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Who Has the Cash?
I Want the Cash!

Should you borrow money only if you absolutely have to?  What are good reasons to borrow money?  How do you know when to save and when to borrow?  Read the following story with your child and see what credit lessons you can learn together!

All Washed Up

Tim was bored.  And broke.  And it was only the second week of summer!  "What can we do to make some money and keep busy?" he asked his friend Tina.  After deciding against mowing lawns or baby-sitting, they settled on washing cars.  They would charge people in the neighborhood $6 per car.  "Do we have all the stuff we need for that?" Tina asked.  "Letīs check the garage," said Tim.

Tim and Tina scoured the garage for buckets, hoses, and sponges.  All they found was a plastic bucket with a broken handle and an old squeegee.  "My folks always use the car wash across town or drive dirty cars.  I can see why.  We arenīt equipped to wash cars," moaned Tim.  "I have an idea, letīs go find Lisa," Tim said.

Lisa was Tim's older sister.  She was 16 and loaded!  She worked after school at the library and baby-sat on the weekends.  She was saving for a used car, and she always had cash.

"You want me to loan you the money to buy supplies to operate a car wash?" mused Lisa.  "Is your credit good?  Do you have any collateral?  What kind of return will I get?  Have you made a list of the capital you'll need?  Will your price cover all your costs?  Have you even done a market survey to see if the neighborhood would use your car wash???"

"Ahahaaa Lisa," whine Tim.  I don't know any of that junk, we just thought it was a good idea."

"Well, I didn't say it wasn't!" snapped Lisa.  But it takes more than a good idea to run a successful business, even for a summer.  Get some paper and a pencil.  Iīll help you guys, but it's going to cost you!"

Before Lisa would lend Tim a penny, she insisted he canvass the neighbors to see what they would be willing and able to pay for a car wash.  Next, they made sure that $6, the price most folks picked, was enough to more than pay for the soap, water, wax, and other costs they would have providing the service. 

After a trip to the hardware store, Tim and Tina decided that $60 would be enough to get them started.  Lisa explained that the bucket, 25-foot hose, and pressure sprayer were capital for the business.  She willingly agreed to loan them the $60.  "One of the main types of loans that lenders like to make is to businesses wanting to buy tools and equipment.  If a business is successful, this is a very good investment."

"Oh, and, by the way, Tim," Lisa said matter-of-factly, "I'm holding your CD player as collateral.  If you don't pay me back, it's mine forever."

Lisa's loan to Tim and Tina was indeed a very good investment.  Tim paid the $60 loan back the second week of business.  Plus, Tim agreed to pay Lisa $1 for every car washed as a return on her $60 loan.  Lisa even pitched in to help wash over the busy 4th of July weekend.

"Don't count on me doing this again, even if you do get backed up," Lisa sniffed.  "I like to make my money work for me, not work for my money!"