PowerPlay Money PowerPlay Money ManagersManagers

Lesson 2: Lesson 2:

My First CarMy First Car

ObjectivesObjectives

By the end of this lesson you will be able to:By the end of this lesson you will be able to:

Identify costs associated with owning a vehicleIdentify costs associated with owning a vehicle Explain how a car loan works and list the factors Explain how a car loan works and list the factors

that can impact the monthly financing costs.that can impact the monthly financing costs. List several realistic options for transportation for List several realistic options for transportation for

students when attending post secondary school.students when attending post secondary school.

Materials NeededMaterials Needed

Activity Sheet 2.1 “Researching my Activity Sheet 2.1 “Researching my Dream Car”Dream Car”

Activity Sheet 2.2 “Group Scenario”Activity Sheet 2.2 “Group Scenario” Activity Sheet 2.3 “My First Car”Activity Sheet 2.3 “My First Car”

Activity 1Activity 1

Distribute Activity Sheet 2.1 “Researching My Dream Car”Distribute Activity Sheet 2.1 “Researching My Dream Car” Tips: Tips:

Work in groups of 5 or 6 to brainstorm ideas, but each person must Work in groups of 5 or 6 to brainstorm ideas, but each person must give details their give details their ownown personal dream car. personal dream car.

Choose a more common type of car (not a Lamborghini)Choose a more common type of car (not a Lamborghini) The car must cost less than $70,000The car must cost less than $70,000 Include a lot of detail:Include a lot of detail:

Type of vehicle (sports car, sedan, truck or SUV)Type of vehicle (sports car, sedan, truck or SUV) ColourColour Special Features (rims, tinted windows, spoilers or stereo)Special Features (rims, tinted windows, spoilers or stereo) Transmission (automatic or standard)Transmission (automatic or standard)

Make groups of 3 and each person will describe their dream car to the Make groups of 3 and each person will describe their dream car to the others for 1 minute. others for 1 minute.

Activity 2Activity 2

Now we are going to participate in an Now we are going to participate in an activity to see who understands cars activity to see who understands cars best.best.

As a class we will use an example of a As a class we will use an example of a “dream” car to determine the monthly “dream” car to determine the monthly expenses.expenses.

Overhead 2.1 Overhead 2.1 “Sample Vehicle”“Sample Vehicle”

Vehicle:Vehicle: 2008 Chevrolet Cobalt LT 2008 Chevrolet Cobalt LT 2.2 litre2.2 litre 4 cylinder4 cylinder

Calculate the cost to finance, maintain and insure Calculate the cost to finance, maintain and insure this car.this car.

Distribute Activity Sheet 2.1 “Group Distribute Activity Sheet 2.1 “Group Scenario”Scenario”

Each of you are responsible for Each of you are responsible for determining the cost to purchase, determining the cost to purchase, maintain and insure the maintain and insure the samplesample vehicle vehicle based on the information provided.based on the information provided.

The group or person that calculates the The group or person that calculates the closet estimate wins.closet estimate wins.

Step 1: FinancingStep 1: Financing

Each group determines their estimate of the Each group determines their estimate of the monthly payment for the vehicle loan.monthly payment for the vehicle loan.

Estimates are recorded in the appropriate box Estimates are recorded in the appropriate box on your estimating worksheets.on your estimating worksheets.

Volunteer to record your responses on the Volunteer to record your responses on the whiteboard.whiteboard.

We will use Overhead 2.2 “Total Purchase We will use Overhead 2.2 “Total Purchase Price” to help make accurate estimates.Price” to help make accurate estimates.

Overhead 2.2 Overhead 2.2 “Total Purchase Price”“Total Purchase Price”

VehicleVehicle 2008 Chevrolet Cobalt 2008 Chevrolet Cobalt LT 4-door sedanLT 4-door sedan

List PriceList Price $22,230$22,230

Sales Tax, 7%Sales Tax, 7% $1,556$1,556

GST, 5%GST, 5% $1,112$1,112

Total CostTotal Cost $24,898$24,898

10% Down Payment10% Down Payment $2,490$2,490

Loan AmountLoan Amount $22,408$22,408

QuestionsQuestions

What is a down payment?What is a down payment? Why would banks want you to have one?Why would banks want you to have one?

Overhead 2.3 Overhead 2.3 ‘Loan Calculator’‘Loan Calculator’

To demonstrate how monthly payments are To demonstrate how monthly payments are calculated for loans.calculated for loans.

Input:Input: Loan amountLoan amount Term in monthsTerm in months Interest rateInterest rate

Calculate:Calculate: Monthly paymentMonthly payment Total interest paidTotal interest paid

Overhead 2.4 Overhead 2.4 ‘Monthly Loan Payments’‘Monthly Loan Payments’

AnswersAnswersVehicleVehicle 2008 Cobalt LT2008 Cobalt LT

Loan AmountLoan Amount $22,408$22,408

Term (months)Term (months) 4848

Interest RateInterest Rate 8%8%

Monthly PaymentMonthly Payment $547$547

Total of PaymentsTotal of Payments $26,258$26,258

Total InterestTotal Interest $3,850$3,850

ResultsResults

Which group was the closest to the Which group was the closest to the actual amount?actual amount?

What did you learn from this step?What did you learn from this step? How could you decrease the monthly How could you decrease the monthly

payment amounts? payment amounts?

Overhead 2.5 Overhead 2.5 ‘Impact of ‘Impact of Interest RatesInterest Rates’’

Loan Amount ($)Loan Amount ($) 22,40822,408 22,40822,408 22,40822,408

Term (months)Term (months) 4848 4848 4848

Interest RateInterest Rate 6%6% 8%8% 10%10%

Monthly Monthly Payments ($)Payments ($)

526526 547547 568568

Total of Total of Payments ($)Payments ($)

25,26025,260 26,25826,258 27,27927,279

Total Interest ($)Total Interest ($) 2,8522,852 3,8503,850 4,8714,871

Overhead 2.6Overhead 2.6‘Impact of Payment ‘Impact of Payment

Terms’Terms’Loan Amount ($)Loan Amount ($) 22,40822,408 22,40822,408 22,40822,408

Term (months)Term (months) 3636 4848 6060

Interest RateInterest Rate 8%8% 8%8% 8%8%

Monthly Monthly Payments ($)Payments ($)

702702 547547 454454

Total of Total of Payments ($)Payments ($)

25,27925,279 26,25826,258 27,26127,261

Total Interest ($)Total Interest ($) 2,8712,871 3,8503,850 4,8534,853

QuestionsQuestions

What does this exercise tell us about What does this exercise tell us about financing?financing?

What is the advantage of using different What is the advantage of using different payment terms?payment terms?

When would it be appropriate to use a shorter When would it be appropriate to use a shorter term?term?

Do people have different interest rates?Do people have different interest rates? Yes, different banks compete with each other by offering Yes, different banks compete with each other by offering

lower rates.lower rates. By shopping around people can sometimes get lower By shopping around people can sometimes get lower

rates.rates.

Step 2: Insurance.Step 2: Insurance.

In your groups estimate the cost for In your groups estimate the cost for insuring the vehicle. insuring the vehicle.

Volunteer to record responses on the Volunteer to record responses on the whiteboard.whiteboard.

Would the insurance cost more for a Would the insurance cost more for a sports car than a sedan?sports car than a sedan?

AbsolutelyAbsolutely

Overhead 2.7Overhead 2.7‘Monthly Insurance Costs’‘Monthly Insurance Costs’

VehicleVehicle 2008 Cobalt LT2008 Cobalt LT

Years with good driving Years with good driving recordrecord

22

Rate classRate class To work or school >15 To work or school >15 kmkm

Monthly insurance costMonthly insurance cost $270$270

Question Question

Which group had the closest estimate for Which group had the closest estimate for the cost of monthly insurance?the cost of monthly insurance?

Overhead 2.8Overhead 2.8‘Insurance Cost Factors’‘Insurance Cost Factors’ Factors Impacting BC Automobile Factors Impacting BC Automobile

Insurance CostsInsurance Costs Rate classesRate classes Where you liveWhere you live Your claim recordYour claim record The vehicle you driveThe vehicle you drive Additional coverageAdditional coverage

Source ICBC.comSource ICBC.com

Step 3: MaintenanceStep 3: Maintenance

In your groups estimate the cost for In your groups estimate the cost for maintainingmaintaining the vehicle. the vehicle.

Consider the different types of expenses Consider the different types of expenses associated with operating a vehicle (i.e. gas associated with operating a vehicle (i.e. gas maintenance and tires).maintenance and tires).

Volunteer to record responses on the Volunteer to record responses on the whiteboard.whiteboard.

Overhead 2.9 Overhead 2.9 ‘Monthly Maintenance ‘Monthly Maintenance

Costs’Costs’2008 Cobalt LT2008 Cobalt LT

FuelFuel $140/month$140/month

MaintenanceMaintenance $35/month$35/month

TiresTires $28/month$28/month

TotalTotal $203/month$203/monthSources: Canadian Automobile Association Driving Costs 2007 Edition and M.J. Ervin & Associates Inc.Sources: Canadian Automobile Association Driving Costs 2007 Edition and M.J. Ervin & Associates Inc.

Gasoline costs based on national average on Nov. 20, 2007.Gasoline costs based on national average on Nov. 20, 2007.

All Costs are based on 18,000 km driven annually.All Costs are based on 18,000 km driven annually.

QuestionsQuestions

Which group had the closest estimate?Which group had the closest estimate?

What are the hidden costs associated with What are the hidden costs associated with owning a vehicle?owning a vehicle?

Overhead 2.10Overhead 2.10‘‘TotalTotal Monthly Costs’ Monthly Costs’

VehicleVehicle 2008 Cobalt LT2008 Cobalt LT

FinancingFinancing $547$547

InsuranceInsurance $270$270

MaintenanceMaintenance $203$203

Total CostsTotal Costs $1,020$1,020

DiscussionDiscussion

How realistic is owning a new vehicle for How realistic is owning a new vehicle for young adults?young adults?

What are other forms of transportation?What are other forms of transportation? Purchasing a used car.Purchasing a used car. Borrowing parents car.Borrowing parents car. Using transit system.Using transit system. Using a bike.Using a bike.

HomeworkHomework

Distribute Activity Sheet 2.3 ‘My First Car’Distribute Activity Sheet 2.3 ‘My First Car’ Due at beginning of next class.Due at beginning of next class. Don’t forget to have your parents sign the Don’t forget to have your parents sign the

sheet!sheet!