Vocabulary
cut off
income tax
advantage
deduct
itemize
tax records

Purpose
To recognize the importance of household budgeting.

Pre-reading activity
1. Ask learners to talk about how they plan for expenses. Do they keep a calendar similar to the one shown in the illustration on this page? Prompt a discussion on the importance of planning for expenses. Talk about the types of financial emergencies that can occur and how one might prepare for them. Also, ask the class if they know about the tax advantages that are available for homeowners. If there are homeowners in your class, ask them to share their experiences. Remind learners that only homeowners who itemize can receive federal income tax deductions for mortgage interest payments and some other home-related expenses, such as real estate taxes.

2. Have learners read the paragraphs under the pictures on this page and the next page and note any new vocabulary. Explain the difficult vocabulary before having learners do the comprehension exercise.

3. Some learners may be surprised that, in the first year of the loan in the example, only $480 is paid to the principal. Explain that the amount paid toward the principal increases each year while the amount of interest paid decreases.

4. Finally let the class know that the U.S. tax code can change. The information about deductions is
current for 1996.