Good Debt Bad Debt

Good DebtBad DebtCredit Cards and

the Price of Instant

Gratification

Welcome Back!

• One Highpoint from Spring Break…

Warm-Up Activity

• On a sheet of paper, write a 3-5 sentence response to this fact:

• Average credit card debt per household with credit card debt is: $15,799

•  Put your name on the top and pass in when done. 

Purpose

• This unit will help you answer the following questions: – How do I decide if I should use credit or

not? – How do know which credit card would be

the best choice? – How can I be a savvy and responsible

consumer of credit? • You will learn strategies for deciding

when to use credit, and strategies for how to manage debt.

Objectives - You will be able to:

• Explain what credit is.• Explain what Credit History is and

why it is important• List three types of credit card

accounts• Explain the uses and payment

methods of each type of account.• Identify the fees and terms

associated with credit• Compare issues of using cash versus

credit cards and advantages and disadvantages of using credit.

Language Objectives:

• Read from workbooks and worksheets

• View YouTube credit card ads

• Discuss the implications of credit card use

• Record information found about credit cards

• Write about credit

Agenda:• Background • Vocabulary worksheet• Credit Card Worksheet 1• Good vs Bad T-Chart• Wrap up - Ticket out• • Homework:

– Shopping Activity! Come with list of items to purchase and costs…

– Meet in Lab tomorrow

CREDIT

INTEREST

CREDIT

Receiving money to buy goods and services now, with the promise to repay the money in the future. 

INTEREST

The amount of money that the borrower must pay to the lender for the use of the

borrowed money. With a credit card this is usually called a finance charge.

What Do You Think?• Pg. 42• Nearly ____ of teens owe money to

either a person or company with an average debt of _____

• About ______ of teens ages 16-18 already have more than ______in debt.

• ______of teens say they understand how credit card interest and fees work.

• _____of teens say they know how to establish good credit.

What Do You Think?• Pg. 42• Nearly 33% of teens owe money to

either a person or company with an average debt of $230

• About 26% of teens ages 16-18 already have more than $1000 in debt.

• 30% of teens say they understand how credit card interest and fees work.

• 36% of teens say they know how to establish good credit.

No way!!

• http://www.creditcards.com/credit-card-news/credit-card-industry-facts-personal-debt-statistics-1276.php

Videos• http://www.youtube.com/watch?v=WFNXwor69-U 

(elephant)(1:08)

• http://www.youtube.com/watch?v=3TpSTCGrl8I (music)(:16)

• http://www.youtube.com/watch?v=1cNDSPutas8 (funk) (:16)

Vocabulary!

Vocabulary

• Complete the worksheet by filling in the correct words from the word-bank.

E1

A credit card is…• An agreement between

you and the lender. You agree to pay back the money borrowed, with interest.

• An unsecured loan – meaning there is no collateral…

• NOT free money!!• NOT open-ended!• NOT a debit card

F1

F2

The Debit Card ATM Card bit with Visa logo Looks just like a credit card, but not

a loan, no interest Backed only by the checking account behind

it Widely accepted, can be a good budgeting

tool

F3

When to Use a Debit Card Use your debit card for everyday

expenses like groceries, gas, movie theatres and restaurants

When you need cash but are not near an ATM many retailers offer cash back after purchase

F4

Card Security Create a PIN that a smart thief

couldn’t figure out. Avoid the obvious like birth dates, names, etc.

Always keep receipts Record transactions in your check register

including fees to avoid overdraft charges

Know these terms….

Principal• The original amount

borrowed

APR – annual percentage rate• The cost of the credit

expressed in annual terms

E4

Understanding Interest Rates and types of credit… Non-installment credit

Regular 30-day charge accounts (American Express) Travel and entertainment cards

Installment credit Car loan, student loan, home loan Furniture purchase

Revolving credit Department store cards Bank cards: Visa/MasterCard

And basic credit card terms!

Grace Period• Number of days you can

pay without incurring finance charges

Credit Limit• The total amount you can

charge without a penalty

E3

Knowing Your Limit Don’t get in over your head.

A credit card is a loan Anything not paid back in full

is assessed an interest charge. There’s a pre-determined credit

limit and money spent can be paid back in full or in installments.

E2

Your Credit Score Everything you do with your credit accounts affects

your credit score including car and school loan Creditors extend credit to credit worthy customers When you pay your bills on time, you are proving

yourself credit worthy Banks reward good customers with lower interest

rate loans and higher credit lines Employers may check your score. A bad score

may result in fewer job offers

Universal Default Clause

• A clause some companies are including in a credit card agreement that means they can increase your interest rate if you make just ONE late payment! – What is your opinion of this? Why?

!

Worksheet!

Do together

F1

STORE CARDS,

Different kinds of cards• Major credit cards• Store-branded credit cards• Travel and Entertainment cards

E6

Use the APR to help you comparethe cost of different credit cards.

You’ll pay a higher APR for cashadvances than you do for purchases.

All of these fees are on topof any interest you might pay.

Annual Fees occur whether ornot you use your card.

Laws:• Credit Card Act of 2009/2010• Truth in Lending Act

– Mandates disclosure of information about the cost (terms) of credit

• Fair Credit and Charge Card Disclosure Act– Mandates a box on applications

• Fair Credit Billing Act– Requires prompt credit for

payments made, allows consumers to dispute errors and withhold payment for damaged goods

Credit Limit

• Maximum you can charge without penalty

Incentives

• Benefits that encourage behaviors.

Fees

Review

• Take a minute and complete the last question on your own.

T-Chart!

• Using page 46 of your NEFE book – list the good and the bad of credit

• Work with a partner to create your t-chart.

E5

Advantages and Disadvantagesof Credit Offers and Options

Advantages: Convenient Immediate purchasing power No need for cash Bills can be consolidated Zero liability on fraud

But remember… It’s a loan Interest rate may go up May include additional fees Can be easy to overspend Can promote impulse buying

Summary - +’s and –’s• +’s

– Ability to obtain needed items

– Use of card builds credit history

– Quick source of funds in an emergency

– No extra charge if bill paid in full each month

– Consumer protection

• -- ’s– Loans charge interest

if not paid– Fees– Can encourage

impulse buying– Can harm credit

rating if not managed

Assignment:

1. Browse online or through a magazine and pick out something or a few things you might want to purchase.

2. Make a list of the items and the price, and total the value of the items. Bring the list and dollar amount to class tomorrow.

3. Meet in the computer lab.

Ticket Out…Respond on bottom of wksht1• “Paying with plastic – are credit

cards good or bad?” Write about the advantages and disadvantages of credit cards.

• Write at least two things that support and at least two things that oppose the use of credit cards.

• Use complete sentences!• Hand in Vocab, Wksht 1, and T-

charts

Credit Day 2

Login and go to:

http://www.federalreserve.gov/creditcard/

Objectives

• Evaluate three different credit cards

• Formulate decisions as to which credit offers are most suitable for the situations.

• Analyze different terms for credit cards

• Analyze the cost of using credit to make purchases and the impact of payments and payment timing.

Language Objectives

• Read from workbooks, and a credit card application and statement

• Discuss the implications of credit card use

• Record information found about credit cards

Agenda

• Review Disclosure box terms• Shop for a credit card• Compare the cost of credit• Wrap-up

• Homework: complete any activitiesnot completed during class today!

http://www.federalreserve.gov/creditcard/#

6 questions to compare credit

• NEFE book on page 47. – What’s the interest rate for purchases

– How long is the loan for (term)– What’s my minimum monthly payment

– What’s the grace period– What extra fees and penalties may be charged?

– Which is the best deal for me?

Activity: Shop for a credit card!

Choosing the right card starts with comparison shopping

www.BankRate.com

www.CreditCards.com

www.creditcardguide.com

Activity

• Compare the cost of credit vs the cost of cash

Complete the comparison worksheet using the online calculator…

http://www.federalreserve.gov/creditcardcalculator/Default.aspx

calculating finance charges

average daily balance:You pay interest on the average balance owed during the billing cycle. The creditor figures the balance in your account on each day of the billing cycle, then adds together these amounts and divides by the number of days in the billing cycle.

adjusted balance:You pay interest on the opening balance after subtracting the payment or returns made during the month.

previous balance:You pay interest on the opening balance, regardless of payments made during the month.

past-due balance:No finance charge is added if the full payment is received within the grace period. If it is not received, a finance charge for the unpaid amount is added on to your next bill.

teens – lesson 8 - slide 8-B

examples of finance charges

teens – lesson 8 - slide 8-C

average daily balance

adjusted balance

previous balance

monthly 1.5% 1.5% 1.5%rates 18% 18% 18%previous balance $400 $400 $400payments $300 $300 $300

On 15th day (new balance =$100)

average daily balance $250* N/A N/A

finance charge $3.75(1.5% x $250)

$1.50(1.5% x $100)

$6.00(1.5% x $400)

* To figure average daily balance:($400 x 15 days) + ($100 x 15 days) = $250 x 30 days

1.Do I really require this item?

2.Can I postpone purchasing the item until later?

3.Can I afford to borrow or use credit?

Credit Day 3

Stand Up or Sit Down!

• Listen to the statements and either stand up or sit down as appropriate!

Creditworthy?

• Stand up if you feel you are creditworthy

• Why did you choose to sit or stand? What data are you using to evaluate your creditworthiness?

Objectives• Explain the processes for applying for a

credit card.• Formulate decisions as to which credit

offers are most suitable for the situations. • Apply the information discussed in class to

several mock situations to determine appropriate credit card needs.

• Explain how to manage credit responsibly.• Construct a list of strategies that addresses

the pitfalls of irresponsible credit card use, strategies for managing credit, credit ratings, and ways to establish good credit

Language Objectives

• Read scenarios • Discuss the implications of credit

card use• Respond to questions on a credit

card application• Write about credit

Agenda

• Review an application• 4-C’s of Credit and

Creditworthiness• Scenarios• Strategies to manage credit,

credit reporting• How to avoid pitfalls

Carmen’s Creditworthiness?

• Turn to page 48 in NEFE book and review the blank credit application.

• Look at page 51 at Carmen’s application.

• Do you think Carmen will be approved for the loan? Why or Why not?

how much can you afford? (the 20-10 rule)

never borrow more than 20% of your yearly net income• If your net income (money after taxes) is $400 a month, then your net income in

one year is:12 x $400 = $4,800

• Calculate 20% of your annual net income to find your safe debt load.$4,800 x 20% = $960

• So, you should never have more than $960 of debt outstanding.• Note: Housing debt (i.e., mortgage payments) should not be counted as part of

the 20%, but other debt should.

monthly payments shouldn’t exceed 10% of your monthly net income• If your take-home pay is $400 a month:

$400 x 10% = $40

Your total monthly debt payments shouldn’t total more than $40 per month.• Note: Housing debt (i.e., mortgage payments) should not be counted as part of

the 10%, but other debt should be included, such as car loans, student loans, and credit cards.

teens – lesson 8 - slide 8-J

ActivityDivide into Groups of 3 or 4.• Take 1 situation card.• Discuss as a team.• Summarize your situation

and provide your response to the class when called on to do so.

what to do if you’re denied creditif you think the reasons for the denial are valid:• Ask the creditor if you can provide additional information or arrange alternate

credit terms.• Apply to another creditor whose standards may be different.• Do the things you need to do to improve your creditworthiness (pay bills on

time, increase income, reduce spending, obtain a secured card, etc.) and then reapply.

if you are not sure whether the reason for the denial is valid:• Ask the creditor to explain why you were denied.• Review your credit history.• If you find your credit history contains errors, take steps to correct the errors.if you believe the reason for the denial is invalid and that the creditor has discriminated against you:• Notify the federal enforcement agency whose name you were given by the

creditor. The federal enforcement agency will investigate and report back to you.

• If you can afford it, hire an attorney to file suit against the creditor. If the court determines the creditor did discriminate, the creditor will be required to pay you actual damages plus punitive damages.

teens – lesson 8 - slide 8-E

credit card do’s and don’ts

shop around• Look at various sources.

read and understand the contract• Read the contract carefully.• Don’t rush into signing anything.• Once a contract is signed, get a copy of it.• Know the penalties for missed payments.

know your cost• Figure out total price when paying with credit.• Make the largest payments possible.• Know the penalties for missed payments.• Buy on installment credit only after you have evaluated all other possibilities.• Don’t be misled into thinking small payments will be easy.

teens – lesson 8 - slide 8-I

•Closure: Lets discuss!

Homework: Finish up

anything you did not get done

in class

Meet in computer lab tomorrow!

Credit Day 4

What do you know?

• Take out your notes and worksheets (passed back) from previous days.

• Jot down 2-3 statements that summarize the most important keys to credit management.

Objectives

• Construct a project that explains credit and how to be a savvy consumer of credit

Language Objectives

• Discuss a project • Document/Write/Draw or Record

strategies and information about credit.

Agenda

• Work day!

• Project Purpose: Demonstrate what you know about credit and how to be a savvy consumer of credit.

• Grading: You will be graded based on the rubric.

• Due Date: Monday, April 2, 2012 – beginning of the hour…late work will 10% of the total points for each day late. Use your time wisely. You will have the entire class period today to work on it.

SHOW WHAT YOU KNOW!

Project choices: • Create an ad/video (video taped or story

board) (minimum :60 add)• Create a comic strip (minimum 15 frames)• Write and perform a rap/song (reasonable

length)• Create a brochure for kids about credit (6-8

panels minimum)• Write and illustrate a children’s book (10-12

pages minimum• Create and give a presentation for

elementary grade student (5 minutes)• 3-4 page essay (double spaced, 12 pt Arial

font)• Newspaper article (1 full page)• Another project of your choice if approved by

teacher