DEBT MANAGEMENT 101: PREVENTING DEBT

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1 DEBT MANAGEMENT 101: PREVENTING DEBT LESSON OBJECTIVES: 1. Students will discuss the importance of being a smart shopper and know how to prioritize and track their spending. 2. Students will reflect on what debt means to them. 3. Students will define debt and strategies for preventing debt including proper credit card management. PREPARATION: Trainer: Review this guidebook and bring copies of the student handouts to the workshop. Mentor: Review this guidebook and bring a copy of this guidebook to the workshop. Student: List two specific strategies to prevent going into debt. LESSON AGENDA: Time Breakdown Lesson Topic 5 minutes Welcome/Subject Intro 15 minutes Breakout 1: Recap and Smart Shopper Skits 10 minutes Breakout 2: Debt Reflection 10 minutes Breakout 3: Tracking Your Spending 10 minutes Breakout 4: Managing Your Credit Card Wisely 5 minutes Reflect/Review 2 minutes Closing Page 1

2 WELCOME/SUBJECT INTRODUCTION (5 minutes) TRAINER: Get the class settled and distribute the classroom materials. Do a round of introductions, if appropriate. Introduce today s topic and lesson objectives. For Breakout 1 You will assign each small group to a scenario from the Smart Shopping in Action handout. After conducting a recap, each small group has 5 minutes to review the scenario and prepare a 30 second skit in which they will act out their scenario in front of the class. Each skit will be made up of two parts (1) what a smart shopper would do, including the presentation of 1-2 smart shopping tips (2) what a debt-prone shopper what do (basically, a demonstration of what not to do). Assign each group with a scenario and have everyone move into their small group for Breakout 1. BREAKOUT 1: RECAP AND SMART SHOPPER SKITS (15 minutes) MENTOR: Do a small group introduction, if appropriate. RECAP: Students share key takeaways and homework completed from the previous workshop. SMART SHOPPER SKIT: Have students turn to the Smart Shopping in Action handout and review their assigned scenario. Facilitate a discussion with your group about what a smart shopper would and would not do. Allow students to take the lead on how they want to act this out and remind them to think about tips they would offer as a smart shopper. An answer key is provided on page 4. TRAINER: Issue a one minute time check before calling the class back together. Call up the groups oneby-one to act out their scenario and share their tips. As each group presents, remind the rest of the class to record the shopping tips on their handout. Time permitting, invite students to add to this tip list. BREAKOUT 2: DEBT REFLECTION (10 minutes) TRAINER: Provide directions for Breakout 2 where students will think about what debt is and how people fall into debt. Connect this breakout to Breakout 1 by highlighting that debt often occurs when consumers are mismanaging their money and doing things like over-charging on their credit cards. MENTOR: Ensure students complete and discuss the Debt Reflection handout. An answer key is provided on page 5. Be sure to clearly define debt as money, goods, or services owed to someone. If time permits, use the following questions to lead a deeper discussion: What are some examples of debt? In what context have you heard of the term debt? What is your attitude towards debt? MENTOR TIP: Be mindful that students may have personal experience with debt. Also clarify that anyone be in debt and people often run into financial trouble when they spend more than they make or have. TRAINER: Issue a one minute time check. Call the class together and lead a 1-2 minute debrief. Page 2

3 BREAKOUT 3: TRACKING YOUR SPENDING (10 minutes) TRAINER: Remind students that everyone has expenses, but those with strong money management skills (1) understand that some expenses (i.e. fixed and flexible expenses) are more important than others and (2) keep track of their income and expenses to ensure they are staying on budget. Provide directions for Breakout 3. MENTOR: Ensure students complete and discuss the Tracking Your Spending handout. An answer key is provided on page 6. Emphasize that paying yourself first is a huge key to being able to save and should be made top priority. Students may disagree with the order of expenses given their own personal situation but reiterate that saving must be a priority, followed by needs, and lastly, wants. TRAINER: Issue a one minute time check. Call the class together and lead a 1-2 minute debrief. BREAKOUT 4: MANAGING YOUR CREDIT CARD WISELY (10 minutes) TRAINER: As students may have discussed in a previous breakout, managing a credit card responsibly is one way to prevent significant debt. Provide directions for Breakout 4. MENTOR: Ensure students complete and discuss the Managing Your Credit Card Wisely handout. An answer key is provided on page 7. TRAINER: Issue a one minute time check. Call the class together and lead a 1-2 minute debrief. REFLECT AND REVIEW (5 minutes) TRAINER: Instruct students to complete the Student Reflection handout. MENTOR: Ensure students individually complete the handout. Facilitate a 2-3 minute debrief around what students learned or how they can apply today s content. Sample questions include: o What information resonated with you about today s workshop? o What information was new to you? o What information was most helpful to learn about? Why? o What knowledge can you pass on or share with family members? TRAINER: Provide a one minute time check. Call the class together and have 2-3 students share their learning with the class. CLOSING (2 minutes) TRAINER: Wrap up the workshop and prepare students for the next session. HOMEWORK: Talk with parents about debt and the one major takeaway they have from today s workshop. Point students to this section on their Student Reflection handout. Share the topic(s) of the next workshop and PRE-WORK. Thank Mentors for attending today s workshop. Instruct students to put their handouts in their binder or a secure place before leaving. Page 3

4 Appendix SMART SHOPPING IN ACTION Directions: Review the scenarios in the table below. Consider how you would approach the situation and list 1-2 smart shopping tips you would put into practice. Scenario 1. You are shopping at the mall and find a pair of shoes you really want. 2. It is dinner time and you are hungry! 3. You ve just gotten your first credit card. 4. Your cell phone needs to be replaced. 5. You just got invited to prom and need to go shopping. 6. You want to purchase a used car. Shopping Tips Ask yourself, Do I need this? Purchase the shoes when they go on sale Purchase a less expensive version of the shoes You find an inexpensive dinner option at a grocery store and cook it at home You go out to eat at an economical restaurant Save this credit card for emergencies only Don t use your card unless you know how you can pay for it You use the card only if you can pay off the balance in full You purchase a new phone that is within your budget You purchase a used phone from a friend that is in good condition Look for an affordable dress; compare prices on clothing and accessories Re-use a dress you already have If you spend the extra money to get a limo or some other indulgence, split the cost with friends Ask yourself, Do I need this? Have a spending plan or budget so you know where the money will come from Comparison shop do your homework so you know your price range and the true value of the car Save aggressively if you know you need a car 7. You need to get a haircut. Do it yourself or have a parent or friend cut your hair. Comparison shop to find a good deal If you need to spend more on this item, look at your budget for other expenses you can eliminate or reduce. Page 4

5 DEBT REFLECTION Directions: Complete the handout below and share your answers with your small group. Write down words that come to mind when you hear the term debt. Some examples: past-due payments embarrassed stressed overwhelmed fearful bills credit cards loans debt collectors How do people get into debt? How can this be prevented? People get into debt when they spend more than they have. The simplest way to prevent debt is to develop a financial plan to track all expenses and sources of income. Many people use a budget to do this. Credit card management is critical and one of the key ways people run into debt problems. Some forms of debt i.e. taking out a loan for college or for a home can be beneficial and require planning to manage the repayment of those funds. Have you or your family ever experienced being in debt? What happened? Be sensitive when gathering feedback on this question as many students and their families may have experienced significant debt. Given what you now know about debt, how would you define it? Debt is: money, goods, or services owed to someone Page 5

6 TRACKING YOUR SPENDING Directions: Review the list of expenses below and rank them from 1-5 in the order you would pay for them. Then answer the questions below individually and discuss them with your group. _2 Monthly bills _4/5_ Entertainment _1 3 Savings Weekly and day-to-day expenses _4/5_ Dining Out 1. Savings: Always pay yourself first so it becomes a habit. Create a rainy day emergency fund or save up for a major purchase. 2. Monthly Bills: Pay your bills and necessary expenses next. Failure to pay your bills on time can severely impact your credit. 3. Weekly/Day-to-Day Expenses: Pay your ongoing living costs next. This could be a combination of fixed and flexible expenses such as groceries and transportation. 4. Either Entertainment or Dining Out: Depends on the individual. Both of these discretionary costs are unnecessary expenses that can be eliminated or reduced from your budget, if needed. 5. Entertainment or Dining Out Why is it important to track your spending? Tracking your spending is important so you know if you are living within your means. Budgeting and managing your finances smartly allow you to reach your financial goals. You get a clear picture of your current spending habits and if you are living on a tight income, are able to identify ways you can save more money. How do you track your spending? 1. Keep your receipts 2. Build a budget 3. Use online banking tools to track your transactions What happens if you are spending more than you make? Are you living within your means? If you spend more than you earn, you accrue debt. Being able to save more means you need to spend less. Review your expenses and start by eliminating or reducing your discretionary spending. (NOTE: If students have already completed the Budgeting 100 modules, review the three types of expenses. If they have not, define discretionary expenses as unnecessary expenses. This is what people do with their extra or fun money. Have students share examples of what this could include). Page 6

7 MANAGING YOUR CREDIT CARD WISELY Directions: Review the following statements about managing your credit card. If the statement is a good tip to follow, place a check mark in the Yes column. If the statement is not a good tip, re-write it in the No column. Pay off your entire credit card bill each month. If you are unable to, try to pay more than the minimum payment to reduce your finance charges and interest paid. There is no risk associated with credit cards. Minimum payments are just a guideline and you can pay less than that amount once in a while. Manage your credit card by shopping with trusted merchants and always compare your statement to your receipts to confirm that the purchase amounts are correct. Plan your shopping credit cards are not free money and you are expected to repay anything you charge on your credit card. Use your credit card to buy what you need, even if you aren t quite sure how you will pay for it later. Do your research and look for cards with low interest rates and if possible, no annual fee. Exceeding your credit limit once in a while is okay, as long as you can pay off your balance. Make your bill payments on time to avoid late fees and maintain a good credit history. Yes No There is a level of risk associated with having any sort of credit or bank card. To reduce your risk, track your spending, make your payments on time, and keep close tabs on your account by reviewing your account activity and billing statement closely. You should always pay the minimum to keep your account in good standing and ideally, the entire balance to avoid paying interest or other finance charges. If you aren t sure about how you will pay (or if you can afford to pay) your credit card bill, don t use your card. Consumers run into debt problems when they spend more than they have. Don t exceed your credit limit. If the limit is too low, talk with your credit card company and get it adjusted. Page 7

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