Understanding Finance, Loans & Income Tax (PAYE) – A Guide for Grade 12 Maths Lit Learners

Dear Grade 12 learner

Money can be confusing — especially when you start hearing words like interest, loans, or PAYE. But don’t worry.

These aren’t just exam topics — they’re real-life skills that can help you manage your money, plan for your future, and support your family one day.

Let’s walk through the basics of finance and loans, as well as how income tax (PAYE) works — step by step, with simple examples you can understand and apply.

🏦 1. What is a Loan?

A loan is money that you borrow from a bank or lender — with the agreement to pay it back over time, with interest.

Interest is the extra amount you pay the bank for borrowing money — like a fee.

There are two types of interest we usually deal with:

• Simple Interest

  
  

• Compound Interest

  
  

📘 Example 1: Simple Interest Loan

Scenario:

Zanele wants to borrow R10 000 to buy a laptop.

The bank offers her a simple interest loan at 12% per year for 3 years.

The formula for simple interest is:

Interest=P×r×t\text{Interest} = P \times r \times tInterest=P×r×t

Where:

• P = principal (initial amount borrowed)

  
  

• r = interest rate per year (as a decimal)

  
  

• t = time in years

• 
  

👉 Substitute the values:

Interest=10000×0.12×3=R3600\text{Interest} = 10 000 \times 0.12 \times 3

= R3 600Interest=10000×0.12×3=R3600

Zanele will pay R3 600 interest in total.

Total repayment=R10000+R3600=R13600\text{Total repayment} = R10 000 + R3 600 = R13 600Total repayment=R10000+R3600=R13600

So, Zanele must repay R13 600 over 3 years.

📘 Example 2: Monthly Loan Repayment with Fees

Let’s say Zanele pays the loan off in 36 monthly instalments.

Monthly payment=R1360036=R377.78\text{Monthly payment} = \frac{R13 600}{36} = R377.78Monthly payment=36R13600​=R377.78

If the bank charges an admin fee of R69 per month, then:

Total monthly payment=R377.78+R69=R446.78\text{Total monthly payment} = R377.78 + R69 = R446.78Total monthly payment=R377.78+R69=R446.78

So every month, Zanele pays R446.78.

👨🏾‍💼 2. Understanding Income Tax and PAYE

Now let’s talk about income tax — the money taken off your salary to pay for public services like schools, hospitals, and roads.

In South Africa, people who earn more than a certain amount must pay tax.

This tax is called PAYE – Pay As You Earn.

The more you earn, the higher your tax bracket.

📘 Example 3: Calculating PAYE

Scenario:Sipho earns R18 000 per month. He wants to know how much PAYE will be deducted.

Step 1: Find the annual income

R18000×12=R216000 per yearR18 000 \times 12 = R216 000 \text{ per year}R18000×12=R216000 per year

Step 2: Use the tax table (2024/2025 example for individuals under 65):

Taxable Income	Tax Rate
0 – R237 100	18% of taxable income
R237 101 – R370 500	R42 678 + 26% of the amount above R237 100

Sipho earns R216 000, which is in the first tax bracket (0 – R237 100).So:

PAYE=18% of R216000=R38880peryear\text{PAYE} = 18\% \text{ of } R216 000 = R38 880 per yearPAYE=18% of R216000=R38880peryear

Step 3: Work out monthly PAYE

R3888012=R3240 per month\frac{R38 880}{12} = R3 240 \text{ per month}12R38880​=R3240 per month

So Sipho will have about R3 240 deducted from his salary each month.

Step 4: Calculate his take-home pay

R18000−R3240=R14760R18 000 - R3 240 = R14 760R18000−R3240=R14760

Sipho’s net salary (take-home pay) is R14 760 per month.

💡 Key Concepts to Remember

Term	Meaning
Principal (P)	The amount of money borrowed or invested
Interest	The extra cost paid for borrowing money
Simple Interest	Interest calculated only on the original amount
Compound Interest	Interest calculated on the original amount and the interest already added
PAYE	Tax taken off your salary before you get paid
Net Salary	What you take home after deductions

✨ Why This Matters

Understanding how loans and tax work gives you power — the power to make wise decisions, to plan your future, and to avoid debt traps.

Maybe one day, you’ll take a loan for a business or a home.

Or maybe you already know someone who’s working and paying tax.

These topics don’t just live in textbooks — they live in your daily life.

🧠 Exam Tip:

Be ready to:

• Use the simple interest formula

• Understand loan repayments and fees

• Use a tax table to calculate PAYE

• Work out net salary

• Apply your knowledge to real-life scenarios

• 
  

🙌 Final Words of Encouragement

It’s okay if this feels like a lot at first.

Finance can be scary — but you’re learning something powerful.

These lessons can help you build a better life.

Whether you’re helping your family understand their payslip or planning your own future, you’re learning to make smart, confident choices.

Be proud of that.

Keep going. You're capable. You've got this! 💪📚