Class: Adult Roles/Financial LiteracyUnit Name: Financial LiteracyLesson: Credit

Instructor: Leslie AugustDate: March 3 (Block) 90 minutes

Core Standard ARFL 7.2Students will understand credit uses and costs.

Enduring UnderstandingDiscuss the history and role of credit.7.2.1List basic types of credit (e.g., credit cards, installment loans, service credit, revolvingcredit, student loans). 7.2.2Describe the risks and responsibilities associated with using credit. 7.2.3Identify the methods of establishing and maintaining a good credit rating.7.2.4

Essential Questions1. What is credit?2. What are the different types of credit?3. What are the risks and responsibilities associated with using credit?4. What is a credit rating?5. How does knowing the risks and responsibilities associated with using credit help you establish and maintain a good credit rating?

Assessment PlanStudents will answer questions during lectures.Students will take the Credit Basics exam.

Learning OutcomesStudents will be able to better understand consumer credit and how it works. Basic types of credit, risks and responsibilities associated with credit, ways to establish and maintain good credit, ways to avoid hurting ones credit and what one can do to help their credit and avoid bankruptcy. Calculating how credit works, how it can work for and against you, the advantages of having good credit and the disadvantages of having bad credit.

Time Lesson/Activity Content Materials

5 mins Bell Ringer: Students will write down vocabulary word of the day and its definition.

WhiteboardPen/PencilJournal or Packet

10 mins EQ1: Introduction: Introduce students to credit by asking the following questions:What is consumer credit?How would you define

Definition of credit is – the ability of a person or business to borrow money from a bank or other lender with the intent, or promise, to pay the money back. (E.g of credit: loans, credit

Teacher’s Notes

the word “credit”?What does it mean to “take personal responsibility” for something?Have you ever borrowed money from someone?Have you ever loaned money to someone?

cards, home mortgages). Credit gives you greater financial flexibility to buy now and pay over time, instead of all at once. However, taking personal responsibility to pay back the money borrowed in a timely fashion, according to your agreement with whom you borrowed it from is important. Remember that credit is a privilege!

10 mins EQ2Lecture: List the different types of credit:

Let’s say you were considering getting a $10,000 bank loan to buy a car. How would you determine whether you could repay this loan?

Besides paying back the principal (the $10,000) what other kind of charges might you have to pay to the lender?

What’s one reason why you might want to pay off a loan as quickly as you could?

What’s one reason why you might want a lender to give you a longer loan tern – in other words, more time to pay back the loan?

1. Sales Credita. Installment Planb. Charge Accountsc. Credit Cards

2. Cash Credita. Personal Loansb. Overdraft

3. Service Credita. Utility Billsb. Doctors

You borrow the money all at once and pay it back with interest, over time, in equal payments or installments. Once the loan is repaid in full, the loan ends and is NOT renewed.

The interest rates and fees will vary.

If you don’t repay the loan, you’ll damage your credit record and your lender may repossess the property you purchased with the loan.

The amount is a certain percentage of what you owe. You pay interest on what you owe.

10 mins EQ1: Video: Give Yourself Some Credit: Paying On TimePlay the beginning of the

Whenever you borrow money you will be expected to pay interest. Interest is – a percentage of money

DVD PlayerDVD: Give Yourself Some Credit: Paying On TimeTeacher’s Notes

video to 1:47 (stop after the history of credit cards) Stop the video and discuss what interest is. Ask the students the following question:How Does Interest Work?

Review with the students that there are different types of credit or loans, but today we are going to specifically talk about credit cards as that will be the easiest credit they will obtain in the future.

owed on the balance that you borrowed. Interest works two ways. If you are the lender, person or institution lending the money, you get paid a percentage on top of the initial amount you lent out, just for lending the money.If you are the borrower, you pay the added on percentage of the initial amount to the lender. The interest the borrower pays is higher than the interest paid by the financial institution to its clients.How much interest you pay depends on the interest rate and how long you’ve chosen to pay it back. Interest rates change all the time. So you need to be aware of what rates are good. Interest rate loans are expressed as APR, annual percentage rate. The APR is - the yearly cost of a loan stated as a percentage of the loan amount including the interest rate, the term, and the fees charged by the lender. It reflects the cost of the loan.

20 mins EQ3Activity: Divide into groups of two. Pass out credit card applications. Have students look at the terms. Have them look for fees, i.e. yearly, monthly, etc. Have them look for interest rates.Write the groups on the board and list the different fees and interest rates of each group’s credit card application.Read the new law to the students.

This is an activity that will teach students the fees and interest rates associated with credit cards. They will learn that every credit card company has different interest rates and fees. Make sure the students understand the late fees as well as what the interest rate will go up to if paid late.

Credit Card ApplicationsFDIC Consumer News Article

15 mins EQ1: EQ2: EQ3: EQ4: DVD Player

EQ5Video: Resume the videoGive Yourself Some Credit: Paying On Time

DVD: Give Yourself Some Credit: Paying On Time

10 mins EQ4Discussion: List the advantages and disadvantages of using credit.

Advantages:1. Maintains a healthy economy. Our economic system is built on credit and without the means of buying now and paying later, the economy would collapse. An example is the stock market.2. Allows us to meet emergencies.3. Convenient—easier to order over the phone.4. Permits purchase on sales or when the price is down.5. Able to enjoy an item while paying for it and raise your standard of living.6. Establish a credit rating.7. Might receive advance notice of sales.8. Find it easier to exchange and return items.9. Detailed monthly bill.

Disadvantages:1. Credit always costs money.2. Creates risk because you are spending your future income.3. Increases the cost of doing business.4. Encourages careless buying.5. Facilitates over-buying which increases sacrifice that must be made eventually.Often increases family conflict.

Lecture Notes

10 mins EQ4: EQ5Lecture: How do you establish credit?

Banks and lenders decide who to lend

You will want to make sure that you know how to take advantage of being able to use credit. Remember that credit is given only to those who

money to by using a process called the Three C’s of Credit.

What are the Three C’s?

1. Character – are you stable with your home, income2. Capital – how much money have you saved and what assets do you have if you were not able to pay back your debt3. Capacity – how are you going to pay back the loan with your current debts and other expenses. (Debt-to-income ratio – how much you owe compared to how much you earn.)

As you can imagine it takes time to establish a good credit history and prove your character, capital and capacity.

Remind students that on Tuesday we will be having a test on what we have learned so far and that we will be discussing credit scores and credit reports.

have demonstrated their ability to manage their money over time and have good credit history.

You establish credit by opening a savings or checking account or getting a credit card and carefully managing it. However, if you are under eighteen you will not be able to get savings accounts, checking accounts or credit cards or loans unless you have a parent or guardian to co-sign. To co-sign means – the person who is the adult or guardian is willing to take responsibility for and repay the account, loan or card if something happens to you. Some examples of how to establish a good credit history are:Pay bills on timePay monthly rent payments on timeUse layaway plansGet a limited use credit card and pay bills promptlyEstablish and use a transaction account