A lesson in real life economics

By Maria Celeste Mahaffey

I remember buying my first car very clearly.  What I remember even more clearly was my first lesson in sticker shock.  I had been very fortunate to have a car through high school and college, one that I had not had to buy.  I bought my first car at 22 as a newlywed.  I remember going for the test drive and haggling with the salesman.  Then we sat down to write the contract.
 
This is when I learned about how down payments, interest rates, and installment payments, along with taxes and tags, could rule my life for the next five years.  As a trained economist, I knew all these things—in theory.  But once it actually had to come out of my own pocket, it had a very different feeling.

In listening to many of my students, they all have the optimism of youth and innocence.  They frequently believe that once they graduate high school, they will be able to afford their dream car right away.  I hear plans for race cars and luxury cars and some even still want monster SUVs.  Others have plans to have mommy and daddy buy their car for them.  It comes with some remorse that I pop their bubble.  I explain that they may get their dream car—someday, just not today.  And mommy and daddy may buy their first car—but not every car.
 
I created a lesson to help students realize the hidden costs of buying a car.  I was pleasantly surprised that once students began this activity, their tastes were far more modest than I anticipated.  A few chose Mustangs or BMWs, but more often than not, they chose small Hondas and Toyotas.  We began with a KWL on the white board, partly as a formative pre-assessment for me and partly as a brainstorming activity for them.

"In the current economic climate, students are more aware than ever about economic terms but may not understand how they apply to them personally."

I created a worksheet that gave step-by-step directions for students to pick their car and then figure out their financing options.  I began by having students go to Craigslist.org and pick out a car.  I chose this site so that they had plenty of variety but to also have them realize that most likely their first car will not be brand new.  Once they had chosen their car, I had them look at the Kelley Blue Book site (www.kbb.com) to check whether this was a realistic price or were they being gouged already.  From there, we traveled to the Edmunds site (www.edmunds.com) to begin financing their car; this site has a very easy to use payment calculator.  Pleasingly, many were against the idea of taking out a loan since they did not want debt.  But I had to point out often that they may not have enough cash on hand to buy the car outright.  Many believed that they would purchase a car from an auction, which is a very reasonable method, but again if they did not have the cash on hand they would need a loan regardless of their point of purchase. 

This opened a great opportunity to begin talking about the different types of loans, personal versus auto, and their associated interest rates.  We used the Edmunds website to play with different interest rates, giving them rates for auto loans and personal loans and down payments.  Students were able to also look at how their payment amounts varied depending on the length of the loan.  The calculator also factored in tax and tags for the students, which much like it was for me, the actual amount for this came as a surprise to them.
 
Students seemed enthusiastic about this activity because they could see the real world application.  In the current economic climate, students are more aware than ever about economic terms but may not understand how they apply to them personally.  With constant news about the housing industry and the surplus of vehicles at dealerships, this provides an ideal opportunity to give students a lesson on personal finance and to help them become more financially savvy.  This lesson presents chances to move into other lessons or discussions on personal finance such as credit card offers, home purchase versus rental, even types of home purchases such as traditional, foreclosure, or short sales.  Also, discussing the difference between fixed interest rates and adjustable interest rates along with their benefits and consequences is a lesson that most people do not learn until after they have put a bid in on their first home or the introductory rate ends on a credit card.  Teaching our students these lessons of personal finance that most us do not learn until adulthood is a great tool for them to move from at-risk to at-promise, and very simply it teaches buyer beware.
 
Maria Celeste Mahaffey holds a BA in International Affairs from the George Washington University and a Masters of Arts in Teaching Secondary Social Science from Western Governors University.  Maria currently has her single subject CA credential and works as an ITA at the San Diego SIATech campus.