Curriculum Sample
Here is a sample from one unit of the Money Masters' curriculum:
DEBT INVESTMENTS
Debt Vocabulary List
- Debt: An obligation to pay something to someone else.
- Loan: Money borrowed on condition of being returned, usually with interest.
- Interest: Payment based upon a percentage of the amount borrowed.
- Principal: The initial amount of money borrowed or loaned.
- Simple Interest: Interest paid on the principal only.
- Compound Interest: Interest paid on both the principal and any accumulated interest.
- Debt Investment: An investment, such as a bond, certificate of deposit (CD), or money market fund that pays interest to the investor.
Debt Investments
When you invest in "debt" it is almost like you are a bank. You are lending individuals or companies money that they will repay with interest, in addition to repaying the original amount (the principal) at the end of the investment period. These debt investments are also called interest-bearing investments or fixed-income assets. Why? Because (1) they pay you interest and (2) you know, when you invest, how much money – a "fixed" amount – you will make on your investment. This is in contrast to a stock market investment; there, you don’t know in advance how much you will eventually make or lose. As a result, debt investments are considered less risky than investing in the stock market. On the other hand, because they are less risky, debt investments generally result in a lower monetary return over time.
Why do banks, other corporations, and the United States government offer debt investments? What’s in it for them? Debt investments are loans investors like you make to them. When you deposit your money in a bank, a certificate of deposit (CD), or a bond, you are allowing your money to be used by others for a set period of time. It’s no different than when individuals borrow money. For example, say you want to buy a car, but can’t afford to pay for the whole thing immediately. You can still buy the car if you take out a loan because a lender gives you enough money to buy the car now. However, they don’t do it because they feel sorry for you or like you (unless it’s a friend or relative and even then they will probably want you to pay back the loan with interest). Companies make loans because they expect to make a profit; in other words, they will receive more money back from you than they originally loaned you. How much profit depends on the interest rate and the length of the loan.
The same is true for debt investments. Do you care if Bank ABC has enough money to operate its business? Probably not. But you do want more money in the future than you have today. If you just leave your money lying around at home, you won’t have any more money 5 years from now than you have today.
Types of Debt Investments
- Savings Accounts. They are the simplest kind of debt investment because you can add or withdraw money at any time. But this convenience comes at a cost: banks generally pay lower interest rates on deposits in savings accounts than other debt investments. You can open a savings account at almost any bank.
- Money Market Accounts. They are similar to savings accounts, except that you must invest a minimum amount of money to open one and keep a minimum amount in the account to maintain it. This is known as a minimum balance. Since banks know that your account will always have at least the minimum balance, money market accounts generally pay a higher interest rate than savings accounts. Some money market accounts even allow you to write checks using money from the account as long as you don’t go below your minimum balance. You can open a money market account at almost any bank.
- Certificates of Deposit (CDs). To buy one, you must invest a minimum amount of money and leave it untouched for a set length of time. CDs generally pay a higher interest rate than savings and money market accounts because a bank knows exactly how much money it has to use and for exactly how long. CDs are available in a variety of dollar amounts and time periods. For example, you can purchase them in amounts of $1000, $2500, $5000, etc., for lengths of 3 months, 6 months, 1 year, 2 years, 3 years, etc. The greater the amount of money invested and the longer the term (the length of the investment), the higher the interest rate will be. You can purchase certificates of deposit at almost any bank.
- Bonds. Like CDs, they require you to leave your money invested for a specific length of time, however, one difference between them is that bonds are usually issued for a longer term than CDs. Another difference is that banks don’t sell bonds. They’re usually bought through a brokerage firm. The U.S. government and private corporations issue bonds because they need to borrow money to pay for their operations. In fact, the U.S. government is the biggest seller of bonds. As you might expect, bonds generally pay a higher interest rate than other interest-bearing investments with longer-term bonds paying a higher interest rate than shorter-term bonds.
Simple and Compound Interest Examples
Take a look back at the definitions of simple and compound interest in the debt vocabulary list. Now look at the following examples to see how big a difference the type of interest you receive on a debt investment actually makes over the life of that investment. Imagine how much you would have if you invested $100.00 a year in a fixed income asset paying compound interest from now until you retire!
Table showing 10% simple interest on a $100 debt investment.
| Year | Total (Principal + Interest) | Principal x 10% interest |
| 1 | $100 | $10 |
| 2 | $110 | $10 |
| 3 | $120 | $10 |
| 4 | $130 | $10 |
| 5 | $140 | $10 |
| 10 | $190 | $10 |
| 50 | $590 | $10 |
Table showing 10% compound interest on a $100 debt investment.
| Year | Total (Principal + Interest) | Principal x 10% interest |
| 1 | $100 | $10 |
| 2 | $110 | $11 |
| 3 | $121 | $12 |
| 4 | $133 | $13 |
| 5 | $146 | $15 |
| 10 | $236 | $24 |
| 50 | $10,672 | $1,067 |
Table showing the effect of different compound interest rates on a $100 debt investment.
| Year | 5% | 11% | 13% |
| 10 | $163 | $284 | $405 |
| 20 | $265 | $806 | $1,152 |
| 30 | $432 | $2,289 | $3,912 |
| 40 | $704 | $6,500 | $13,278 |
| 50 | $1,147 | $18,456 | $45,074 |
The Rule of 72
The Rule of 72 is a quick way to figure out approximately how long it will take you to double your money at a particular interest rate. To use the Rule of 72, you determine the interest rate you would earn on a particular debt investment and then you divide 72 by that number. For example, if you’re earning 2 percent interest on the money in your savings account, divide 72 by 2. It would take you about 36 years to double the money you currently have in your savings account. If you’re earning 5 percent interest on a CD, divide 72 by 5 to learn that it would take you about 14.4 years to double your original investment.
Debt Summary
- Debt investments are loans investors make to banks, other corporations, or the U.S. government.
- A debt investment is an investment that people earn interest on.
- You earn more interest with compound interest than with simple interest.
Group Role-Play Rubric
Names:
| 3 | 2 | 1 |
| All group members participate equally. | Most group members participate equally. | Only a few group members participate. |
| Information is presented in an organized way. | Most information is presented in an organized way. | Information is presented in a disorganized way. |
| The role–play addresses the topic. | Most of the role–play addresses the topic. | The role–play doesn’t address the topic. |
| All group members speak clearly and are easy to understand. | Most group members speak clearly and are easy to understand. | Group members don’t speak clearly and are difficult to understand. |
| If required, all written work is complete and well thought out. | If required, most written work is complete and well thought out. | If required, written work is incomplete or poorly done. |
Debt Investment Role Play – Group 1
Instructions: As a group, write a paragraph in the space below using the following vocabulary words. Then create a short skit using the vocabulary words and perform your skit for the class. Make sure you have at least one banker or investment advisor and one customer in your role play.
Debt:An obligation to pay something to someone else.
Interest: Payment based upon a percentage of the amount borrowed.Principal: The initial amount of money borrowed or loaned.
Debt Investment: An investment, such as a bond, certificate of deposit (CD), or money market fund that pays interest to the investor.
Debt Investment Role Play – Group 2
Instructions: As a group, write a paragraph in the space below using the following vocabulary words. Then create a short skit using the vocabulary words and perform your skit for the class. Make sure you have at least one banker or investment advisor and one customer in your role play.
Loan: Money borrowed on condition of being returned, usually with interest.
Simple Interest: Interest paid on the principal only.
Compound Interest: Interest paid on both the principal and any accumulated interest.
Debt Investment: An investment, such as a bond, certificate of deposit (CD), or money market fund that pays interest to the investor.
