Learning to Give, Curriculum Division of The LEAGUE

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Credit Introduction

Lesson 2:

From Unit Using and Abusing Credit

Lesson

Handouts

Academic Standards

Philanthropy Framework

9th-12th Grade

Subjects:

Arts, Language Arts, Library / Technology, Math and Social Studies

Key Words/Concepts click to view

ELA:	Interview
MAT:	Money; Problem Solving
PHIL:	Donate
SOC:	Budget; Consumers; Contemporary Issues; Costs; Economic Decisions; Goods and Services; Personal Giving Plan; Resource Allocation; Spending; Wants/Needs

Purpose:

The purpose of this lesson is to introduce learners to the complex economic world of credit and credit cards. The learners will identify the uses as well as the abuses of credit and credit cards, and explore ways to effectively utilize them so that they will be better able to spend, save, invest, and donate to meet their needs and wants.

Duration:

Three to Four Fifty to Fifty-Five Minute Class Periods

Objectives:

The learner will

understand the terms goods and services and how they relate to wants and needs, and budgeting for the four uses of money: spend, save, invest, and donate.

increase their knowledge of credit and credit card usage.

identify the pros and cons/uses and abuses of credit and credit cards and apply this information to the use of money.

calculate a safe debt load; The 20/10 Rule

access their credit rating. (optional)

Service Experience:

Although this lesson contains a service project example, decisions about service plans and implementation should be made by students, as age appropriate.

The learners will conduct an interview of an adult family member or adult neighbor and/or friend concerning credit cards and their use.

Materials:

A display of the results of the previous lesson's discussion regarding Money.
Learner Copies of Attitude Survey (Attachment One)
Florida State University Credit Video (See Bibliography below)
Learner Copies of Credit Interview (Attachment Two)
Instructor Copies of Lecture Notes: Building Credit (Attachment Three) and Lecture Notes: Using Credit Wisely (Attachment Four).
Learner Copies of the 20/10 Rule Practice Problems (Attachment Five)

Handout 1: Attitude Survey
Handout 2: Credit Interview
Handout 3: Lecture Notes: Building Credit
Handout 4: Lecture Notes: Using Credit Wisely
Handout 5: 20/10 Rules Practice Problems

Instructional Procedure(s):

Anticipatory Set:
While shuffling an assortment of Credit Cards, share with the learners, that by completing the My Future Money Pie during the last class period, they have taken a step closer to the scary 'B'-word known in the adult world as budgeting. (Note: Be sure that the learners understand that any plan to spend, save, invest, and donate ones money is called a budget.) The fact that they projected how they thought they would be using their money at age 35,  gives them a start with the budgeting process.

Point to and remind the learners of the display board activity listing spend, save, invest, and donate as well as wants and needs (Saved from Lesson One) . Introduce and have the learners define the terms goods and services. (Goods are considered tangible items for use and/or consumption, Services are considered the help/assistance given to another to accomplish a task.) Go back over the list of 50-75 items placing a "G" on those items considered a good and "SER" on those items considered a service. Lead the learners to the conclusion that goods and services as well as wants and needs all have an impact on ones decision to spend, save, invest and/or donate .  Hold up the stack of credit cards that you have been shuffling and say, "Some economists say these plastic cards negatively impact spending, saving, investing, and donating in three out of four homes!" Ask the learners to hold up any credit cards that they might have.

Read the following man-on-the-street response concerning credit cards. Have the learners share the pros and cons of this statement.

"With a credit card I don't have to delay gratification. What I mean by that is I don't have to ask myself the questions, 'Do I really want or need this good or service?' ' Do I have enough money now to buy this good/service?' I can buy anything I want or need whenever I want it or need it! It's great!"

Continue the discussion by asking the learners to share if they have have credit cards and some of the problems with credit cards that either they have personally encountered or problems that they have heard others have had with them and list these comments on the display board.

Place a plus sign (+) and a minus sign (-) on the display board and conclude this portion of the lesson by having students debate whether having and using credit cards are a good thing or a bad thing. List the positive and negative comments concerning credit card usage under the appropriate symbol.(The intent of this debate is to help the learners realize that there are both pros and cons for the use of credit cards.)

Following the debate, distribute and have the learners individually complete the Attitude Survey (Attachment One). Once completed designate a "yes" and "no" area in the room for the learners to move to, that corresponds with either their "yes" or "no" response to each question. Read each question and without comment have the learners move to the area representing their response.

Once everyone has moved to their corresponding response area, encourage the learners to share the reason why they responded to the question as they did.

Once each question has been posed and the subsequent movement and discussion has occurred, show the Florida State University Credit Video.

Following the viewing of the video, have the learners discuss how their thoughts concerning credit card usage may have changed or have been reinforced by the class discussions and Florida State University video.

Conclude this lesson having the learners respond in writing to this reflection prompt, "Knowing that responsible use of credit cards is not only a good thing it is also the law, if and when I obtain a credit card, I plan to do the following things in order to avoid some of the negative situations that could arise from credit card use.

Encourage the learners to share some of their findings in the Credit Interview that they found interesting. Particularly have them share the response(s) of the interviewee to Question #10 and relate that response to how they personally responded to the reflection prompt given in the previous lesson. Have them point out similarities and differences.

Share and discuss Lecture Notes: Building Credit (Attachment Three) and Lecture Notes: Using Credit Wisely (Attachment Four).

Assign the learners to groups of three or four, distribute the 20/10 Rule Practice Problems (Attachment Five) and have them apply the 20/10 rule to the various scenarios. (The answer for Scenario #1 -assuming no other debt, it is still not within the safe debt load which is $2,400 { 20% of $12,000= $2,400}. The answer to Scenario #2 -assuming no other debt, it is within the safe debt load calculation which is $100 {10% of $1,000 is $100}. The answers to Scenario #3- even with the additional debt load of student loan and car payments, purchasing the boat would be within the safe debt load which is $6,672 annually { $36,000 - $2,640 (annual student and car debts)= $33,360 x 20%= $6,672 (Note: The house debt would not figure into this calculation). However, the monthly payments would not be within the safe debt load which is $278 monthly { $3,000 monthly salary- $220 monthly student and car payments= $2,780 x 10%= $278. (Note: again, the house debt would not figure into this calculation.)

Conclude this lesson by having the learners reflect and write a two paragraph response to this question. "If the average American had budgeted his/her money (some going to spending, saving, investing, and donating), but due to credit card abuse they had to cut back on their budget, which of the four areas do you think would be cut back first and why?

For homework, assign the Credit Interview (Attachment Two)

Assessment:

The learners will be assessed based on their contributions to the class discussions, their completion of and involvement in the Attitude Survey, the depth of their thought and understanding evident in their reflection response, and the completion and appropriate reporting of their in-class as well as homework assignments.

School/Home Connection:

Using Attachment Two: Credit Interview, have the learners ask someone at home or in their community about their previous experiences with credit.

Extension:

Have learners go to the AOL-Money and Finance website, access the article A Five Step Plan for Dealing with Deep Debt and report back to the class.
http://money.aol.com/bankrate/credit/
canvas3/_a/five-step-plan-for-dealing-with-deep/
20061005162109990001
Have each learner log on to www.annualcreditreport.com or call toll free1-877- 322-8228 to check to see if they might already have a credit report. ( While it is highly unlikely that any learner will have such a report, the assignment will alert them to the fact that such a service exists and that by Federal Law everyone is entitled to one free credit report a year. It is suggested that the teacher go through this credit check first to be sure it is "user friendly" and appropriate for their learners.)

Bibliographical References:

Instructional Resource: www.smartchoices.org
Florida State University Credit Video - 2003 www.creditcard.fsu.edu/video.html
Credit Reports www.annualcreditreport.com
20/10 Rule: www.practicalmoneyskills.com
For additional related Units and Lessons see also www.learningtogive

Lesson Developed and Piloted by:

Sharon Lutz-Krebill
Tri County Area Schools
Tri County High School
Howard City, MI 49329

Handouts:

Handout 1Print Handout 1

Attitude Survey

Given what you have heard during the class discussion and what you personally think about credit cards, do you believe that:

1. credit card use should be restricted to needed items and not luxury items?	yes	no
2. people who use credit cards tend to overspend?	yes	no
3. credit cards are generally a safe substitute for having to carry cash?	yes	no
4. credit card interest rates are too high?	yes	no
5. credit cards are too easy for people to obtain?	yes	no
6. credit cards can help some people take advantage of a ‘good' sale?	yes	no
7. there should be a limited as to the number of credit cards a person can have?	yes	no
8. credit cards make it more difficult for people to actually know how much money they have?	yes	no
9. credit cards have a negative impact on the amount of money given to charities?	yes	no
10. people who use credit cards are happier than people who do not?	yes	no
11. the items purchased using a credit card are usually used up or of little or no value by the time the credit card bill comes for payment?	yes	no
12. you can personally use credit cards wisely avoiding many of the problems identified in the class discussion.	yes	no

Handout 2Print Handout 2

Credit Interview

Credit Interview: Ask someone who has it!

What do you see as the advantage of credit in general? What do you see as the advantage of credit cards?
What do you see as the disadvantage of credit in general? What do you see as the disadvantage of credit cards?
Which types of credit do you choose to use and not use? Why?
When did you get your first credit card? How many credit cards do you have now?
When did you receive your first loan? How many loans you have now?
Has credit ever complicated your life?
Why do you think many Americans overextend themselves financially with credit cards?
What are the consequences of the abuse of credit and credit cards?
Do you believe credit is too easy for young adults to obtain? Why or why not?
What would be your best advice to someone just starting to use credit?

Handout 3Print Handout 3

Lecture Notes: Building Credit

Advantages and Disadvantages of Credit

Refer to chart in Checking Unit

Your Responsibilities

Borrow only what you can repay on time
Read and understand any contract
Notify creditor if you cannot meet payments

Are You a Good Credit Candidate? – The three C’s

Character – Will you repay the debt?
              Credit use, credit report/history, honesty

Capital – What if you don’t repay the debt?
              Collateral (Secured vs. Unsecured)

Capacity – Can you repay the debt?
              Steady job, loans, living expenses, dependents

Building a Credit History

Establish a steady work record
Pay bills promptly
Open a successful checking and savings account
Apply for small loans or credit cards (Co-signer?)

Handout 4Print Handout 4

Lecture Notes: Using Credit Wisely

Types of Credit

Single-Payment Credit
Pay in a single payment within a given time period

Examples: Doctors, utilities, paycheck lenders

Installment Credit
Pay in two or more regular payments of a set amount

Examples: Cars, mortgages, furniture, vacations

Revolving Credit
Buy within a credit limit – minimum due regularly

Examples: Retail charge accounts, credit cards

Credit Reports

Record of your credit history - Sent by businesses, etc.
Three credit bureaus: Experian, Trans Union, & Equifax
Can affect: purchase power, job, and even insurance rates

How Much Can You Safely Borrow? (The 20-10 rule)

20: Never borrow more than 20% of yearly net income

10: Monthly payments should be less than 10% of monthly net income

**Mortgages don’t count

Handout 5Print Handout 5

20/10 Rules Practice Problems

Using the 20/10 Rule for calculating responsible credit (safe debt load):

If your net income (money after taxes ) is $1000 a month, then your annual net income would be ________________.

Calculating 20% of your annual net income to find a safe debt load, would going into debt to fianance a cruise costing $2,500 be considered a safe debt load? Why or why not?

Assuming your income (money after taxes) is a $1000 a month, would it be a responsible credit (safe debt load) to purchase a new High Definition TV with monthly payments of $90? Why or why not?

Assuming your annual income (money after taxes) is $36,000 and you have college loan payments of $120 a month, car payments of $100 a month and a house morgage of $900 a month, would it be responsible credit (safe debt) to borrow $4800 for a new boat? If the monthly payments for the boat were $375? Why or why not?

Academic Standards:

State/Country:

Philanthropy Framework:

Unit Contents:

Overview:Using and Abusing Credit Summary

Lessons:

1.: Where Does All the Money Go?
2.: Credit Introduction
3.: Installment Credit
4.: Credit Cards