Some forms of credit commonly used by consumers are
car loans, home mortgage loans and credit cards.
Credit is extremely useful to the economy.
Most people would have great difficulty in buying a house if they couldn't borrow the money.
Many people also use credit to further their education.
Companies would be unable to build new factories if they had to save all the money first.
Short-term credit is often used by people (through credit cards) and firms as a simple and convenient method of paying for purchases.
What is Credit? Sounds good, right?
When you borrow above your means – more than you are able to pay back – or for items you don’t really need right away but decide you want anyway. Credit should not be used TODAY to pay for goods or consumption completely consumed in the PAST. The loan shouldn’t last longer than the item you bought with it! How Could It Be Bad?
Let's Talk... 1. What are some different ways people can pay for goods and services? 2. Are cash, checks, or debit cards all forms of money? 3. When is the best time to just use cash? 4. Is credit money? 5. What is a loan? 6. What are some advantages and disadvantages of each payment method?
Did you think of all these advantages and disadvantages?
1. You will work with a partner on comparing credit card applications.
2. Each person will have an application to complete and then you will work as partners to complete the comparison chart.
3. Answer these questions:
If you were to choose one of these credit cards, which one would it be?
What are the benefits of the card you chose?
What are some of the costs of the card you chose?
Assignment One: Choosing a Credit Card
Assignment Two: You be the Judge- Cash or Credit? With your partner, read the scenarios and analyze each person’s spending decision regarding the stereo sale advertised above.
Elizabeth wants to buy a new stereo, but she just started her baby-sitting job and she hasn’t earned any money yet. She figures once she starts earning income she can save $90 a month in a savings account that earns three percent interest annually . Elizabeth learned about inflation in school. Inflation is a general increase in prices. She learned that the annual inflation rate is about three percent. She decides to save her money and buy the stereo next year when she can afford to pay cash for it. 1. Assuming the price of the stereo increases at the rate of inflation, how much will the stereo cost a year from now? (HINT: $1000 .03 + $1000) 2. How much will Elizabeth put into her account in the year? 3. Will Elizabeth be able to buy the stereo? 4. Will Elizabeth have any money left over? Scenario 1: http://www.freeonlinecalculator.net/calculators/financial/future-value.php
David would like to buy a stereo and save 20 percent during a sale. He uses his credit card to pay for it. David is counting on getting a lot of graduation money from his parents’ business associates. David knows that his credit card company offers a 28-day grace period, so if he pays off the whole amount, he won’t owe any interest. Sure enough, after his big party, David counts up the checks and he has $900! When he gets his credit card bill at the end of the month, he is able to pay the balance of $800 in full. 1. How long will it take for David to pay off the $800? 2. How much interest will he have to pay? Scenario 2:
Ryan has a credit card. When he spotted a sale, he wanted to take advantage of the $200 savings and buy a stereo at the sale price. Ryan plans to save $90 a month from his job as an office assistant in his dad’s insurance business. He plans to pay the credit card company $90 every month until his bill is paid. 1 Use the chart on the next page to figure out how long it will take him to pay off his credit card debt; the first month is done for you. Scenario 3: Add up the numbers in column C to find out how much Ryan spent for the stereo. http:// math.about.com/library/blcompoundinterest.htm
Listen to this information and think about how this information applies to you. What kind of credit card user will you be?
Ana Rodriguez graduated from high school last year with a good grade-point average. She works as a receptionist at a physical-therapy clinic, making $8.50 an hour. She would like to become a physical therapist. The work appeals to her, and salaries for physical therapists are excellent. Within a few years of finishing her training, she could earn more than $50,000 a year. But Ana’s parents cannot afford to pay for the training Ana would need to complete. Ana has investigated student loans, but she knows she would have to pay back anything she might borrow over a 10-year period. Should Ana take out a student loan? Dave Larson is an avid stamp collector. For a long time he has wanted to own a Bolivian Double Eagle stamp. This stamp is very hard to find, and Dave believes it will gain value in the future. Dave learns that his favorite stamp store has a Bolivian Double Eagle for sale, priced at $200. Dave doesn’t have that much money in savings, but he is afraid that if he doesn’t buy the stamp now, someone else will. Should he use his credit card to buy the stamp? For Further Thought...
Felicia Washington is the homecoming queen at her high school. She is going to the homecoming dance with the best-looking guy in the senior class. She goes shopping for a new dress to wear to the dance. She finds one nice dress for $79—an amount she could pay in cash. However, she also finds a spectacular dress priced at $169. She could buy this dress with her credit card. Sure, it’s a lot of money, Felicia thinks, but she owes it to her public and her date to look dazzling for the big event. Should Felicia put the spectacular dress on her credit card? Mike Chiang is a community-college student. He has three credit cards, all charged close to the limit. Mike manages to make the minimum payments each month, thanks to his part-time job at Pizzas-R-Us. Mike really, really wants to go with his friends on a spring-break trip to Padre Island, Texas, but he doesn’t see how he can afford to do it. Then he receives a friendly letter from one of his credit-card companies. “Dear Mr. Chiang,” it begins, “Since you are one of our most valued customers and always make your payments on time, we are raising your credit limit by $2,000.” Mike is thrilled! Now he can go to Padre Island with his friends. Should he do it, charging his expenses to his card? For Further Thought...
References About.com (2008). Compound Interest. Retrieved July 29, 2008, from http://math.about.com/library/blcompoundinterest.htm Caldwell, J. (2004). Learning, Earning, and Investing: High School . New York: NCEE. Credit and Credit Cards. United Learning (2003). Retrieved August 2, 2008, from unitedstreaming: http://streaming.discoveryeducation.com/ Flowers, B., & Szot - Gallaher, S. (2001). Finanical Fitness for Life . New York: NVEE.
Other types of multimedia in the K-12 classroom Windows Movie Maker YouTube Click here to watch a video that is more fact than funny! Credit Card Simulator Game Click here to play and be a Credit Master!