Economics: personal finance, budgeting, interest, and credit (grade 12) · lesson

Pay and budgets

💡 Know what you actually take home, then plan spending so it fits inside that number.

Gross pay is what you earn before deductions: hourly wage times hours. At $15 an hour for 20 hours, gross pay is $300. Net pay is what you take home after taxes and other deductions, so it is smaller.

A budget is a plan for using income. Start with monthly take-home income. List expenses, both fixed, like rent, and flexible, like fun. Subtract expenses from income. Then adjust spending or set a savings goal based on the result.

If planned spending is more than income, the budget shows a gap. You must cut spending or earn more. If income is more, the difference can be saved.

🧠 Let's work it out

Add up every planned expense first, then compare with income.
$600 + $300 + $100 + $300 = $1,300.
Against $1,200 of income, that is $100 too much.

What do you think comes next?

gross pay: earnings before deductions
net pay: take-home pay after deductions
budget: a plan for income and spending

Compound interest

💡 Compound interest earns interest on past interest, so money grows faster over time.

With compound interest, each year's interest is added to the balance, and next year's interest is figured on the bigger balance. $1,000 at 5% becomes $1,050 after one year and $1,050 × 1.05 = $1,102.50 after two. Simple interest would give only $1,100.

The Rule of 72 estimates how long money takes to double. Divide 72 by the yearly interest rate. At 6%, money doubles in about 72 ÷ 6 = 12 years.

🧠 How to think about it

Do compound problems one year at a time. Multiply the balance by 1 plus the rate, then use that new balance for the next year.

compound interest: interest earned on both the deposit and past interest
principal: the original amount saved or borrowed

Credit, debt, and credit scores

💡 Borrowing costs interest on whatever you still owe, and paying on time is the habit that builds good credit.

A debit card takes money straight from your bank account. A credit card lets you borrow money you must repay. Balances not paid in full usually charge interest.

Paying only the minimum leaves most of the balance unpaid, and interest keeps building on it. Payoff takes longer and costs more. APR is the yearly cost of borrowing. For the same amount and length of time, a higher APR means higher payments and more total interest.

A credit score tells lenders how likely you are to repay. Payment history is one of its biggest parts, so paying every bill on time helps most. Late payments, opening many cards at once, and using most of your limit can hurt it.

🧠 How to think about it

Ask whose money is being spent and what is still owed. Interest is charged on what you still owe, so anything that leaves a balance longer, like minimum payments or a higher APR, costs more.

APR: annual percentage rate, the yearly cost of borrowing
credit score: a number showing how reliably you repay debts

Insurance and deductibles

💡 Insurance shares the cost of big losses, but you pay the deductible first.

Insurance protects you from large, unexpected costs. You pay a regular premium, and the insurer pays for covered losses.

A deductible is the part of a covered loss you pay first. With a $500 deductible and a $2,000 covered repair, you pay $500 and the insurer pays $1,500. A higher deductible usually means a lower premium but more cost to you when something goes wrong.

🧠 How to think about it

Subtract the deductible from the covered cost to find what the insurer pays. Your share is the deductible; the insurer's share is the rest.

premium: the regular payment for insurance
deductible: the amount you pay before insurance pays