Credit: Pros and Cons

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1 Credit: Pros and Cons Unit: 05 Lesson: 02 Suggested Duration: 4 Days Lesson Synopsis: All economic operations depend on the flow of money and credit through the economy. The focus of this lesson is to help the consumer understand how to acquire goods and services with credit in the free enterprise system. Students will first examine the indicators that guide a loan officer to determining if a consumer is creditworthy by examining aspects of The Five C s of Credit Lending capacity, capital, collateral, conditions, and character. This lesson offers a foundation of understanding credit from the consumer s perspective. In the following lessons, students will understand how the consumer fits into the bigger picture of the U.S. financial system and then the global financial system. TEKS: E.18 Personal financial literacy. The student understands the role of individuals in financial markets. The student is expected to: E.18E E.18F E.18G Identify the types of loans available to consumers. Explain the responsibilities and obligations of borrowing money. Develop strategies to become a low-risk borrower by improving one's personal credit score. E.19 Personal financial literacy. The student applies critical-thinking skills to analyze the costs and benefits of personal financial decisions. The student is expected to: E.19A E.19B Examine ways to avoid and eliminate credit card debt. Evaluate the costs and benefits of declaring personal bankruptcy. E.20 Personal financial literacy. The student understands how to provide for basic needs while living within a budget. The student is expected to: E.20A Evaluate the costs and benefits of renting a home. Skills TEKS: E.22 Social studies skills. The student applies critical-thinking skills to organize and use information acquired from a variety of valid sources, including electronic technology. The student is expected to: E.22E E.22F Evaluate economic data using charts, tables, graphs, and maps. Use appropriate mathematical skills to interpret economic information. E.23 Social studies skills. The student communicates in written, oral, and visual forms. The student is expected to: E.23C Transfer information from one medium to another including written to visual and statistical to written or visual using computer software as appropriate. GETTING READY FOR INSTRUCTION Performance Indicator(s): Identify the costs and benefits of credit cards by using a graphic organizer such as a T-chart. Evaluate and explain, in writing, the impact of credit card debt on your ability to save and invest. Calculate the effect of compound interest on keeping a balance on a credit card or paying it off each month. (E.18F; E.19A; E.22E, E.22F; E.23C) 4G; 5G Key Understandings and Guiding Questions: Costs as well as benefits are associated with using a credit card. What is credit? What factors are involved in acquiring credit? How do people acquire credit? What is a credit score? What is a credit report? How does a credit score affect the ability of a consumer to acquire loans? Why is credit necessary in a free enterprise system? 2013, TESCCC 05/01/13 page 1 of 5

2 Vocabulary of Instruction: credit interest risk credit score credit profile credit history Materials: Refer to section for materials. Handout: Consumer Credit FAQ (1 per Handout: Cornell Notes (1 per Handout: Good Credit vs. Bad Credit (1 per Teacher Resource: Good Credit vs. Bad Credit KEY Handout: Benefits and Risks of Credit (1 per Teacher Resource: Benefits and Risks of Credit KEY Handout: The 5 C s of Credit (1 per students or 1 per pair) Handout: Your Credit Score (1 per Teacher Resource: Your Credit Score KEY Optional Teacher Resource: Powerpoint: Credit and Credit Cards Optional Teacher Resource: Powerpoint: How to Improve Your Credit Score Resources: None identified Advance Preparation: 1. Become familiar with the content and procedures for this lesson. 2. Preview websites for teacher and student use according to district guidelines. Information for student use may need to be prepared for use in class. 3. Obtain a picture of an automobile that students might want to purchase. 4. Schedule library and/or computer lab. If not using the computer lab, print out items from the websites that would allow students to work in pairs or triads to accomplish the goal of researching the concepts. 5. Prepare needed handouts for students and keys for teacher. Background Information: A credit profile is a summary of an individual s current financial status showing all financial obligations. It is also a record of all payments made against the obligations. The credit profile also gives some basic background information about an individual, such as their name, address, social security number, place of employment, job title, number of accounts open with balances, payment history, and credit limits. A credit profile will not contain one s race, religion, political affiliation, health history, or salary. A credit profile not only shows current management of credit, it will also show the history of everything about one s credit to see if bills were paid on time and the number of times payments were late. The credit bureau, or reporting agency, will assign a credit score based on this information. This score is usually called the FICO score. Each credit reporting agency will have a score as well, with three credit scores available for each individual. When a person applies for credit with a bank or credit card company, the lender will want to determine the risk of loaning money. Credit bureaus will supply this information. They are looking at payment history, amount owed, length of credit history, new credit, and types of credit. Credit scores range from the higher the number, the higher the credit rating. The median credit rating is 723. To obtain a credit score, an individual must have at least one account that has been opened for at least six months and one account that has been updated in the last six months. GETTING READY FOR INSTRUCTION SUPPLEMENTAL PLANNING DOCUMENT Instructors are encouraged to supplement, and substitute resources, materials, and activities to differentiate instruction to address the needs of learners. The Exemplar Lessons are one approach to teaching and reaching the Performance Indicators and Specificity in the Instructional Focus Document for this unit. A Microsoft Word template for this planning document is located at If a supplement is created electronically, users are encouraged to upload the document to their Lesson Plans as a Lesson Plan Resource in your district Curriculum Developer site for future reference. 2013, TESCCC 05/01/13 page 2 of 5

3 INSTRUCTIONAL PROCEDURES Instructional Procedures ENGAGE Credit 1. Hold up a picture of a new car or truck, and ask, Who would like to be able to buy this some day? How do you plan to pay for the vehicle? 2. Explain that some people believe it is best to save all the money needed to purchase something like a car. Others take advantage of financial credit opportunities. Brainstorm with students on what they know about credit, acquiring credit, and credit scores or FICO scores. 3. Record their responses on the board. Include these terms: credit profile, credit report, and credit score. 4. Say: You will be researching what these terms mean and how this will affect your ability to get a credit card or purchase a car or home. 5. Introduce the Key Understanding and Guiding Questions. Consumers often acquire goods and services through use of credit in a free enterprise system. What is credit? What factors are involved in acquiring credit? How do people acquire credit? What is a credit score? What is a credit report? How does a credit score affect the ability of a consumer to acquire loans? Why is credit necessary in a free enterprise system? NOTE: 1 Day = 50 minutes Suggested Day 1 15 minutes Materials: picture of a new automobile TEKS: E.18G Introduce students to credit profile, credit report, and credit score. Instructional Note: NOTE: The curriculum in this CSCOPE unit is based upon the Texas Essential Knowledge and Skills (TEKS), which are the teaching standards required under the provisions of the Texas Education Code. During the course of instruction, students may voice diverse viewpoints regarding the topic of credit or debt. Educators are encouraged to consult with district administration to determine how they should best address these varying perspectives so that all viewpoints are respected and district expectations are met. 6. Also introduce students to the Performance Indicator they will be completing in the Evaluate section. EXPLORE Consumer Credit 1. Distribute the Handout: Consumer Credit FAQ, and model using Cornell Notes with students. (Students use the Handout: Cornell Notes or create their own.) 2. Students, individually, in pairs, or in small groups, need to use the Cornell Notes as they research ideas related to credit by reading appropriate sections in the textbook, other classroom and personal financial literacy materials, and appropriate web resources. (This can be completed as homework.) 3. To guide students, post the following terms on the Word Wall or write them on the board. credit profile credit report credit score or FICO score interest types of loans insurance low-risk vs. high-risk borrower Suggested Day 1 (continued) 35 minutes Handout: Consumer Credit FAQ (1 per Handout: Cornell Notes (1 per Handout: Good Credit vs. Bad Credit (1 per Teacher Resource: Good Credit vs. Bad Credit KEY Optional Teacher Resource: Powerpoint: Credit and Credit Cards TEKS: E.18E, E.18F, E.18G Students will research the concepts of good versus bad credit. 2013, TESCCC 05/01/13 page 3 of 5

4 Instructional Procedures types of bank accounts Five C s of Credit Lending 4. Distribute the Handout: Good Credit vs. Bad Credit to record indicators of good and bad credit. EXPLAIN 1. Allow a short time for students to revisit their research (Cornell Notes and Handout: Good Credit vs. Bad Credit). 2. Refer to the Teacher Resource: Good Credit vs. Bad Credit KEY to facilitate a discussion where students share their ideas about the indicators of good and bad credit. Teacher probes with questions, corrects misinformation, and provides background information where needed. 3. Students work with a partner to brainstorm the results of having good credit vs. having bad credit (see bottom of Handout: Good Credit vs. Bad Credit). 4. Continue the discussion where students process what they have learned by verbalizing using academic language. 5. Distribute the Handout: Benefits and Risks of Credit. 6. Students (individually or in pairs) use their Cornell notes from Day 1 to determine the risks and benefits of acquiring credit as they complete the Handout: Benefits and Risks of Credit. Students look more carefully at the benefits and risks of credit. (Note that students may have benefits and risks other than those listed on the key.) 7. Continue the discussion during which students share out the benefits and risks using academic vocabulary and connecting ideas. 8. Bring discussion to a close by asking: How does interest factor into benefits and risks of credit? (Answer should include a discussion of how interest increases the cost of goods, creates the possibility of risk if not paid, impacts credit scores if not paid, etc.) How does maintaining a bank account factor into your credit? (Answer should include that a bank account is reflected in your credit history and helps to determine how high- or low-risk you are as a borrower.) What types of bank accounts did you discover and what did each offer the consumer? (Answers include checking, savings, money market, etc. offer protection, FDIC insurance, record of finances, easy access to cash, establish creditworthiness with a bank, etc.) Instructional Notes: Optional: If not using the computer lab for student research, print out items from the websites that would allow students to work in pairs or triads to accomplish the goal of researching the concepts. Suggested Day 2 50 minutes Handout: Benefits and Risks of Credit (1 per Teacher Resource: Good Credit vs. Bad Credit KEY (from previous activity) Teacher Resource: Benefits and Risks of Credit KEY TEKS: E.18E, E.18F, E.18G; E.19A, E.19B; E.22E, E.22F Students will summarize aspects of credit. Instructional Notes: Add to the lists of benefits and risks terms and ideas that will help students understand the importance of credit. The three discussion questions are important to connecting the Five C s later in the discussion (capacity, capital, collateral, conditions, and character). Be sure to discuss how having a bank account offers evidence in the consumer s creditworthiness. For a consumer car loan, important factors to consider include: credit score income minus expenses (ability to pay) how well current obligations are paid (Current bills not being paid on time will raise concerns about ability to meet a car loan obligation.) 9. Include in the discussion the Key Understanding and Guiding Questions: Consumers often acquire goods and services through use of credit in a free enterprise system. What is credit? 2013, TESCCC 05/01/13 page 4 of 5

5 Instructional Procedures What factors are involved in acquiring credit? How do people acquire credit? What is a credit score? What is a credit report? How does a credit score affect the ability of a consumer to acquire loans? Why is credit necessary in a free enterprise system? ELABORATE 1. Arrange students in pairs. 2. Distribute the Handout: The 5 C s of Credit. 3. Instruct student pairs to read the handout, discuss, and then memorize the 5 C s and be able to explain them. 4. Distribute the Handout: Your Credit Score. 5. Students read each credit situation and discuss with their partner, analyzing the situation and deciding if it would help or hurt their credit score. 6. Once students have finished, ask each pair to join another pair (making a group of four), to talk about their findings. Direct students to spend 3 5 minutes comparing their forms and discussing any discrepancies. They should revisit their Cornell Notes and prepare to justify their response using evidence and academic language. 7. Next, students should look at The 5 C s of Credit Lending and identify which credit situations on the Handout: Your Credit Score relate to The 5 C s of Credit Lending. 8. Optional: Invite a local bank official to visit the class and answer student question, discuss the scenarios, etc. EVALUATE Performance Indicator Performance Indicator Identify the costs and benefits of credit cards by using a graphic organizer such as a T-chart. Evaluate and explain, in writing, the impact of credit card debt on your ability to save and invest. Calculate the effect of compound interest on keeping a balance on a credit card or paying it off each month. (E.18F; E.19A; E.22E, E.22F; E.23C) 4G, 5G Suggested Day 3 50 minutes Handout: The 5 C s of Credit (1 per students or 1 per pair) Handout: Your Credit Score (1 per student or 1 per pair) Teacher Resources: Your Credit Score KEY Optional Teacher Resource: Powerpoint: How to Improve Your Credit Score Students will identify how the 5 C s of Credit impact their credit score. Instructional Note: NOTE: The curriculum in this CSCOPE unit is based upon the Texas Essential Knowledge and Skills (TEKS), which are the teaching standards required under the provisions of the Texas Education Code. During the course of instruction, students may voice diverse viewpoints regarding the topic of credit or debt. Educators are encouraged to consult with district administration to determine how they should best address these varying perspectives so that all viewpoints are respected and district expectations are met. Suggested Day 4 50 minutes 2013, TESCCC 05/01/13 page 5 of 5

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