Taking. Control. of Your. Credit. Teacher s Guide. By Grant C. Black Center for Economic Education Indiana University-South Bend

Transcription

1 Taking Control of Your Credit Teacher s Guide By Grant C. Black Center for Economic Education Indiana University-South Bend

2 Lesson Plan Organization The lessons in this Teacher s Guide provide teachers with all the information necessary to effectively teach the concepts presented in and related to the PBS39 Video Field Trip, Taking Control of Your Credit. Each lesson clearly outlines every category of instructional elements to help teachers quickly assess the purpose and strategy of the lesson. Video Field Trip Connection This section identifies the chapter marker(s) on the Taking Control of Your Credit DVD corresponding to the concepts targeted for the lesson. Key Concepts This section lists the concepts introduced in the Taking Control of Your Credit Video Field Trip DVD chapters identified in the Video Field Trip Connection section. Key concepts are numbered based on the lesson number and order of concepts. For example, Key Concept 1.2 is the second concept in Lesson 1. Additional Concepts This section lists concepts not directly discussed in the Taking Control of Your Credit Video Field Trip DVD but related to its content. The additional concepts are included to enhance the coverage of the Taking Control of Your Credit Video Field Trip DVD. Additional concepts are numbered based on the lesson number and order of concepts (including Key Concepts). For example, Additional Concept 2.10 is the tenth concept in Lesson 2. Content Standards and Performance Expectations This section identifies the Indiana content standards and performance expectations associated with the Key Concepts and Additional Concepts for each lesson. These standards and expectations outline the specific learning goals for students who complete the lesson. The standards are identified by the codes designated in the Indiana Academic Standards by the Indiana Department of Education. Vocabulary This section lists relevant vocabulary terms associated with the Key Concepts and Additional Concepts for each lesson. How the suggested instructional strategies teach the vocabulary terms vary across lessons. Some lessons include explicit strategies while others recommend the teacher s own methods. Overview This section provides a brief description of the lesson s objectives and procedures to give teachers a concise summary of the purpose of each lesson. Procedures This section outlines the suggested procedures to teach the concepts associated with each lesson. Background information, teaching strategies, and assignments and activities are described as applicable. Any document identified in the procedures in bold text is included at the end of each lesson. Assessment This section describes suggested methods to assess student learning of the concepts associated with each lesson. Because students learn differently, using a variety of assessment tools is encouraged. Additional Resources This section lists additional resources, including internet sources, which provide useful information to supplement the lesson.

3 Content Standards and Performance Expectations The resources in this Teacher s Guide are designed to correspond to the Indiana content standards and performance expectations. Each lesson lists the specific standards associated with its topics. To help with overall lesson planning, the following content standards and performance expectations are related to the resources in this Teacher s Guide: Personal Finance PF Create and analyze a personal balance sheet PF Develop financial goals for the future and a financial plan based on one s lifestyle, expectations skills, and career choices PF Identify various traditional and technology resources available for obtaining financial information PF Distinguish between simple and compound interest PF PF PF PF PF PF PF PF PF PF PF PF PF PF PF PF PF PF PF Develop and modify a personal budget for income, saving, and fixed, variable and discretionary expenses Compare and contrast disposable and discretionary income Discuss the importance of the concept of paying yourself first in relationship to saving for meeting one s financial goals Analyze alternative actions for dealing with financial difficulties, such as credit overextension, loss of job, and disability Evaluate the advantages and disadvantages of electronic banking such as direct deposit, debit cards, ATM, and online banking Analyze privacy and security issues associated with financial transactions, endorsements and electronic banking Analyze impulse purchasing and how marketers employ techniques to stimulate impulse buying Investigate goods and services, buying options, and present sound financial recommendations Compare and contrast the advantages and disadvantages of purchasing and using credit Analyze sources and types of credit Analyze credit components such as principal, interest, payment periods, grace periods, credit limits, incentive buying, fees, and minimum payments Analyze credit marketing techniques, features and pitfalls Create a plan for repaying debt Select an appropriate form of credit for a particular buying decision Explain the impact of credit reporting, the 5C s of credit scoring, and FICO scoring on consumer s credit worthiness Evaluate the current laws involving consumer rights and responsibilities Evaluate the effects of living beyond one s means Analyze the various alternatives to resolving credit problems Explain identity theft and its potential impact PF PF PF PF PF Use clear and legible handwriting in all written work and communication Demonstrate active listening skills Use discussion skills to assume leadership and participant roles Use research, composition, and oral skills to present information for a variety of situations utilizing appropriate technology Work cooperatively with peers and authority figures

4 PF PF PF Use clear and concise writing skills to describe, explain, and inform various audiences Follow and interpret directions, graphs, charts and diagrams found in technical writing Use appropriate industry terminology Economics E.1.2 E.1.4 E.1.5 E.1.11 E.6.1 E.6.5 E.6.8 Explain how consumers and producers confront the condition of scarcity, by making choices which involve opportunity costs and tradeoffs Describe how people respond predictably to positive and negative incentives Predict how interest rates will act as an incentive for savers and borrowers Formulate a savings or financial investment plan for a future goal Explain the basic functions of money Compare and contrast credit, savings, and investment services available to the consumer from financial institutions Formulate a credit plan for purchasing a major item comparing different interest rates Consumer Economics CE.1.1 CE.1.4 CE.2.4 Demonstrate components of critical thinking, creative thinking, and reasoning Apply management, decision-making, and problem solving processes to accomplish tasks and fulfill responsibilities Examine interrelationships of standards, wants, needs, goals, and consumer satisfaction

5 Pre-Test and Post-Test To assess students overall level of learning from the Video Field Trip, Taking Control of Your Credit, it is recommended to administer pre- and post-tests to students. Results from the pretest can also guide the teaching strategies and concepts to emphasize based on the lessons included in this Teacher s Guide. Prior to watching the Taking Control of Your Credit Video Field Trip DVD or introducing any related concepts, have students complete the following pre-test. The pre-test includes ten true/false and multiple-choice questions. The pre-test and pre-test answer key are included. For immediate feedback in the classroom, have students exchange their test with another student after everyone has completed the pre-test. Review the answers to each question of the pre-test and have the students grade one another s tests. Have students return the pretests so each student can review their understanding. Collect the pre-tests to assess students understanding of the main concepts. After watching the Taking Control of Your Credit Video Field Trip DVD and completing the accompanying lessons in this Teacher s Guide, have students take the following post-test. The post-test is identical to the pre-test, with ten true/false and multiple-choice questions. The post-test and post-test answer key is included. As with the pre-test, have students exchange their test with another student after everyone has completed the post-test. Review the answers to each question of the post-test and have the students grade one another s tests. Have students return the post-tests so each student can review their understanding. Collect the post-tests to assess students understanding of the main concepts taught using the Taking Control of Your Credit Video Field Trip DVD. The included pre-test, post-test, and answer keys serve only as templates and can be modified by teachers to tailor the material to their teaching strategies.

6 Pre-Test Name: What Do You Know about Credit? For questions 1-5, indicate whether the given statement is true or false. 1. A credit card is the same as a debit card. TRUE / FALSE 2. From the borrower s perspective, an interest rate is the cost of borrowing money, usually determined as a percentage of the amount borrowed. TRUE / FALSE 3. Using a credit card to pay for consumable goods like food and beverages is a good idea. TRUE / FALSE 4. Some employers or schools may review a person s credit report and deny employment or acceptance to people with bad credit histories. TRUE / FALSE 5. The grace period on a credit card is the time period between when you receive your credit card bill and when you have to pay it. TRUE / FALSE For questions 6-10, choose the alternative that best answers the question. 6. To keep your credit card interest payments as low as possible, a. pay the minimum monthly payment b. try to pay off your credit card bill in full every month c. pay off your credit card bill only after saving enough money to pay it in full, no matter how long it takes d. switch to a different credit card that has a higher interest rate 7. It is generally recommended that the proportion of your net income used for credit payments not exceed: a. 50% b. 30% c. 20% d. 5%

7 8. According to a 2007 survey by the New Hampshire Higher Education Assistance Foundation, the percentage of college freshmen who are at least four months behind on their credit card payments is: a. 7% b. 21% c. 38% d. 70% 9. To help prevent the abuse of credit usage, a smart consumer will: a. compare needs versus wants b. usually only use credit to buy expensive, long-lasting goods c. save money to plan for emergencies and future spending d. all the above 10. Someone with significant credit problems due to overusing credit cards should contact the: a. Better Business Bureau (BBB) b. Internal Revenue Service (IRS) c. Consumer Credit Counseling Service (CCCS) d. Securities and Exchange Commission (SEC) d. 5% 8. According to a 2007 survey by the New Hampshire Higher Education Assistance Foundation, the percentage of college freshmen who are at least four months behind on their credit card payments is: a. 7% b. 21% c. 38% d. 70%

8 Pre-Test Answer Key What Do You Know about Credit? 1. A credit card is the same as a debit card. FALSE 2. From the borrower s perspective, an interest rate is the cost of borrowing money, usually determined as a percentage of the amount borrowed. TRUE 3. Using a credit card to pay for consumable goods like food and beverages is a FALSE 4. Some employers or schools may review a person s credit report and deny employment or acceptance to people with bad credit histories. TRUE 5. The grace period on a credit card is the time period between when you receive your credit card bill and when you have to pay it. FALSE 6. To keep your credit card interest payments as low as possible, a. pay the minimum monthly payment b. try to pay off your credit card bill in full every month c. pay off your credit card bill only after saving enough money to pay it in full, no matter how long it takes d. switch to a different credit card that has a higher interest rate 7. It is generally recommended that the proportion of your net income used for credit payments not exceed: a. 50% b. 30% c. 20% d. 5% 8. According to a 2007 survey by the New Hampshire Higher Education Assistance Foundation, the percentage of college freshmen who are at least four months behind on their credit card payments is: a. 7% b. 21% c. 38% d. 70% 9. To help prevent the abuse of credit usage, a smart consumer will:

9 a. compare needs versus wants b. usually only use credit to buy expensive, long-lasting goods c. save money to plan for emergencies and future spending d. all the above 10. Someone with significant credit problems due to overusing credit cards should contact the: a. Better Business Bureau (BBB) b. Internal Revenue Service (IRS) c. Consumer Credit Counseling Service (CCCS) d. Securities and Exchange Commission (SEC)

10 Post-Test Name: What Do You Know about Credit? For questions 1-5, indicate whether the given statement is true or false. 1. A credit card is the same as a debit card. TRUE / FALSE 2. From the borrower s perspective, an interest rate is the cost of borrowing money, usually determined as a percentage of the amount borrowed. TRUE / FALSE 3. Using a credit card to pay for consumable goods like food and beverages is a good idea. TRUE / FALSE 4. Some employers or schools may review a person s credit report and deny employment or acceptance to people with bad credit histories. TRUE / FALSE 5. The grace period on a credit card is the time period between when you receive your credit card bill and when you have to pay it. TRUE / FALSE For questions 6-10, choose the alternative that best answers the question. 6. To keep your credit card interest payments as low as possible a. pay the minimum monthly payment b. try to pay off your credit card bill in full every month c. pay off your credit card bill only after saving enough money to pay it in full, no matter how long it takes d. switch to a different credit card that has a higher interest rate 7. It is generally recommended that the proportion of your net income used for credit payments not exceed a. 50% b. 30% c. 20% d. 5%

11 8. According to a 2007 survey by the New Hampshire Higher Education Assistance Foundation, the percentage of college freshmen who are at least four months behind on their credit card payments is: a. 7% b. 21% c. 38% d. 70% 9. To help prevent the abuse of credit usage, a smart consumer will a. compare needs versus wants: b. usually only use credit to buy expensive, long-lasting goods c. save money to plan for emergencies and future spending d. all the above 10. Someone with significant credit problems due to overusing credit cards should contact the: a. Better Business Bureau (BBB) b. Internal Revenue Service (IRS) c. Consumer Credit Counseling Service (CCCS) d. Securities and Exchange Commission (SEC)

12 Post-Test Answer Key What Do You Know about Credit? 1. A credit card is the same as a debit card. FALSE 2. From the borrower s perspective, an interest rate is the cost of borrowing money, usually determined as a percentage of the amount borrowed. TRUE 3. Using a credit card to pay for consumable goods like food and beverages is a good idea. FALSE 4. Some employers or schools may review a person s credit report and deny employment or acceptance to people with bad credit histories. TRUE 5. The grace period on a credit card is the time period between when you receive your credit card bill and when you have to pay it. FALSE 6. To keep your credit card interest payments as low as possible, a. pay the minimum monthly payment b. try to pay off your credit card bill in full every month c. pay off your credit card bill only after saving enough money to pay it in full, no matter how long it takes d. switch to a different credit card that has a higher interest rate 7. It is generally recommended that the proportion of your net income used for credit payments not exceed: a. 50% b. 30% c. 20% d. 5% 8. According to a 2007 survey by the New Hampshire Higher Education Assistance Foundation, the percentage of college freshmen who are at least four months behind on their credit card payments is: a. 7% b. 21% c. 38% d. 70%

13 9. To help prevent the abuse of credit usage, a smart consumer will: a. compare needs versus wants b. usually only use credit to buy expensive, long-lasting goods c. save money to plan for emergencies and future spending d. all the above 10. Someone with significant credit problems due to overusing credit cards should contact the a. Better Business Bureau (BBB) b. Internal Revenue Service (IRS) c. Consumer Credit Counseling Service (CCCS) d. Securities and Exchange Commission (SEC)

14 Lesson 1: What is Credit?

15 Video Field Trip Connection Chapter 1 Chapter 2 Key Concepts 1.1 Debit versus credit 1.2 Types of credit 1.3 Credit cards Additional Concepts 1.4 Ways individuals pay for goods and services 1.5 Types and functions of money 1.6 Charge card versus credit card 1.7 Checking accounts and savings accounts Content Standards and Performance Expectations PF PF PF PF PF PF PF PF PF PF PF E.6.1 E.6.5 CE.1.1

16 Vocabulary ATM card card that allows withdrawals and deposits from bank accounts using an automatic teller machine (ATM) and functions as a debit card requiring a personal identification number for transactions. Borrower a person or institution that obtains money from a lender with the obligation to repay the money loaned. Car loan credit issued by a financial institution for the express purpose of purchasing a vehicle. Charge card card that allows purchase but the charged payment must be paid upon receipt of the billing statement. Check written document that serves as money by drawing on deposits at a financial institution. Checking account account at a financial institution that allows an individual to deposit money into that account, which can be accessed on demand. Credit trust in a buyer s ability and intention to pay in the future. Credit card card that acts as a means of exchange like money by authorizing payment for goods and services based on the buyer s ability and intention to repay the lender. Debit a payment charged to an individual or institution. Debit card card that allows purchases by directly deducting the payment from the buyer s personal bank account, typically a checking account. Lender a person or institution that grants access to money conditioned on the loaned money being returned with interest for its temporary use. Loan credit agreement between a lender and borrower. Mortgage a lien given by a borrower to secure credit issued by a financial institution for the express purpose of purchasing real estate, typically a house. Revolving credit credit automatically renewed as credit payments are made. Savings account account at a financial institution that allows an individual to deposit money into that account, which may or may not be accessed on demand and is typically used as a means of holding money reserves. SMART card card that has a micro processing chip embedded with relevant data that allows the user to perform specific actions, such as purchasing goods and services like a credit card. Student loan credit issued by the government or a financial institution for the express purpose of purchasing education services.

17 Overview In the Taking Control of Your Credit Video Field Trip DVD, Julian and her friend learn what credit is and why it is used, as well as about different types of credit. This lesson informs students about credit and its use by examining different methods of payment and types of credit. Students are engaged by exploring personal spending patterns and credit usage. The lesson strengthens student s communication and critical thinking skills through classroom activities and personal exercises. Procedures 1. Watch the Taking Control of Your Credit Video Field Trip DVD (at least chapters 1 and 2). 2. Ask students for their reactions to the DVD. Encourage any responses without trying to initially steer the direction of the discussion. 3. Introduce information about teen spending and credit card use using the Facts about Teen Spending sheet. Highlight the substantial spending by teens, the alarming misuse of credit cards by college students, and the widespread use of credit cards among the entire population. 4. Review the vocabulary as appropriate to ensure students clearly understand the concepts being discussed. 5. As an in-class exercise to engage students at a personal level, use Activity 1 Classroom Survey to examine students sources of income, spending, use of checking and savings accounts, and use of credit. Expand on the survey questions to stimulate students personal reflection about these issues. 6. Distribute Exercise 1 Family Credit Survey to students. Explain that this exercise asks students to investigate how goods found at home are purchased, the usage of credit by the family, and the types of credit used. After completing the survey with their parents, students must write a short assessment of their family s credit usage. 7. Lesson 2 explores where to get credit, as well as credit card marketing.

18 Assessment Teacher observation of classroom participation Rubric for Exercise 1 Additional Resources Clothed, Fed and Over Their Heads? New Hampshire Higher Education Assistance Foundation ( Credit for Beginners, a lesson from the National Council on Economic Education ( Targeting Teens, Newspaper Association of America, August 2007 ( Consumers-2007.aspx) Teacher s Guide: How Interest Can Work For You and How Interest Can Work Against You!, Harlan Day, Indiana Council for Economic Education, 2008

19 Facts about Teen Spending Trends in Teen Spending 1 $179 billion: amount spent by teens aged on goods and services in 2006 $107: average amount of money that teens spend per week 29%: percent of teens spending more than $100 per week 60%: percent of teens that receive money from their parents as a source of income 45%: percent of teens earning money from odd jobs or part-time jobs 56%: percent of teens having a savings account 10%: percent of teens having a checking account 7%: percent of teens having access to a parent s credit card 18%: percent of teens wanting to get a credit card in their own name 33%: percent of older teens aged having a credit card in their own name 200,000: number of bankruptcy cases filed by young adults aged in %: percent of students saying they never had a meaningful conservation about personal finances with their parents 2 Credit Card Use among College Students in $3,106: average credit card debt $7,937: average credit limit 5.96: average number of credit cards 1.98: average number of credit cards actively in use at the time of the survey 42%: percent with six or more credit cards $1,200: average credit card debt for students with two credit cards $4,830: average credit card debt for students with six or more credit cards 28%: percent of freshmen with more than $3,000 in credit card debt 51%: percent of freshmen delinquent on their credit card payments Up to 10%: percentage of college students who will drop out due to credit card problems 2

20 Credit Card Use among the US population $3,238: average credit card debt 4 4: average number of credit cards 5 14%: percent of persons with more than 10 credit cards 5 Sources: 1 Targeting Teens, Teenage Research Unlimited, Can You Believe This? CARE Program ( 0Believe%20This%20Handout%20new%20logo.pdf) 3 Clothed, Fed and Over Their Heads, New Hampshire Higher Education Assistance Foundation, Federal Reserve, Consumer Credit, March 7, 2008 release 5 1In7AmericansCarries10CreditCards.aspx?page: all

21 Activity 1 Classroom Survey Survey students in your classroom about their usage of checking accounts, savings accounts, and credit. Compile the numerical results for each question on the board and discuss the findings with the students. 1. How many students work an odd job or part-time job to earn some income? Count Percent of Class (Count/Number of Students)x How many students receive an allowance or other money from parents? Count Percent of Class 3. How many students spend at least $20 per week to buy various goods and services? Count Percent of Class 4. Who has their own checking account? Count Percent of Class 5. Who has their own savings account? Count Percent of Class 6. Who uses an ATM or debit card, either their own or their parents? Count Percent of Class 7. Who has their own credit card? Count Percent of Class 8. Who uses a credit card, either their own or their parents? Count Percent of Class 9. Who has borrowed money through any type of loan to buy something? Count Percent of Class

22 Exercise 1 Family Credit Survey Ask your parents the following questions about how they purchased goods at your home and the types of credit they have used. Record their answers in the space provided. 1. How many credit cards does the family have, including gas and store credit cards? 2. How often are credit cards usually used to buy things? Never Monthly Weekly Daily Other (Explain: ) 3. List all the types of loans the family has ever had (mortgage, car loan, student loan, etc.) 4. Check the appropriate box in the table below to indicate how common items at a home are purchased. Note that some answers can be a combination of credit and other methods. If you do not have a listed item at your home, skip to the next item. 5. If applicable, ask your parents why they chose to use credit to buy some of the items listed above. Based on your own opinion, write a paragraph assessing your family s use of credit to make purchases, including the various types of credit used.

23 Rubric for Exercise 1 Name Performance Indicator Student demonstrated understanding of ways to purchase goods and services, including differences between debit and credit Student demonstrated understanding of different types of credit and their sources Student effectively used critical thinking skills to analyze the use of credit and their family Student appropriately used technical terminology Student used clear and concise writing skills Point Total Point Total from above: (20 Possible Points) Grade: Grading Scale: A = points B = points C = points D = points F = 0 10 points

24 Lesson 2: Finding Credit

25 Video Field Trip Connection Chapter 1 Chapter 2 Chapter 6 Key Concepts 2.1 Access to credit 2.2 Institutions offering credit 2.3 Credit card marketing techniques 2.4 Choosing a credit card Additional Concepts 2.5 Types of financial institutions 2.6 Marketing 2.7 Influence of incentives and disincentives on consumer behavior 2.8 Impulse buying 2.9 Cost-benefit analysis 2.10 Resources for obtaining financial information Content Standards and Performance Expectations PF PF PF PF PF PF PF PF PF PF PF PF E.1.2 E.1.4 E.6.5 CE.1.1 CE.1.4

26 Vocabulary Bank a licensed, for-profit institution that provides financial services. Benefit monetary or non-monetary gain Cost monetary or non-monetary loss incurred Cost-benefit analysis a decision-making process based on comparing the costs and benefits of alternatives and choosing the option with the highest net benefit. Credit union a cooperative institution that functions like a bank to provide financial services to its members who own the union. Disincentive something that motivates a person not to take an action. Financial institution an organization, such as a bank, credit union, pension fund, and insurance company, that provides financial services and acts as an intermediary in transactions in financial markets. Gas card credit card used for purchases at gasoline retailers and typically issued by a gasoline company. Impulse buying unplanned or spontaneous buying not based on rational decision making that tries to create instant self gratification. Incentive something that motivates a person to take an action. Marketing the promotion and advertising of a product or service. Net benefit Difference between benefits and costs. Store credit card credit card issued by a retail store, typically for purchases at that store.

27 Overview In the Taking Control of Your Credit Video Field Trip DVD, Julian and her friend learn that getting credit especially credit cards can be easier that they thought. They also discover that gimmicks are often used to entice people to sign up for credit cards, which can lead to overusing and overspending with credit cards. This lesson informs students about where to commonly get access to credit, frequent marketing tactics related to credit cards, and how to comparison shop for credit cards. Through this lesson, students apply cost-benefit analysis and develop communication and critical thinking skills through classroom activities and personal exercises. Procedures 1. Watch the Taking Control of Your Credit Video Field Trip DVD (at least chapters 1 and 2). 2. Review vocabulary as appropriate throughout the lesson to ensure students clearly understand the concepts being discussed. 3. Ask students where they think credit cards come from. Write all responses on the board. 4. Discuss the most common sources of credit cards: financial institutions, gas companies, and retail stores. Among financial institutions, banks and credit unions are the most frequent sources of credit cards. Gas companies typically offer their own credit cards to encourage customers to buy their gasoline. Retail stores are increasingly offering credit cards to entice customers to buy more at their stores. Stores issuing credit cards range from traditional department stores like Macy s to discount stores like Wal-Mart to specialty stores such as Best Buy. 5. Ask students how they think people get credit cards and how easy they think it is to get a credit card. Have them think about the sources of credit cards and the procedures to apply for credit. Discuss the importance of applying for credit. Companies issuing credit cards use the personal information provided in an application to evaluate the likelihood that a person can pay their credit purchases. Most applications ask about age, job history, and income level. Highlight the fact that no one under the age of 18 is legally allowed to have a credit card in their own name only. Teenagers younger than 18 are required to have a co-signer on a credit card account. Use Activity 2.1 Sample Application Form to show students a common credit card application. Discuss the types of questions and how to respond to them. 6. Ask students why companies and stores advertise heavily for credit cards. Discuss the two main goals of marketing: 1. to increase consumer awareness about products and 2. to increase sales of those products. Advertising credit cards can enhance a company s general marketing strategies. First, getting a consumer to obtain the company s credit card can create a stronger tie between the consumer and the company, potentially over a long time period. Second, sales made using credit can generate additional revenues for a company since many credit users incur interest payments in addition to the original purchase amount. For example, many stores offer credit cards to customers at the checkout counter with special discounts for signing up and using the new card. This technique encourages impulse buying. 7. Ask students how credit cards are advertised. Highlight the use of mailings, television commercials, print ads in magazines and newspapers, and direct contact, such as a store clerk soliciting a customer at the checkout counter. 8. The use of incentives is a popular technique to entice people to sign up for credit cards. Discuss how incentives and disincentives influence consumer behavior. Ask students what types

28 of credit card incentives they remember seeing. Pre-approval, rebates, reward programs, free merchandise, special introductory discounts, and lower prices are frequently used incentives. 9. Teens and college students are targeted heavily to entice young people to begin using credit early in their lives. Companies have an incentive to develop stronger long-term ties with potential customers and to encourage current and future sales. A growing trend and major concern is the prevalence of credit card companies advertising on college campuses, especially at the beginning of a new school year. According to a 2003 survey of college students in Oklahoma, 58% indicated that pre-approval influenced their decision moderately or a lot, while 32.5% said other incentives mattered. Gimmicks like free food, free t-shirts, games, and entertainment can entice students to impulsively sign up for a credit card, or even multiple cards. To reduce or eliminate unsolicited credit card mailings, individuals can request to be removed from credit card mailing lists by going to the following website for more information: transunion.com/corporate/personal/consumersupport/help/maileroptout.page. 10. To have students recognize these marketing efforts at a personal level, distribute Exercise 2.1, How Exposed Are You? to students. Explain that this exercise asks students to record their exposure to credit card advertising during a one-week period. Students must identify any incentives offered with the advertised credit cards and explain if each incentive would influence them. 11. Because of the prevalence of credit card marketing, students need to understand that all credit cards are not the same and how to evaluate their differences. Selecting the right credit card is important. Cost-benefit analysis provides an effective decision-making process to compare credit cards and choose the right one for each person. Discuss types of costs and benefits associated with credit cards. Costs can include interest rates to be paid, any fees for having or using the credit card, and lower future disposable income due to paying off credit bills. Benefits can include establishing a credit history, being able to buy something now instead of waiting, being able to buy online, and perks like lower prices, rebates, and other incentives. (The costs and benefits associated with credit cards are discussed in more detail in Lesson 3.) To apply cost-benefit analysis, the costs and benefits of each alternative should be compared, and the net benefit determined. A decision is made by choosing the alternative with the highest net benefit. Make students understand that costs and benefits may be perceived differently by different people. 12. Distribute Exercise 2.2 Choosing a Credit Card to students. Explain that this exercise asks students to use cost-benefit analysis to select the best credit card for them. Students will compare the costs and benefits of a set of different credit cards described online. After weighing the costs and benefits, students will choose the credit card they prefer. Students must identify the costs and benefits associated with each credit card and write a summary describing their choice and their use of cost-benefit analysis in making their decision. 13. Lesson 3 explores the pros and cons of using credit cards.

29 Assessment Teacher observation of classroom participation Rubric for Exercise 2.1 Rubric for Exercise 2.2 Additional Resources The Campus Credit Card Trap: A Survey of College Students and Credit Card Marketing U.S. Public Interest Research Group, 2008 ( Choose Things I Learned the Hard Way College Campus Credit Card Come-ons Criticized, Kathy Kristof, Los Angeles Times, March 28, 2008 ( The Credit Card Mystery, a lesson from the National Council on Economic Education ( Learning, Earning and Investing National Council on Economic Education, (National Endowment for Financial Education) Oklahoma College Student Credit Card Study, Center for the Student Affairs Research, Oklahoma State University, 2003 Store Credit Cards: Flashy Perks, High Rates Lucy Lazarony ( Teacher s Guide: How Interest Can Work For You and How Interest Can Work Against You! Harlan Day, Indiana Council for Economic Education, 2008

30 Activity 2.1 Sample Credit Card Application Please tell us about yourself. First Name MI Last Name Social Security Number: - - Date of Birth (MM/DD/YYYY): / / Home Phone Number: ( ) Work Phone Number: ( ) Address: City: State: ZIP Code: Address? What is your occupation? How many bank accounts do you have? Do you rent or own your home? Monthly rent/mortgage payment $ What is your total household income* per year? $ *Include all income received in the household that you want considered as a basis for repaying credit debt. Any maintenance income, such as alimony or child support, does not have to be included if you do not want it considered.

31 Exercise 2.1 How Exposed Are You? Part I. Credit card advertisements are everywhere. In the table below, document your exposure to credit card advertisements during a one-week period. Each day record the number by type of marketing technique. Mailing* TV Commercial Magazine Ad Newspaper Ad Phone Call* In-store Solicitation Other Sunday Monday Tuesday Wednesday Thursday Friday Saturday Week Total * Include mailings and phone calls received by any member of your family. Part II. Compute the number of credit cards recorded in Part I for each type of credit-granting institution. For example, record the number of cards offered by retail stores.(financial, retail store, gas company, other). Financial Institutions Retail Stores Gasoline Companies Other Number Part III. Describe every incentive offered in the credit card advertisements you encountered during this one-week period and whether the incentive would influence you. (Some advertisements may not specify incentives. If none of the advertisements recorded above included incentives, indicate so and describe two hypothetical incentives that would influence you.)

32 Exercise 2.2 Choosing a Credit Card In this exercise you will evaluate five different credit cards and hypothetically choose the best one for you. Use cost-benefit analysis to make your decision by comparing the costs and benefits of the different credit cards. Go to to see a set of possible credit cards. Select any five cards to evaluate from the list shown. Click on each card you select to review information about the credit card to help you evaluate its potential costs and benefits to you. Part I. Record the name of the credit card and the costs and benefits you perceive for each alternative. 1. Credit Card Alternatives Costs Benefits Part II. Estimate the net benefit of each card and select the best card for you. Write a summary of your decision based on cost-benefit analysis, describing what made your selected card the best choice.

33 Rubric for Exercise 2.1 Name Performance Indicator Student demonstrated understanding of credit card marketing techniques Student demonstrated understanding of institutions offering credit Student demonstrated understanding of incentives and their effect on consumer behavior Student effectively used critical thinking skills to choose an appropriate credit card Student appropriately used technical terminology Student used clear and concise writing skills Point Total Point Total from above: (24 Possible Points) Grade: Grading Scale: A = points B = points C = points D = points F = 0 12 points

34 Rubric for Exercise 2.2 Name Performance Indicator Student demonstrated effective use of an online resource for obtaining financial information Student demonstrated understanding of institutions offering credit Student demonstrated understanding of cost-benefit analysis Student effectively used critical thinking skills to choose an appropriate credit card Student appropriately used technical terminology Student used clear and concise writing skills Point Total Point Total from above: (20 Possible Points) Grade: Grading Scale: A = points B = points C = points D = points F = 0 10 points

35 Lesson 3: Pros & Cons of Credit Cards

36 Video Field Trip Connection Chapter 2 Chapter 6 Key Concepts 3.1 Benefits of credit cards 3.2 Costs of credit cards 3.3 Simple versus compound interest 3.4 Security issues, including identity theft, associated with credit cards Additional Concepts 3.5 Components of credit 3.6 Sources of financial information 3.7 Cost-benefit analysis of using credit cards 3.8 Effect of living beyond one s means 3.9 Influence of incentives and disincentives on consumer behavior Content Standards and Performance Expectations PF PF PF PF PF PF PF PF PF PF PF PF PF E.1.4 E.1.5 CE.1.1 CE.1.4

37 Vocabulary Compound interest interest paid on the principal and previously accumulated interest. Credit rating an evaluation of a borrower s ability to meet financial obligations. Identity theft the fraudulent use of a person s identifying information, such as a credit card number or Social Security number. Interest money paid by borrowers to lenders for the use of the borrowed money; a cost of borrowing. Interest rate the percentage of the money borrowed that must be paid by borrowers to lenders for the use of the borrowed money; the price of borrowing. Principal the amount of money originally borrowed or lent, ignoring any interest. Simple interest interest calculated on the principal only.

38 Overview In the Taking Control of Your Credit Video Field Trip DVD, Julian and her friend learn there are good and bad points of having a credit card. This lesson explores the pros and cons of credit cards. Students learn to identify costs and benefits associated with credit cards using cost-benefit analysis, discover the impact of compound interest, and examine identity theft and other financial security issues. Through this lesson, students increase communication and critical thinking skills through classroom activities and personal exercises. Procedures 1. Watch the Taking Control of Your Credit Video Field Trip DVD (at least chapter 2; chapter 6 includes related material). 2. Review vocabulary as appropriate throughout the lesson to ensure students clearly understand the concepts being discussed. 3. Ask students if credit cards are always a bad choice. If so, why? If not, why not? Encourage any responses without trying to initially steer the direction of the discussion. 4. Recall the basic economic premise that every choice has both costs and benefits associated with it. Methods of paying for something are no different. Using a credit card to buy something imposes costs and benefits on a consumer. 5. Use the Costs of Credit Cards Sheet to discuss negative effects caused by using credit cards. Emphasize that the magnitude of the costs of credit depend on how responsibly credit is used. Additional information can be found on the Real Cost of Credit handout available from the CARE Program site: ( 6. Highlight the fact that credit card payments are calculated using compound interest and not simple interest. The more time it takes to pay off a credit card, the longer the interest payment has to compound. Therefore, the quicker a credit card balance is paid off the less interest would otherwise be paid. This suggests that interest costs can be reduced by paying more than the minimum monthly payment and by lowering the interest rate associated with a credit card. 7. Distribute Exercise 3.1 Cost of Compound Interest to students. Explain that this exercise asks students to compare interest payments and time required to pay off a credit card under different conditions. They will discover the substantial impact compounding interest and making only minimum payments have on credit card payments. 8. Because identity theft is a growing concern, discuss security issues related to credit cards. The Federal Trade Commission reported that in 2007 identity theft accounted for 32% of the 813,899 consumer complaints, with credit card fraud accounting for 23% of identity thefts. Identity theft is an expensive crime. Losses from identity fraud amounted to over $1.2 billion in 2007, based on claims reported to the Federal Trade Commission. The median loss for an individual victimized by fraud was $349, but 19% of the complaints faced losses over $500. The young are not immune to fraud. One third of identity theft complaints in 2007 were filed by people under 30. Those under 18 filed almost 11,800 identity theft complaints. Young adults aged filed almost 65,695 complaints. 9. Ask students for ways to reduce the risk of identity theft, especially for teens. Common examples are shredding documents with personal information, avoiding the disclosure of personal information (like Social Security numbers) on the internet or to people you do not know, protecting sensitive mail that could be stolen, and being watchful when using personal identifiers (such as passwords at an ATM or a PIN at a store). 10. Use the Benefits of Credit Cards Sheet to discuss positive effects caused by using credit cards. Emphasize that the benefits rely on the responsible use of credit. As credit is abused,

39 its benefits diminish rapidly. 11. Emphasize the importance of comparing both the costs and benefits together. Cost-benefit analysis provides an effective decision-making tool to weigh the net effect of using a credit card. People frequently only consider either costs or benefits or only some costs and benefits while ignoring all others. Discuss the impact on efficient decision-making if all costs and benefits are not considered. For example, if someone only thinks about costs associated with using a credit card and ignores any benefits, that person will underestimate the net benefit (benefits minus costs) and likely choose not to use credit when it may be an appropriate method of payment. A supplemental exercise related to the choice between using credit or not can be found at As an in-class exercise to engage students at a personal level, use Exercise 3.2 The Credit Debate. This group activity engages students in role playing to analyze the costs and benefits of credit cards. Divide students into groups of three. Assign two of the three students to be parents and the remaining student as the teenager. The teenager has just turned 18 and wants to get a credit card in his or her own name. The teenager must develop an argument based on the costs and benefits of credit cards to persuade the parents to agree. The parents must listen to the teenager s argument, debate the argument by addressing costs and benefits the teenager may have omitted, and make a decision on whether or not to allow the teenager to get a credit card. Allow at least ten minutes for this exercise. After all groups have reached a decision, discuss the results with the class, asking parents why they would allow or not allow their teenager to get a credit card. 13. Lesson 4 explores how to make decisions about using income for spending versus saving.

40 Assessment Teacher observation of classroom participation Teacher observation of group activities Answers to Exercise 3.1 Additional Resources The Campus Credit Card Trap: A Survey of College Students and Credit Card Marketing U.S. Public Interest Research Group, 2008 ( Consumer Fraud and Identity Theft Complaint Data January December 2007 Federal Trade Commission, 2008 ( The Costs of Credit, a lesson from the National Council on Economic Education ( The Economics of Interest Rates, a lesson from the National Council on Economic Education ( Identity Theft and You ( Oklahoma College Student Credit Card Study Center for the Student Affairs Research, Oklahoma State University, 2003 Should I Use Cash or Credit?, a lesson from the National Council on Economic Education ( Teacher s Guide: How Interest Can Work For You and How Interest Can Work Against You! Harlan Day, Indiana Council for Economic Education, 2008