Exploring teaching approaches in Core Maths – Payday loans companies
– Hey, good morning guys. What we’re
going to do today, is we’re going to continue our work on percentage rates. We
looked last lesson at credit cards. We’re going to extend it further today to look
at pay day loan companies. We’re gonna recap on what the APR rates are. We’re
going to do some calculations based on the APR rates, and then we’re going to
evaluate. Are these pay day loan companies ethical? Should they be allowed to
continue? So, what I wanted to do, just for the first minute, on groups, is
discuss. What do you already know about pay day loan companies? Off you go. Okay
then guys, just let’s get some initial thoughts then. One from each sort of
group. Girls in back, what do we already know about these pay day loan companies? – They charge interest rates. – Okay. Anything specific about the
interest rates compared to maybe a credit card, for example? – They’re a lot higher.
– Okay. Anything else? Lauren? – They’re a lot higher so that people
can’t really pay them back that much. – Okay, thank you. Sean? – If you don’t pay it back in like a short
period of time, then the pay day loan company will make, like a lot off of it. – Okay, have you heard any examples
recently in the news? – Wonga. – Wonga. Okay, that’s a good example of a
pay day loan company that’s been in the news an awful lot over the last couple of
years. Anything else? Any other examples we’ve seen in the news? Or any other
things? Millie? – Is is like, well I heard yesterday on
the news that like, I can’t remember what it said but it was something about how so
many, I can’t remember. It was something like double the money. You have
to pay double… – Yeah, like they cap it. The government’s
going to cap it so now they don’t have to pay double of what they’re paying now. – Okay, fantastic. Let’s just pick this
apart then. So, Eve said that they charge an interest rate, an APR rate.
What is APR? – Annual Percentage Rate. – Fantastic. Can you put that into some
context then please, Lauren? – It’s the annual rate that you have to
pay on the loan that you borrow at. – Fantastic. And what is specific about
the pay day loan companies’ APR compared, for example, to credit cards or mortgages?
What have we seen? Lauren mentioned that they’re very high. Have we got
any figures? – 17.4% – Okay. How does that compare then, to
credit cards Sean? – It’s a lot more extortionate. – Okay, yeah. So pay day loan companies
have been set up to lend people a small amount of money over a short period. And
they charge an extortionate APR percentage rate per year. Okay? Now if you pay back
your debt very quickly, you won’t owe much money at all. However, the problems are
when people can’t pay back their initial payment, and it escalates, and it
snowballs really quickly. So, we’re going to have a look at a few examples now. – So I’ve got three offers that Bank of
Delboy can offer, okay? Three sort of typical sorts of deals you can often get
with pay day loan companies. So, if you just turn around, have a quick look at
these three deals, okay? All three are here. And what I want you to do is to
assess these three deals and come up with a way of deciding which offer you think is
the best, okay? Different ways of doing it. I’ll let you choose how you’d like to
do it. But three offers are, borrowing 50 pound for one week and at the end of that
week paying back 55 pound, okay? That’s offer one. Offer two. 100 pound for two
weeks. At the end of the two weeks, you pay back 120 pound. And offer three. 75
pound for one month, and at the end of that month you’re gonna pay back 100. All
right, in your groups of four, three, and three, what I’d like to do is try to come
up with a way of working out which offer provides the best value, which one you
think is the best deal, or which one you might possibly pick, okay? So I’d like you
showing your work on your tables, not calculators. Have a bit of discussion on
your tables, as to which you think is the best offer, and why, okay? And then, we’re
going to feedback and see what we’ve come up with. So just give you a few minutes. – I’d go for offer one. – This table. Can you just try and explain
what process you’ve gone through to come up with what you think is the best? – We just basically turned them all into a
month. So like, number one is five. You basically owe them back 5
pounds from a week. Because it’s 50 and 55. And then times
that to make two weeks, which would be 10 pounds, so then we knew that offer one is
better than offer two already, by 10 pounds. – Because you’re having to pay…
– 20 pounds on offer two. And then we turn that into a month to
compare it to offer three. So we’d say it was about 22 pounds if you were paying
back on offer one. We times offer two by two, cause that’s two weeks, to make a
month or so, that’d be .2 pounds each day. And you’re only paying back 25. – So which you think is the best?
– One. – Okay, fantastic. Right, what were you
saying? What was your group? – We went down the month, then, but we
seen how much from like 50 to 55, how much the percentage rate was. – Okay. So what is that as a weekly?
– 10% – Yeah, good. That’s 10% per
week, isn’t it? – So what did you go on to do from there?
– And then we did 50 times 1.1. Which is 10% in fees. – To the power 52, cause 52 days,
52 weeks in a month. – Yeah. You mean a year, yeah.
– And then it equals 7,102.146 – Say again, sorry. Seven?
– One. – 02
– Yeah. – .146
– Thank you. So .15 rounded. – So that’s saying that with offer one, if
you borrowed 50 pound for a week, but did it over the course of a whole year, that
50 pound just for that one week, at the end of the year, you’d now have
to owe 7,102 pounds. What’s the difference between what Lauren’s explained there and
this table? How have they looked at that slightly differently? Millie? – Did Lauren do a compound interest? – Yeah, fantastic. What does that mean,
compound interest? – I don’t know. – Anyone else? Okay, good. It is, Lauren
has done the compound interest. What does compound interest mean? – Like, there would be the percentage rate
of the, well after the first week, you’d have your 55 pounds that you’d owe. And then like, the week after that you’d
owe the percentage rate interest on the 55 pounds. – Absolutely fantastic, yeah. So you’re
always having to pay your interest on the new, if it’s compounding every week, you
have to pay interest on that new figure. Fantastic. So, that offer one, you’d have
to pay back £7,102.15. Well it might be worth doing, to compare them. So one
way there, this group will tell, looking at how much you’d pay back per month and
compare them. What you could also do, as a way of comparing, is to work out the APR,
so the annual rate, for each offer. This gives you another way of comparing it. So
let’s just together, try and work out what the APR would be of this first offer. And
then we’ll see if you can work out the other two, and then look at that as a way
of comparing, okay? So, I’ve got my starting amount of 50 pound. I need to
find my multiplier. I need to know what I’m multiplying that by to give that
amount. I want to know what my interest, what my APR is gonna be. So for this, call
that x. And I need to give a value of 7,102.15. Cause this will tell me what my
multiplier is, and therefore what my APR is, okay? So how could I go from this
stage into working out my value of x, or what the multiplier is? – Could you divide the 7,102 by 50? – Fantastic, yeah. So someone with a
calculator, can you just? We’ll see that, we’ll just divide it by the 50. – 142.443 – 142.443 – So, the way of checking that.
If you’d added 50 times by the multiplier, should give you that value. So that’s my
multiplier. What is that as an APR though? For example, if my multiplier was 1.04,
what would my APR be? – If it’s something’s increasing by… – 4% – 4%, yeah. If you times it by 1.04,
that’s the same as a 4%… – increase.
– …increase. So 4% APR. So any ideas on how to get my multiplier? This is gonna be
a massive number. Get that multiplier into my APR? Basically go from a decimal to a
percentage. How do you go from a decimal to a percentage then Millie? So
if I had, say if that was my multiplier, what would that APR be? – 23% – 23%, so what you could do. I’ll show you
one way of doing it, is subtract one to get you 0.23, yeah? – Oh, you have a hundred there. – And then, multiply by a hundred. Yeah,
fantastic. Okay? So then we’re going to subtract one and then multiply by 100. And
that’s going tell us the APR, so what’s that gonna be? How can we go from the 142? – [Student] [inaudible] – Yeah, good.
– Four one – Times eleven.
– Excellent – So that would be…
– 14 thousand. – 14 thousand two hundred. – Remember subtract the one.
– No, cause you have to subtract the one. So 14…
– 14,100… – 100.4 I think. – Yeah, fantastic. Then, so that
multiplier, if I’m saying that is an APR, the annual rate. So the annual interest
rate is, on that first offer, 14,104%. Comparing that to normal credit cards or
normal loans, I mean how does that compare? What do you think of that as an
APR? – A lot more expensive. – Yeah, I mean that is huge. That is a
massive interest rate. All right, what I’d like you to try and do is maybe use that
now as a way of working out the APR on the other two offers and using that as a
comparison to work out which is the best deal. So you’ve come with some really good
stuff of one way of doing it. Now, just like you for a few minutes, see if you can
work out the APR of offer two and offer three. Okay? [Music] – All right, let’s just bring it
together then, okay? There’s a lot of good work going on, and some really good
calculations. I want to see if we’re all agreed on the APRs, okay? Shelby, what did
you get for the APR for offer two? – 11,374.4% – Put your hand up, did this group
agree with? – Fantastic, yeah. So that’s slightly
better than this one. And we go on to offer three. Anyone have any thoughts
there on which, what you think the APR might be? You think it might be better or
worse than the first two? – Worse.
– Worse. – Worse, what makes you say that? – So offer three is over one? – So the power of [inaudible]
– So you get [inaudible] – Yeah, so I’m sure you can all work that
out. What it actually gives, so you thought it was higher. Because it’s only
12 periods, that one, is, three, it’s gone off the bottom of the screen slide, but
offer three is actually the best of the three. Okay? Both got these ones. Offer
three, 3,057% okay? Also, another way you could have done it, is to work out the daily interest. – So, we went from looking at simple interest to
begin with, so comparing them using compound interest, then we’ve come with
slightly different answers. What did you say to begin with Millie? – Offer one.
– We thought offer one was the best. – Offer one was the best. Now it’s turned
out to be the… – The worst. – Worst, cause it’s compounded so often.
Excellent. Very good. – We’re going to move on now. We want to
start to draw some conclusion on these pay day loan companies. I’ve just picked some
headlines from the newspapers from the last year, all to do with pay day loan
companies. And they don’t get a very good press, okay? Members of Parliament are
saying they should be banned. Lots of examples of people, people’s debt
escalating very quickly. They can’t afford their repayments. They’re getting into a
lot of trouble. So let’s see, realistically, how ethical these companies
are. I’m going to do two tests. First of all, Wonga will try and justify that their
company’s ethical. It is legal and it follows all their correct practices. So
for example, if Tom is desperate to go to a concert. Who is your favourite artist
Tom? Anyone? – I don’t know. – Kylie Minogue. He’s desperate to go to
Kylie Minogue. And the ticket’s 50 pounds, but he’s got no money at all. He knows in
five days time, he’s going to get payment from his job. Okay, so he only needs to
borrow the money for five days. He’s desperate to get this ticket. Now, on
Wonga if he wants to borrow 50 pound for only 5 days, they’re gonna charge you 8
pound and 28 pence in interest and fees, so the total you repay is 58 pound 28.
Does that sound reasonable? – Yeah. – If you were that desperate, would you do
that Tom? Yeah, okay. Excellent. So in this example, as long as you borrow a
small amount over a short period it seems quite reasonable, the interest and the
rates they’re going to charge. Let’s see what happens, how it can escalate very
very quickly. Now a little fact for you. The UK national debt, at the moment is 4.8
trillion pounds. What that means is that the government has spent 4.8 trillion
pounds of money that they haven’t yet generated in. Now there are reasons for
that. A lot of the time, the government will spend money on projects, even though
they don’t technically have the money so that the economy gets a boost in the
future. So for example, they might build a road network even though they haven’t got
the money, on the, so thinking that the road will provide more transport, more
jobs, etc, etc. So more money comes in in the future. This actually works out to
78,000 pound for every single person in the United Kingdom. What I want to set you
today is, if you could borrow the maximum amount of money from Wonga, which is 500
pounds, and they charge their extortionate APR rates. How many years would it be,
before you owe more than the UK national debt? So just from borrowing 500 pounds,
how many years would it be before you owe this extortionate amount of money? Can you
just jot down 4.8 trillion on your table please? Now, what I’d like you to do is to
first start with Wonga, okay? So you can borrow a max of 500 pounds, and this is
the APR rate they’re going to charge you. Now actually Millie, Wonga loan you can only
take out for 30 days. But ignore that. Let’s presume you can take out for as long
as you want. Okay? Just, very quickly, initial thoughts. Can anyone think of ways
we could start this problem off? What are you thinking Millie? – Could do trial and error, and then… – Okay, excellent. I like that method.
Trial and error. Any other ways? – Could use logs. – Okay, we could look at using logs as
well. I’m not going to tell you how to do it, but maybe start with trial and error. It
will give you a clear indication on the methods that you need to do. Okay guys,
some brilliant calculations going on there. Let’s go through a couple of
examples. Has anyone got a definitive answer then? How many years? – Well we got, the one we got was
for 5.3 years. – 5.3 years? Any other variations? Jack,
what did you get? – 5.59
– 5.59 Girls in the back, what did we get? – 5.57 – Okay, so definitely somewhere between
five and six years. What’s your initial reaction then? That’s it’s only five and
six years? Millie? – We thought it’d be like 20, 30 years to
start with. We didn’t think it’d be that low. – Okay. You quite shocked then that this
figure is actually so low? – Yeah. It’s astounding really, that this
extortionate interest rate, after only, what about 5.6, 5.7 years, five and half
years you will owe more than the national debt. Escalates so so quickly. What
methods did we use then? Girls in the back table, what method did you use to start
with please? – Trial and error.
– Sorry, what was that? – We started with trial and error. – Yeah, so what was the process that you
went through? – We did 500 times the percentage
rate, and then… – Okay so, 500’s our initial borrowings.
Guys, can we just watch this please? Thank you. And then we’re multiplying it by? – 59.53% – So where did 59.53 come from Eve? – It came from the percent. I don’t know. – It is the percentage to multiply, but…
– It came from the 5,953%. – Fantastic, yeah.
– Then you’ve got to add by 100 on to it. – Yeah, to take into account our original
100%. Very good. – And then, divide. – Yeah, fantastic. Add our original 100%
and divide by 100 to get our multiplier. Excellent. So we use trial and error and
what did you get to one decimal place, Lauren, with trial and error? – Five point, oh one decimal. 5.6. – 5.6 years. What we’re going to do now is
we are going to give you a pack of information. There’s some newspaper
articles. There’s some facts and figures from Wonga. There’s the profit account
from Wonga. And we want you to look at this final question. – So, as sir said, pay day loans are in
the news a lot. Just this week, there’s been some big article about
what’s going on. And there’s sort of, there’s often lots of articles detailing
individual situations, and the sort of debt they can get into, okay? And some
quite bad stories out there, about debt that can stockpile. It’ll then just
escalate. So what I’d like you to do is, in your groups, have a look at some of
those articles. Have a look at some of those numbers. And just have a think about
the future of pay day loans and what could maybe be brought in? Can they be regulated
a bit? Or what, basically what is fair? So going forward, should pay day loans be
allowed to continue? Think about the pros and cons of having pay day loan companies.
What would a fair APR rate be, given some of the ones we’ve looked at so far? And
what could the government or pay day loan companies do to stop the sort of
situations where individuals are getting into a lot of bad debt that they can’t pay
back, okay? So just have a think about those three questions. Pros and cons,
fairer APR rate, and what could maybe be done. In your tables, I’m going to
feedback as to what you think should happen. All right, let’s just bring a
couple ideas together. Just to finish off and see what we think as a conclusion
about pay day loan companies. Let’s think about the pros and cons. What, what about
positives about pay day loan companies to begin with? Why might there be a need for
pay day loan companies? What’s good about them? Mind sharing anything… – If you need to buy something… or it’s not pay day for another day, then you can still get it, especially if
it’s like a necessity that you need to buy. – Yeah, so if was short terms – Any other reasons why it’s
good to them as a business? Okay then, well what about anything negative? Why should they
possibly stop trading? Or what could be brought in to regulate it a bit better? – More checks.
– More checks on? – Like, you know, you use them so
you don’t use a bank account. – So they don’t know anything about it.
They, so you’ve got like no job, you can borrow like 500 pounds in there. But how
are you supposed to pay it back? – If you haven’t got a job or anything. – If they’re not checking that. – Yeah, absolutely. And the company could
lose out, because they might not check you have absolutely no way of paying it back,
and they’re losing that money. – What about a fair, any thoughts on a
fair amount that the APR should be? – Be under a thousand.
– Under 1000%, okay. Yeah, so some of the ones we were
looking at before, Wonga was like 5000%. – That’s not fair because that
one’s 4000. That one’s like 3000. – Yeah, so Wonga is a really expensive
one. Why do you think Wonga is still a successful business?
– It’s known. – Yeah, we’ve all been to one of them.
– How about brainwashed? – Fantastic, yeah. Pardon, Lauren? – How they brainwash the customers with
their adverts. – Yeah, they’ve done a really good job in
advertising. Often, customers don’t have a good understanding of the actual interest
rates. Wonga’s probably one, if you that if you were to name one loan company ,
probably the first one you’d go to. Anything else you guys, from any of the
tables? – I’ve all this interest in what Lauren
was saying about the fees as well. How they cap on the fees that they charge.
What do you say about that Lauren? – We should reduce the fees
and the interest rate. – Okay, and what was the
justification for that? – Because then more people would pay them
back on time. – Okay. And thinking about the pros of pay
day loan companies, what would happen if they didn’t exist, but you were desperate
to borrow some money? – Then you’d have to go to a local bank. – Okay the local bank says, “No, no, no.
No way. Sorry. Not loaning money.” – Then you’ve got no way of getting it. – Okay, so what are you going to do? You have
to have this 50 quid. You have to go to that concert. What are you going do? – Ask my mum. – Okay, mum says, “No, no, no. No way.”
What are you going to do next? – Try to sneak in? – Try and sneak in. Okay, no the bouncer’s
on the door. How are you going to get this 50 quid? What will people resort to? – Stealing.
– Stealing. Absolutely. Or, what else do
we know? Who else might lend you some money?
– Loan sharks. – Loan sharks, okay. So whilst there are
some disadvantages, they are set up, and if they’re used correctly, like we did with
the example earlier, you can borrow a short amount of money for a small period,
and not pay too much back. – Good, so hopefully you’ve had a good
look at pay day loan deals and it’s got an idea of the actual source of APRs they
often charge, and seeing how extortionate they are compared to normal loan deals.
Okay, so have a look at some of them. And we made some really good points on the
pros and cons of pay day loan companies. There’s been some absolutely fantastic contributions
throughout the lesson.