Economic education in action
|In the news and around kitchen tables across America, homeownership, mortgages, and loan payments are much discussed. So, too, in the 1st period Honors Economics class of Dr. Elfi Funk, a social studies teacher at Peachtree Ridge High.|
“When we obtain a loan from the bank, how do we explain how the bank benefits?” asks Dr. Funk.
After a heartbeat of silence and a few turning pages, a student in the middle of the room gains Dr. Funk’s notice.
“We pay the bank interest on the loan,” he says.
“Exactly!” says Dr. Funk, who separates the class of seniors into groups of three or four and launches into an exercise in calculating 15- and 30-year mortgage payments for a piece of property within walking distance of the school. When the realization— or rude awakening— of compound interest takes hold of the students’ attention, the volume of the discussion swells noticeably.
A student at the back of the room raises her hand. “Dr. Funk, what does someone pay when a home is in foreclosure?” Murmuring can be heard in several parts of the room.
Dr. Funk seizes the opportunity to draw in a lesson or two from the headlines. She explains how banks, like the very ones we hear about today, attempt to sell the property for some kind of value, even at a vastly reduced price.
“The bank wants to be the mortgage holder and receive regular payments,” she says. “The bank does not want to be a real estate broker.”
After reviewing a web site that provides mortgage calculation assistance, Dr. Funk presents a scenario that touches on the present, adds a personal anecdote, and looks ahead to a more positive set of circumstances for all of her students.
“The recession should be over by the end of your college years,” she says. “As you make more money over time, shift more money toward your mortgage payment. Consider converting that 30-year mortgage to a 15-year and pay it off faster. From my personal experience with buying a home, you should get this clause written into your mortgage contract: allow principal-only payments.”
She points out a quick example on the white board which shows that when the principal balance of the mortgage is reduced, the resulting interest owed also is reduced. Within their groups, the students debate the pros and cons of 30- and 15-year mortgages, paying them off sooner rather than later, and even the practicality of purchasing a home in the first place.
Shortly before the class ends, Dr. Funk fans out several slips of paper and walks around to the students, letting them pick a slip, any slip. The assignment: Review the scenario and details about the house you are about to purchase. Calculate the mortgage costs, the 2%-closing costs, the interest rate, and the term. Determine what you will offer for the home.
“Hah!” exclaims a student in the front row. “This house has five bedrooms and four bathrooms. You know I’ll be able to make a deal on this!”
“Only if you have excellent credit and you can come up with the down payment,” a classmate says, chuckling with a few other students as he rises from his seat to leave for his next class.
“They need to know these things,” Dr. Funk says as her next block of students settle into their seats. She notes that current events make financial literacy and economic education all the more relevant for her students, who will soon be out on their own.