top of page

Debt 101: A Case Study for Kids

Over the Christmas holidays, I created a money management program for teenagers at an international school in Singapore. One of the modules focuses on learning about debt (as part of the third Rule of Wealth, 'Be Patient').

If you've read some of my blogs, you'll know that I have found coming up with case studies as a powerful and engaging way to teach kids about different money topics. Hence, I have provided the school with a case study to help them teach their students about debt.

In this blog, I share the case study I created for the school which you can share with your kids.

Chloe vs Clint Case Study

Chloe and Clint are both 21 years old and save $170 per month.

They both want to upgrade their phones to the iPhone 15. The price of the phone is $1,800.

Chloe doesn't want to wait to buy the phone so she applies for a credit card so she can borrow the money and buy the phone straight away.

Clint doesn't want to borrow money and decides to save for the iPhone.

The students at the school have to consider the different experiences of Chloe and Clint based on their decisions.

Chloe's experience ...

As Chloe used a credit card, she must pay back more than she borrowed. She is in debt to the credit card company.

The credit card charges 27% per year. That is equivalent to 2% per month on the amount she owes.

If Chloe uses her savings of $170 per month to pay back the credit card company:

  • How long will it take Chloe to pay back what she owes?

  • How much did she pay in total for the iPhone 15?

[The school students are given a worksheet (spreadsheet) to help them with this calculation]

Answer: It takes Chloe 12 months to pay off the credit card company. The total cost of the iPhone 15, after the interest costs, was $2,040. This means she paid an extra $240 for the phone as she borrowed the money.

The downside of using debt

Decision questions:

Why was Chloe willing to spend $2,040 for a phone that costs $1,800?

Apart from being impatient, Chloe probably didn't consider the total cost she would be paying for the phone. Companies offering debt (such as credit card companies) don't highlight the high total costs. They focus on the smaller monthly amounts that need to be repaid.

Essentially, they tricked Chloe into focussing on having the new iPhone straight away for just $170 per month. They know that if they highlighted the total $2,040 cost, she might not have bought the phone then.

After 12 months, Chloe has no savings and hasn't bought anything exciting over that period. What do you think she is most likely to do?

  • Buy something new/exciting on her credit card, or

  • Build up her savings

Sadly, it is very likely that Chloe will use her credit card again as she hasn't spent for a long time and showed that she was impatient when she bought the iPhone 15 in the first place. Essentially, if she borrowed initially, there is a good chance she will borrow again and not see her savings grow materially in the future. Using debt once can kick off a downward debt cycle.

I fully expect the students to want to avoid this potentially bleak future.

Let's compare this to Clint

Clint's experience ...

Clint saves $170 per month towards his iPhone. 

Clint really wants the iPhone so decides to start selling cookies to make some extra money. This helps him save an extra $60 per month. 

After 6 months, a new iPhone comes out so the price of the iPhone 15 is reduced by 10%.

  • How long will it take him to save up to buy the iPhone 15?

  • How much did he have to pay in total for the iPhone 15?

[Again, the school students are given a worksheet (spreadsheet) to help with these calculations]

Answer:  It takes Clint 7 months to save up for the iPhone which only costs him $1,620 after the price reduction. This excludes any extra savings he could have made by putting his money into a high-interest savings account over those months.

The long term benefits of saving rather than using debt

Discussion question: Why was Clint more motivated than Chloe to find new ways of making money?

Clint was motivated to earn extra money as he was excited about getting his new iPhone. The more he earned, the sooner he'd get his phone. Chloe on the other hand didn't have the same motivation. She already had her new phone, therefore the extra money would be used to pay off her debt which doesn't have the same excitement factor.

SUBSCRIBE: Tips and stories to help you teach your kids about money delivered to your inbox for free each week. Subscribe to BlueTree today

Borrowing (Debt) vs Saving

The difference between saving and borrowing for spending

At the start, Chloe was probably happier than Clint as she got her new iPhone 15 straight away.

After 12 months, both have an iPhone 15 but Clint also has over $1,000 more in savings than Chloe. 

Who do you think is happier at the end?

The case study helps the students to appreciate the benefits of delayed gratification. Hopefully, they will see the long-term benefits of being like Clint (spending less on the phone and extra savings) and therefore save rather than borrow when it comes to spending.

Who do you think is more likely to spend impulsively?

When you have access to debt for spending, such as a credit card or if the shop offers Buy Now, Pay Later, you are more likely to spend impulsively. This leads to more spending and less focus on building wealth.

Shopkeepers know that easy access to debt means customers are likely to spend a lot more and hence shops are willing to pay high fees to credit card and Buy Now, Pay Later companies.

When thinking about what to spend, Clint is more likely to consider 'Am I willing to save up for months to buy that?'. During that thought process, he is probably going to rule out many items that he doesn't really love and therefore end up saving more.

The case study can be expanded to consider the trend over many years of savers vs borrowers:

The savers are likely to keep on saving. If they invest the money they don't use for spending, then their wealth is expected to increase exponentially over time.

Unfortunately for the borrowers, there is a good chance that as they earn more, they borrow more and their wealth keeps on falling over time.

The School Program

The Money Management Program for schools covers the 3 Rules of Wealth over 8 different modules/lessons.

The case study set out in this blog is part of a lesson plan on debt, to encourage students to be patient with their money (the third Rule of Wealth). Whilst the case study focuses on 'debt for spending', the full module also includes an exercise for the students to learn about 'Good Debt vs Bad Debt' and a debate topic, 'Should parents lend their kids money?'

If you feel your school would be interested in a Money Management Program (ideal for Secondary/Middle/High School/teenage kids), then please let me know ( I would be happy to provide a free trial.

Other Case Studies:

As mentioned at the start, I have found coming up with case studies is an engaging way to teach kids about different money topics. Other popular case studies I have used can be found below: (click to read)

SUBSCRIBE: Tips and stories to help you teach your kids about money delivered to your email box for free each week. Subscribe to BlueTree today

Thanks for reading!


P.S., Debt is a topic covered in my book, Grandpa's Fortune Fables, for kids 13 and under. Grab a copy from Amazon today!

Will Rainey Book Grandpa's Fortune Fables

bottom of page