Finance and Responsible Lending
Procedures for Teachers is divided into two sections:
- Prep — Preparing for the lesson
- Steps — Conducting the lesson
- "The Ascent of Money" segment
The two-hour PBS documentary "The Ascent of Money" traces the evolution of money and demonstrates the significance of financial history. While the world economy struggles to overcome a meltdown in the financial markets, "The Ascent of Money" puts the meaning of money into context--where it came from, where it goes, and why it has always been (and always will be) the fulcrum of civilization. By learning how societies have continually created and survived financial crises, it suggests how solid solutions can be found to overcome today's worldwide economic emergency. Fundamental economic concepts are illuminated in discussions with some of the financial world's leading experts.
- Ascent of Money 1
The Importance of Money and Credit as a Measure of Trust
- Ascent of Money 2
The Importance of Money and Credit as a Measure of Trust
- Web site:
Teachers will need the following supplies:
Students will need the following supplies:
- Computer with connection to a screen or television on which to project the Web-based video clips, or computer stations where students can watch the clips
- Chart paper
- "Definitions" Teacher Organizer
- Computers with Internet access (for individuals or groups)
- Notebook or journal
- "Investment Scenarios" Student Organizer
- "Investment Rating" Student Organizer
- PREP FOR TEACHERS:
- Bookmark the Web sites used in the lesson on each computer in your classroom, or upload all links to an online bookmarking utility such as www.portaportal.com.
- Preview all of the video clips and Web sites used in the lesson to make certain that they are appropriate for your students, currently available, and accessible from your classroom.
- Download the video clips used in this lesson onto your hard drive, or prepare to stream the clips from your classroom.
- Print out the Teacher Organizer for background, and for terms and definitions.
- Print out the Student Organizers: "Loan Scenarios" and make enough copies so that each student has one copy of each organizer.
- When using media, provide students with a FOCUS FOR MEDIA INTERACTION, a specific task to complete and/or information to identify during or after viewing of video segments, Web sites, or other multimedia elements.
Day 1: Introduction of Lesson - The Role of Banks
Day 2: Comprehension of Creditworthiness
- Introduce the lesson by asking students if they have a savings or checking account at a bank. Commence a general discussion about banks, including asking students to name some different banks. Write the names of the banks on the board.
- Next, begin a discussion of the types of services that banks provide consumers in addition to checking and savings accounts. The list should ultimately include checking accounts, savings accounts, credit cards, investments like CDs, auto loans, home loans, and small business loans.
- Provide students with a FOCUS FOR MEDIA INTERACTION, asking them to pay careful attention to the evolution of banks. Play the "Ascent of Money 1" segment for the class.
- Tell the class that the next activity will involve determining how and why banks provide these services. First, break the class up into two sides: Consumers and Lenders. Give each side a piece of poster paper.
- Ask the Consumers to discuss list the reasons they would put their money in the bank. The answers should ultimately include safety and security, convenience of bill payment, access to cash, earning interest on funds, incentives to save.
- Ask the Lenders to discuss and then list the reasons that banks would provide the services discussed earlier in the class. The answers should ultimately include providing services for consumers, helping people achieve their financial goals, helping to generate economic activity, and access to capital that the bank needs in order to provide services like lending.
- Bring the two groups together as a class, and ask each group to choose a spokesperson to report out to the class the Consumer/Lender reasons. Then, discuss the reasons that banks are necessary as financial intermediaries.
- Wrap up the class by explaining to the students that the next two classes will be spent with students having the opportunity to role play as bankers deciding whether or not to lend money to a variety of new businesses.
Day 3: The Credit Analysis Process
- Start the class with a review of the class discussion of the previous day, focusing on the discussion of the role of banks providing services for consumers in return for capital.
- Introduce the concept of "creditworthiness" to students. Write the definition on the board. Explain to students that basically, creditworthiness is the likelihood that a borrower will be able to repay a loan.
- Provide students with a FOCUS FOR MEDIA INTERACTION, asking them to pay careful attention to the evolution and purpose of credit. Play the "Ascent of Money 2" segment for the class.
- Explain to students that in this lesson, they will be determining whether different businesses are creditworthy. Ask students to discuss as a class what might enable a business to be in good shape to repay a loan. Write their answers on the board.
- Then, ask students to go to the Citigroup Web site to find out about the "5 C's" of credit, which are characteristics of a person who is a good candidate to receive credit. (Answer: capacity, capital, collateral, conditions, and character).
- Discuss how loans, or credit can be for different periods of time, in different amounts, and can be for things that exist (like homes or cars), or things that are in the idea phase (like inventions and new businesses).
- Then, discuss with the class how lenders take risk when the provide money to creditors because there is a chance that the money will not be paid back. Explain that this risk is factored into how much of an interest rate that a lender will charge a creditor.
- Ask students to break up into groups of 4-5 people each, and brainstorm how interest rates are set on different loans. The answers should ultimately include an analysis of risk based on the creditworthiness of the creditor, the term of the loan, the amount of the loan, and whether the loan is collateralized.
- Come back together as a class. Ask each group to appoint a spokesperson, and report out to the class their findings on interest rates and creditworthiness.
- Start class by reviewing the concepts of creditworthiness (including the 5 C's), and interest rates. Reiterate those definitions, and the overarching concept of the role of banks in lending money.
- Explain to students that they will now be playing the role of bankers, and will need to determine the creditworthiness of five new businesses that need a loan to get started.
- Ask the students to break up into five groups, and give each one a different "Loan Scenario" Student Organizer. Ask each group to read the scenarios.
- Next, explain to the students that they will be rating each investment idea based on risk, cost of investment, period of time of investment, and potential for success.
- Ask each group to appoint a spokesperson, and ask them to share their results with the class. While each spokesperson speaks, ask students to rate each investment on a scale of 1 (worst) to 5 (best).
- Then, ask students to share their thoughts on the different credit ratings and how they were rated. Look for trends to detail on the board about how students analyzed the investments. For example, smaller loans were less risky whereas longer loan terms were more risky.
- Finally, to wrap up the three-day lesson, ask students to think back to the first day of the three classes, and the opening discussion about the role of banks. Next, lead a short discussion about how responsible lending is an important service for consumers and businesses.
- Ask students to think about the kind of business they might want to have or be involved in when they are older. Students can research this type of business on the web.
- Next, students can discuss what type of business might be a better credit risk for a bank, based on the lessons of the last three days and their extension research.