ICSE Mathematics Grade 6 - Borrowing - EMI .pptx

ICSE Mathematics
Grade 6
Borrowing - EMI

1. Grade 6 Financial Literacy Concept 3 : Borrowing Subconcept : B orrowing money, its purpose, responsibilities, and potential risks Session 1

2. Learning Objectives The students will be able to: Understand the concept of borrowing money, its purpose, responsibilities, and potential risks. Understand the concept of Equated Monthly Installments (EMI) in the Indian context.

3. Let’s discuss… What do you understand about borrowing money? Have you ever heard the term "EMI"? Do you have any idea about what it means? What are the common purchases made through installments?

4. Understanding Borrowing money Borrowing money means taking a loan or credit from someone or a financial institution to fulfill a need or purchase something that cannot be afforded with the available funds.

5. Purpose of Borrowing Money Borrowing money allows individuals or businesses to fulfill needs or make purchases that cannot be afforded with available funds. Understand that borrowing money can help achieve certain goals, such as buying a house, funding education, or starting a business.

6. Responsibilities of Borrowing Money It is important to borrow money responsibly, considering one's ability to repay the borrowed amount. We need to read and understand loan or credit agreements, including the terms and conditions of borrowing. We should understand the responsibility of making timely repayments as agreed upon in the borrowing arrangement.

7. Potential Risks of Borrowing Money We should know the concept of interest rates and understand that higher interest rates can increase the amount to be repaid. We should recognise the potential consequences of late or missed payments, including additional fees, penalties or damage to credit scores. We should understand that accumulating too much debt can be risky and negatively affect our financial stability.

8. What is EMI? Equated Monthly Installment (EMI) is - a fixed monthly payment - made towards repaying a loan - or a purchase made in installments. Let’s watch the VIDEO

9. Let’s listen to this story Story - Strumming Dreams: Aisha and the EMI Solution

10. Home Assignment: Complete the questions after reading the comprehension carefully once again at home. Who is the main character in the story? What did Aisha dream of owning? Why couldn't Aisha's parents buy her a guitar outright? What solution did Aisha's parents introduce her to? What are EMIs?

11. Grade 6 Financial Literacy Concept 3 : Borrowing Subconcept : Equated Monthly Installments (EMIs) Session 2

12. Learning Objectives The students will be able to… Understand the concept of Equated Monthly Installments (EMI) in the Indian context. Calculate EMIs using a simple examples. Analyse the advantages and disadvantages of EMI schemes.

13. Let’s Revise - Equated Monthly Installment (EMI) is - a fixed monthly payment - made towards repaying a loan - or a purchase made - in installments.

14. Home Assignment: Discuss the questions. Who is the main character in the story? The main character in the story is Aisha. What did Aisha dream of owning? Aisha dreamed of owning a guitar. Why couldn't Aisha's parents buy her a guitar outright? Aisha's parents couldn't afford to buy her a guitar outright due to financial constraints. What solution did Aisha's parents introduce her to? Aisha's parents introduced her to Equated Monthly Installments (EMIs). What are EMIs? EMIs are smaller monthly payments that include both the principal amount and a bit of interest , allowing people to make purchases over time.

15. Key Terms Principal Amount: The original amount borrowed or the cost of the item being purchased. Interest: The additional amount charged by the lender for borrowing money. Loan Duration: The period of time over which the loan or installment payments are spread. Total Repayment Amount: The sum of the principal amount and the interest, representing the total cost of the loan or purchase. Monthly Interest Rate: The interest rate divided by the number of months in a year, used to calculate the monthly interest charges. Interest Rate: The percentage at which interest is charged on the principal amount, usually expressed on an annual basis.

16. For example: Suppose a person wishes to buy a new mobile phone that costs ₹15,000. However, he can't afford to pay the entire amount immediately. He chooses to buy the phone on EMI. The store offers an EMI option for 12 months with an interest rate of 10%. This means they would pay an amount every month for a year, including the principal amount and the interest. By the end of the 12 months, they would have paid back the full amount (Principal + Interest).

17. Let’s understand the workings: Total Cost of the Phone: ₹15,000 Interest Rate: 10% per annum Loan Duration: 12 months To calculate the Equated Monthly Installment (EMI):

18. T he breakdown of the EMI workings for the mobile phone purchase Step 1: Convert the annual interest rate to a monthly rate. Monthly Interest Rate = (10% / 12) = 0.00833 Ste p 2: Determine the total repayment amount. Total Repayment Amount = Total Cost of the Phone + (Total Cost of the Phone * Monthly Interest Rate * Loan Duration) Total Repayment Amount = ₹15,000 + (₹15,000 X 0.00833 X12) Total Repayment Amount = ₹15,000 + (₹15,000 X 0.09996) Total Repayment Amount = ₹15,000 + ₹1,499.40 Total Repayment Amount = ₹16,499.40

19. The breakdown of the EMI workings for the mobile phone purchase Step 3: Calculate the EMI. EMI = Total Repayment Amount / Loan Duration EMI = ₹16,499.40 / 12 EMI ≈ ₹1,374.95 (rounded to the nearest rupee) Therefore, the person would need to pay approximately ₹1,375 as his Equated Monthly Installment (EMI) for 12 months to complete the repayment of the phone, including both the principal amount and the interest.

20. The Advantages of EMI Schemes Affordability: EMI schemes make expensive purchases more affordable by dividing the cost into smaller monthly installments. Flexibility: EMI schemes offer the flexibility to choose a repayment duration that aligns with an individual's financial situation. Immediate Access: EMI schemes provide immediate access to desired items or services without the need to save up the entire amount. No or Low Interest Rates: Some EMI schemes come with zero or low-interest rates, making them cost-effective compared to upfront cash payments or other forms of credit.

21. The Disadvantages of EMI Schemes Accumulation of Interest: EMI schemes often include interest charges, increasing the overall cost of the purchase. Debt Burden: Taking on multiple EMIs can strain one's budget and financial stability. Prepayment Penalties: Some EMI schemes have penalties or charges for early repayment, limiting flexibility in paying off the loan. Impulsive Buying Behaviour: EMI schemes can encourage impulsive purchases without considering actual need or affordability, leading to financial stress.

22. Grade 6 Financial Literacy Concept 3 : Borrowing Subconcept : Equated Monthly Installments (EMIs) Session 3

23. Learning Objectives The students will be able to… Recognize the importance of responsible decision-making when considering EMIs. Analyse the factors that affect the calculation of EMIs.

24. Responsible decision-making when considering Equated Monthly Installments (EMIs) Responsible Borrowing: Borrowing only for what is necessary and ensuring that the EMI payments can be comfortably managed within their monthly income or allowance. Calculating Total Cost: Calculate the total cost of the purchase, including the principal amount and the interest paid over the loan duration. This helps understand the overall expense and make informed decisions. Importance of Saving: We should know the value of saving money beforehand to make a down payment, reducing the loan amount and consequently lowering the EMI burden.

25. Responsible decision-making when considering Equated Monthly Installments (EMIs) 4. Avoiding Impulsive Decisions: We should think before making a purchase and not getting swayed solely by the availability of EMIs. This promotes responsible decision-making and prevents unnecessary debt. 5. Timely Payments: We should instill the habit of making EMI payments on time to avoid late payment penalties and maintaining a good credit history for future financial opportunities.

26. F actors that affect the calculation of EMIs Loan Amount: The total amount borrowed or the cost of the item being purchased affects the EMI calculation. Higher loan amounts result in higher EMIs. Interest Rate: The interest rate charged by the lender determines the additional cost of borrowing. Higher interest rates lead to higher EMIs. Loan Duration: The length of time over which the loan is repaid impacts the EMI calculation. Longer loan durations result in smaller EMIs, while shorter durations result in larger EMIs. Down Payment: If a down payment is made towards the purchase, it reduces the loan amount and, consequently, affects the EMI calculation. A larger down payment leads to a smaller loan amount and lower EMIs. Credit Score: The credit score of the borrower can influence the interest rate offered by the lender. A higher credit score may result in a lower interest rate and, therefore, lower EMIs.

27. Home Assignment - Click here to view Discuss the situations with your parents and find the possible answers to the given questions: Example 1: Rashmi's Family and Debt Burden Rashmi's family has taken multiple loans and is struggling to keep up with the EMIs. They have a home loan, a car loan and personal loans. The cumulative EMIs are putting a significant strain on their monthly budget. Example 2: Rahul's Impulsive Purchases Rahul loves gadgets and often buys them on EMI without considering his overall financial situation. He now finds himself overwhelmed with multiple EMIs and needs help to make all the payments on time.

28. Thank you