Credit Cards by dominic.cecilia


									Credit Cards
Unit 1
Lesson 3
   Consumer use of credit for purchasing goods and services is
    growing at a staggering rate. Once used primarily for large-
    ticket items, credit is now used for virtually everything. What is
    credit? Credit is the amount of financial trust extended to a
    person or business by a lender. Credit is a loan. It can be of
    great help to a smart money manager and serve as a building
    block to establishing a great credit history. It also can be a
    trap leading to financial ruin. Credit must be used with caution
    and managed carefully. It is essential that students understand
    how to use credit wisely.
   Credit cards, such as department store charge cards, are the
    most widely used form of credit. In this activity, students will
    decide on credit card use for various purchases that will be
Key Terms
 Credit
     The amount of financial trust extended to a
      person or business by a lender; a loan.
 Credit   Card
     A card authorizing the holder to buy goods
      and services that can be paid for later.
    View of Credit Cards
   Is safe. If your card is lost or stolen and used by a
    thief, the most you can be held liable for is usually
   Provides emergency buying power. The car broke
    down? A trip to the emergency room? With a
    credit card, you can cover those emergencies
    and pay the bill later.
   Offers protection. You may be able to use credit
    card regulations to dispute a charge if there is a
    problem with merchandise or services you bought
    with your card.
    View of Credit Cards
   Is convenient. When you’re shopping with a credit
    card, you don’t need to make sure you have
    enough cash on hand, or hope that a merchant
    accepts your check. There’s hardly a merchant
    these days who won’t accept a major credit card
    for payment, and they’re always an accepted
    method of payment for telephone and Internet
    purchases. Personal checks, on the other hand,
    may not be accepted by all retailers. However,
    credit cards can support impulse buying – buying
    before you can afford the item.
  View of Credit Cards
 Can   build your credit card rating. Pay your bills
  on time, and a major credit card can help you
  build an excellent credit rating. In fact, the
  single strongest reference on a credit report is a
  major credit card, paid on time over time.
 Travels well. In many countries, major credit
  cards are widely accepted. You’ll often get a
  favorable exchange rate, as well. Some cards
  offer benefits like emergency card
  replacement or free car insurance on a car
  rented with your card.
  View of Credit Cards
 Isflexible. With credit card, you have the option
  of paying your bill in full (and usually avoiding
  any interest charges that way), or making
  smaller payments. If not paid off monthly,
  interest is accrued on the balance.
 May have park benefits – ranging from free
  frequent-flier miles extended warranties on
  merchandise you buy with the card and free
  movies or gasoline.
View of Credit Cards
 Can be used to withdraw cash at ATM
 machines using the card’s PIN (personal
 identification number). However, cash
 withdrawals are usually calculated at a
 higher interest rate than purchases. Credit
 cards often have an annual fee. Cards
 with benefits almost always have an
 annual fee.
 Questions on Credit Cards
 How  many different credit cards can you
 Do these cards represent cash or a loan?
 How many credit cards do you think that the
  average cardholder has and why?
 Why do you think banks want college students
  to have credit cards?
 Gotta Have It Game
 Game    Objective
    To be the first team to pay for three items listed on
     the worksheet.
 Game    Instructions
    Teams will compete four rounds of the game.
    A round ends after each team is shown a Card
     and makes a decision.
    Teams must select a member to record
     transactions on the Check Register.
    Each team starts with $125.
        Teams must make a choice
   Pay Cash
       The team announces its choice. The amount is deducted
        from the team’s Check Register and an “X” is marked on the
        text of the item in the Wordbook indicating the item is paid
        for in full.
   Use Credit
       The team announces its choice and circles the item in the
        Wordbook, indicating the item is not yet paid for. During
        subsequent rounds, the team can decide to pay for the item
        by announcing its intentions, deducting the amount of the
        item plus interest from its check register, and marking an “X”
        over the text to indicate that the item is now paid in full.
 After the Game
 Have  your opinions about credit changed?
 Does it make sense to pay certain items with
 What recommendations would you give
  someone interested in acquiring a credit card?
Credit Decisions - Scenario 1- Page 14
 Megan   will start college soon. She will move out
 of her parents’ house and move into a
 dormitory on the college campus. Megan will
 have many bills to take care of while at college.
 Her parents want to be able to keep track of
 her expenses while making spending
 convenient for her. Megan’s parents have
 cosigned on a credit card for her use. They
 expect her to use the card to pay tuition, books,
 and living expenses.
Credit Decisions - Scenario 1- Page 14
 Megan  is enjoying school and has made several
 new friends. Megan’s friends in the dorm invite
 her to go to dinner at local restaurants a couple
 of times a week. She goes shopping with her
 roommate on the weekends. Megan also joined
 a movie club with some other students. They go
 see the latest movie once a week.
 Credit Decisions - Scenario 1- Page 14
 Megan   doesn’t have a job to earn her own money,
 but is given a monthly allowance from her parents.
 The allowance isn’t always enough to cover the
 things she wants to buy. Megan has begun to use
 the credit card her parents gave her. Megan’s
 parents gave her the card to use for college
 expenses, but did not expect her to use the card for
 entertainment and shopping. Before long, Megan
 has spent more on the card than allowed by the
 bank. Her parents receive the bill and are concerned
 about the hundreds of dollars on the card that they
 did not expect. Megan and her parents meet to
 discuss the situation.
Scenario 1 Questions – Page 14
   What does it mean to cosign for a credit card?
     It means to take joint responsibility for any debt.
   Why did Megan’s parents have to cosign on the credit card for her?
     Because Megan is too young or doesn’t have a job (no credit
   Why was it easy for Megan to spend using the credit card, but not
    realize she had spent so much money?
     Because it was easy to forget or not keep track of all charges
      when you’re not paying with cash
   What will happen if Megan or her parents do not pay the credit
    card bill on time?
     They will be charged interest and late penalties.
   How will the large credit card affect other spending by Megan and
    her parents?
     They will need to cut their spending until the debt is paid off.
Scenario 2
 James is in eighth grade. He earns money during
 the summer by mowing lawns and caring for
 neighbors’ homes when they go on vacation.
 James will be out of school for the summer in just
 four weeks. He is beginning to line up work for the
 summer. With the jobs he has secured around the
 neighborhood, James expects to earn about $150
 a month. That amount likely will increase as he gets
 more jobs.
Scenario 2
 James  wants to buy a new bicycle, but he needs
 $100 more than he has in his savings account at
 this time. James wants to use the bike to call on
 customers and build his business. James thinks he
 could acquire even more customers if getting
 around the neighborhood was made easier by
 riding his bike rather than walking.
Scenario 2
 James  asked his parents for a loan so he can buy
 the bike now. His parents have agreed to help him
 with the expense. They told James they would buy
 the bike on their credit card, but that James must
 pay back the amount of the loan, plus interest
 owed on the purchase. Including interest, James
 will pay his parents $125.
Scenario 2 Questions – Page 15
  What benefits would James receive from
  buying the bike on credit now, rather than
  waiting to earn the cash himself?
     He would be able to use the bike now to
      build his business.
  What benefits would James receive by
  waiting to earn the cash, rather than
  buying the bike on credit now?
     He would save $25 in interest (the amount
      he’d have to pay for the credit)
 Complete   Scenario 3

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