without paying off your balance is accruing interest too.'
Encourage students to look online or in local newspapers for information about interest calculators, rates and the numbers of everyday people who get into credit problems through poor planning, a change in circumstance, not reading the fine print or becoming the victim of difficult times.