F. Financial Literacy · Money and Finances: Ways to Pay, Financial Goals, Interest Rates and Sharing Resources

Ways to Pay: Advantages, Disadvantages and the Real Cost

F1.1 A1About 45 minutes

Learning goals

I can describe advantages and disadvantages of cash, debit cards, credit cards, prepaid and gift cards, mobile wallets, e-transfers, cheques and "buy now, pay later" plans.
I can calculate the real cost of a purchase when a method of payment adds tax, fees or interest.
I can choose a method of payment for a situation and explain my reasoning.

Words to know

method of payment
A way to pay for goods (things) and services (work someone does for you), like cash, a debit card or a credit card.

fee
Money charged for a service, like a charge for using another bank's ATM.

interest
Extra money paid for borrowing money. Credit cards charge interest if the bill is not paid in full on time.

prepaid card
A card that has money loaded onto it before you use it. You can only spend what is on it.

mobile wallet
An app on a phone or watch that pays by tapping. It uses a debit or credit card linked to it.

buy now, pay later
A plan that splits a purchase into several smaller payments made over time.

real cost
Everything you pay in the end: the price, plus tax, plus any fees and interest.

Remember from Grade 5

In Grade 4 you named many methods of payment. In Grade 5 you followed money as it moves between individuals, businesses and organizations, and you looked at good and bad points of cash, cards, e-transfers, direct deposit and automatic payments. You also added Ontario's 13% HST to prices.

In Grade 6 you become the judge. You will compare methods of payment carefully, including the hidden costs that some of them add, and choose the best method for each situation. Then you will explain why.

Same game, different cost?

Four grown-up cousins each buy the same board game as a holiday gift. The price tag says $40.00. With 13% HST (40 × 13¢ = $5.20), the total at the till is $45.20.

Ava pays with cash she already has. She pays $45.20.
Ben has no cash, so he takes some out of another bank's ATM in the mall. That ATM charges a $3.00 fee (an example fee). The game really costs him $45.20 + $3.00 = $48.20.
Chloe uses a credit card and pays the whole bill by the due date. She pays $45.20 and no interest.
Dev uses a credit card and doesn't pay the bill for a whole year. At a rate of about 20% a year, he pays about $9 in interest, so the game costs him about $54.

Same game, same price tag, but the real cost depends on how each person paid!

The real cost of the same $40 game (with HST) for each cousin. Bars are drawn to scale.

Methods of payment at a glance

Read this table with your grown-up. Notice that every method has good points and problems. There is no method that is best for everything.

Method	How it works	Advantages	Disadvantages
Cash	Bills and coins.	Accepted in most stores. No bank account needed. Easy to see how much you have left. No interest.	Can be lost or stolen. Can't be used for most online shopping. ATM fees at another bank's machine. Cash totals are rounded to the nearest 5¢.
Debit card	Takes money straight from your bank account.	Uses your own money, so no interest. Fast. Every purchase shows on your bank record.	You need enough money in the account. Some accounts charge a fee for each purchase. A lost card or shared PIN can let someone else spend your money.
Credit card	The card company pays the store now. You pay the card company back later. Only adults can get their own.	Works online and when travelling. If the card is stolen, the card company usually doesn't make you pay for purchases you didn't make. Some cards give rewards.	Interest (often about 20% a year) if the bill isn't paid in full by the due date. Easy to overspend. Some cards have a yearly fee. Late fees.
Prepaid card	Money is loaded onto the card first.	You can only spend what is loaded, so you can't owe money. Can work online.	Some charge fees to buy, reload or keep the card. Not every store accepts it.
Gift card	A card for one store or a group of stores.	Easy gift. You can't spend more than is on it.	Works only at some stores. Easy to lose or forget. Scammers sometimes ask people to pay with gift card numbers.
Mobile wallet	Tap a phone or watch. It uses a card linked to it.	Fast. The real card number isn't shared with the store. The phone can need a fingerprint, face or code to pay.	Needs a charged phone. Tapping is so easy that it's easy to overspend. Same interest and fees as the linked card.
E-transfer	Sends money from a bank account to a person's email or phone number.	Fast way to pay a person, like a music teacher or a friend.	A typing mistake can send money to the wrong person. Scammers sometimes ask for e-transfers. Some accounts charge a fee.
Cheque	A paper form telling the bank to pay someone.	Leaves a written record. Can be mailed.	Slow. Few stores take them. If there isn't enough money in the account, the cheque "bounces" and there is a fee.
Buy now, pay later	The price is split into a few payments, for example 4 payments over 6 weeks.	No big payment all at once. Some plans charge no interest if every payment is on time.	Easy to buy more than you can afford. Late fees. Some plans charge interest. Many small payments are hard to keep track of.

Advantages and disadvantages of common methods of payment.

Worked example

Example 1: Is the ATM worth it?

Ben needs $20 in cash. His own bank's ATM is a 10-minute walk away. Another bank's ATM, right beside him, charges a $3.00 fee (an example fee; real fees are different at different machines). What does the fee really cost him?

Compare the fee to the money he takes out: $3 out of $20 is the fraction 3/20.
Make it out of 100: 3/20 = 15/100 = 15%. That's like paying 15¢ extra for every dollar!
If Ben did this once a week for a year: 52 × $3 = $156 in fees.
Other choices: walk to his own bank's ATM (no fee for him), or pay with his debit card at the store if it is accepted there.

The fee adds 15% to the $20. Doing it every week would cost $156 a year. Walking 10 minutes or using a debit card saves money.

Worked example

Example 2: Buy now, pay later

Priya's aunt wants a snowboard priced $280 before tax. The store offers a "buy now, pay later" plan: 4 equal payments, no interest if every payment is on time, and a $10 late fee (an example fee) for each late payment. What is each payment? What if one payment is late?

HST: 280 × 13¢ = 3640¢ = $36.40. Total: $280.00 + $36.40 = $316.40.
Each payment: $316.40 ÷ 4 = $79.10. Check: 4 × $79.10 = $316.40. ✔
If one payment is late, add the fee: $316.40 + $10.00 = $326.40.
Think about it: the first payment is only $79.10, which can make the snowboard feel cheaper than it is. The real cost is still at least $316.40.

Each payment is $79.10. With one late payment, the snowboard really costs $326.40.

Each payment is only $79.10, but four of them add up to $316.40. One late payment pushes the real cost to $326.40.

Worked example

Example 3: Choose a method and explain

Which method of payment would you suggest for each situation? Give a reason.

Buying a $2.50 hot chocolate at an outdoor rink's snack window that takes cash only.
Grandma paying a piano teacher $35 for a lesson.
A grown-up buying a $60 train ticket online who will pay the whole credit card bill when it comes.

1. The snack window takes only cash, so cash is the only choice. Bring small bills or coins.
2. An e-transfer is fast and leaves a record. Grandma must type the teacher's email or phone number carefully. Cash or a cheque also work; cash leaves no record unless she gets a receipt.
3. A credit card works online and, if the bill is paid in full by the due date, there is no interest. A debit card or prepaid card could also work if the website accepts them.

Cash. 2. E-transfer (or cash or a cheque, with reasons). 3. Credit card paid in full (or debit or prepaid). More than one answer can be right if your reason makes sense.

The real cost

Real cost = price + tax + fees + interest.

Before you choose a method of payment, ask:

Is there a fee for using it?
Could I end up paying interest?
Is it safe for this purchase?
Does the store or person accept it?

Math talk

Good money thinkers explain their choices and listen to others. Try: "For this situation I would choose ___ because ___. A disadvantage is ___, but I can handle it by ___." If a friend gives a better reason, it's smart to change your mind.

Just for fun

Funny but true: Canada stopped making pennies in 2012. That's why cash totals get rounded to the nearest 5¢, and why the penny in your couch cushions is now a little piece of history.

Hands-on activity

Payment detectives

You need: a few receipts (or a store flyer), paper, a pencil and a calculator.

With a grown-up, look at some receipts. Find the line that shows how each purchase was paid (cash, debit, credit, gift card...).
Make a T-chart for three methods your family uses: Advantages on one side, Disadvantages on the other.
Ask your grown-up: "Have you ever paid a fee to pay for something?" (an ATM fee, a late fee, a fee for a card). Write down what it was for. Real amounts are optional.
Pick one item from a receipt or flyer. Find its real cost if it were paid (a) with cash, (b) with another bank's ATM cash and a $3 fee, and (c) with a "buy now, pay later" plan of 4 payments with one $10 late fee.

What to look for: the T-chart has at least two points on each side, and the three real costs are correct.

Grown-up note: cover card numbers and other personal information on receipts first.

Your turn

Name one advantage and one disadvantage of paying with cash.

Which card takes money straight from your bank account: a debit card or a credit card?

A $35 sweater for a grown-up is paid with a debit card with no fee. What is the total with HST?

A prepaid card charges $1.50 a month (example fee). How much do the fees cost in a year?

Ben uses an ATM with a $2.50 fee (example fee) twice a month for a year. How much does he pay in fees?

A $60 hockey stick is bought with a "buy now, pay later" plan of 4 equal payments. What is each payment, with HST?

You owe a friend $10 for pizza and you see them every day at school. Which method would you choose? Why?

More practice: warm-up

Which method lets you spend only the money that was loaded onto it first?

True or false: a mobile wallet uses money from a card that is linked to it.

What is a fee?

If a grown-up pays the whole credit card bill by the due date, do they usually pay interest?

Paying with cash, a total of $12.43 becomes...?

More practice: on your own

A video game costs $24.99. Find the total with HST. How much change from $30 if you pay with cash?

Card A has no yearly fee and gives 1% back on purchases. Card B has a $120 yearly fee and gives 2% back. A family spends $3000 a year on the card and always pays in full. Which card is better? (Example cards.)

Zara's dad says e-transfers are better than cheques for paying her dance teacher. Give two reasons that support him and one disadvantage of e-transfers.

A souvenir stand at the arena accepts cash only. Sam has a debit card and $5 in coins. A keychain costs $3.49 plus HST. Can he buy it? What change does he get?

Headphones cost $100 plus HST on a plan of 4 equal payments. Jess misses two payments, with a $8 late fee (example fee) each. What is the real cost?

Challenge

A credit card charges interest of 1.5% a month (an example rate) on money still owed after the due date. Dev still owes $500. How much interest will he be charged for one month?

A family buys $62.40 of basic groceries (no HST) and $18 of cleaning supplies (with HST). They pay with a $50 gift card for that store, and the rest by debit. How much goes on the debit card?

Kiri wants to spend $40 online at one store. Choice 1: a prepaid card that costs $6.95 to buy (example fee) and works at many websites. Choice 2: a gift card for that store, with no fee. Which would you choose, and why? Give one disadvantage of your choice.

Check your understanding

Quiz

Which method of payment takes money straight from your bank account?

What usually happens if a credit card bill is not paid in full by the due date?

An ATM charges a $3 fee each time. Lucas uses it once a week for 10 weeks. How much does he pay in fees?

A $20 item is paid by debit with no fee. What is the total with HST?

Which is a disadvantage of cash?

An $80 item plus HST is split into 4 equal payments. How much is each payment?

For parents and teachers

What your child is learning: Ontario's Grade 6 expectation F1.1 asks students to describe the advantages and disadvantages of various methods of payment that can be used to purchase goods and services. Grades 4 and 5 introduced the methods; Grade 6 adds judgement: comparing real costs (price + tax + fees + interest), thinking about safety and convenience, and choosing a method for a situation. Explaining and defending a choice is part of the mathematical processes (A1).

Common difficulties:

Thinking a fee is too small to matter. Multiplying a small fee over a year (52 weeks, 12 months) makes it real.
Seeing "buy now, pay later" as cheaper. The first payment is small, but the total is the same or more.
Believing there is one best method. Each method suits some situations better; reasons matter more than the choice.
Rounding card payments to 5¢. Only cash totals are rounded to the nearest 5 cents.

Good to know: all fees and rates in this lesson are examples; real fees and interest rates vary by card, account and institution and change over time. Credit card interest is actually calculated on monthly balances, so the "about 20% a year" figures are estimates.

How to help: Talk about which methods your family uses and why. If you're comfortable, show a receipt or card statement with numbers covered. When you see an ATM fee warning or a "pay in 4" offer at checkout, ask your child to work out the real cost.