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					                                 Framework for Career Education and
                                   Consumer, Family, and Life Skills

                                Classroom Activity by New Jersey Educator


Title:   Understanding Credit and Selecting a            Author Information:
         Credit Card
                                                         Names: Andrew Bellin and
Content Area:       Career Education and Consumer,                 Sheree Green
                    Family, and Life Skills              School: Teaneck High School
Grade Level:        12                                   District: Teaneck
                                                         County: Bergen


Student Learning Objectives:                  NJ Core Curriculum Content Standards
Students will be able to:                      Content      Standard Grade Strand CPI
                                               Area
         1. Identify and explain the           Career       9.2       12     E     3,4
            various types of credit.           Education
         2. Identify and explain credit        and
            terminology.                       Consumer,
         3. Analyze a credit card              Family, and
            statement.                         Life Skills
         4. Calculate the cost of credit.
         5. Analyze credit reports.            Mathematics 4.5            12       A         1
         6. Investigate identity theft and     Mathematics 4.5            12       C         3, 4
            correcting credit problems.
         7. Compare and contrast credit
            card offers.                       Social         6.5         12       A         1
         8. Create advertisements for          Studies
            credit card offers.


Purpose and Overview:

The purpose of this activity is for students to develop an understanding of the principles of
credit management.



Instructional Activity:

         1. Teacher begins lesson by presenting information on credit. Information should
            include:

                a. Types of credit available for personal use; such as car loans, student loans,
                   credit cards, mortgages, credit cards, and payday loans.
                b. Vocabulary words such as credit, creditor, annual percentage rate,
                   collateral, simple interest, principal, minimum monthly payment, credit rating,
                grace period, finance charge, close end credit, open end credit, line of
                credit. (See handout Financial Planning & Money Management Credit #1).
                Answer key found in document Financial Planning & Money Management
                #2.
             c. Comparing credit versus debit use.

      2. Teacher will display and discuss a real credit card statement with the class.
         Students will be provided with another example to locate and analyze information
         on their own. Sample credit card statements and research questions can be found
         at the Visa Practical Money Skills website at www.practicalmoneyskills.com.

      3. Teacher will discuss the costs associated with using credit (See Guided Notes
         Section #4 for possible student study sheet and answer key). Students will
         calculate the cost of paying “The true cost of paying the minimum” at the website:
         http://www.bankrate.com/brm/calc/MinPayment.asp. (A summary answer sheet is
         found at Study Guide #5)

      4. Teacher will lead discussion on credit history and credit reports. Students will
         analyze and locate information from the sample credit report form handouts or
         /transparencies link at: http://www.fordcredit.com/creditdrivesamerica/index.jhtml.
         Students can view additional sample credit reports from the three credit agencies.
         See links under Additional Information.

      5. Students will investigate identity theft and correcting problems related to credit.
         Distribute and review brochures provided at the website:
         http://www.fordcredit.com/creditdrivesamerica/index.jhtml

      6. Students will compare and contrast two credit card offers. Students can use paper
         applications or the Internet to locate credit card offers.

      7. Teacher and students will discuss protecting your credit using the web link
         questions as a guide (Complete Guided Notes Section #3).

      8. Students will create two credit card advertisements. One advertisement will be for
         an optimal credit card offer; and one ad will be for a bad credit card offer.


Assessment Strategies:

Students will complete a test containing vocabulary terms and credit concepts.

Create two credit card advertisements. One advertisement will be for an optimal credit card;
and one ad will be for a bad credit card offer.


Additional Information:

Resources can be obtained at:
Practical Money Skills, www.practicalmoneyskills.com
Ford Credit Drives America, http://www.fordcredit.com/creditdrivesamerica/
EQUIFAX, www.equifax.com
EXPERIAN, www.eperian.com
TRANS UNION, www.tuc.com
MasterCard, http://www.mastercardintl.com/cgi-bin/newsroom.cgi?id=817&
Credit Card Offers, http://www.applycc.com/americanexpress.asp.

         Students can research credit services and options offered to college students,
          vocational students, and/or recent graduates for continuing education or career
          training. Students can research the Fannie Mae website at:
          http://www.fanniemae.com/index.html.
                    Financial Planning & Money Management
                                    Credit #1
VOCABULARY

Credit


Creditor


Consumer Credit


Interest


Closed-end credit


Open-end credit


Line of credit


Grace period


Finance charge


List 6 factors to consider before using credit

         1.

         2.

         3.

         4.

         5.

         6.

List 3 advantages of credit

         1.

         2.

         3.
List 3 disadvantages of credit

       1.

       2.

       3.


List 2 types of credit

       1.



       2.



What are the 2 sources of consumer credit and list 4 facts about each?

       1.

              a.


              b.


              c.


              d.


       2.

              a.


              b.


              c.
                  Financial Planning & Money Management
                         #2 Consumer Credit : Key

VOCABULARY

Credit An arrangement to receive cash, goods, or services now and pay for
them in the future

Creditor An entity (bank, finance company, credit union, business, or
individual) to which money is owed

Consumer Credit the use of credit for personal needs

Interest the price that is paid for the use of another’s money

Closed-end credit a one-time loan that is paid back over a specified period
of time and in payments of equal amounts

Open-end credit the ability to borrow money for a variety of goods and
services up to a limit set by the company issuing the credit

Line of credit the maximum amount of money a creditor has made available
to someone

Grace period a time period during which no finance charges will e added to
a person’s credit card account

Finance charge the total dollar amount a person pays to use credit

List 6 Factors to Consider Before Using Credit

      1. Do you have the cash you need for the down payment?

      2. Do you want to use your savings instead of credit?

      3. Can you afford the item?

      4. Could you use the credit in some better way?

      5. Could you put off buying the item for a while?

      6. What are the costs of using credit?

List 3 advantages of Credit

      1. Enjoying goods and services now, and paying later

      2. Special discount coupons and advance notice of sales

      3. Viewed as a responsible borrower by other lenders
List 3 disadvantages of Credit

      1. Temptation to overspend

      2. Losing your good credit reputation

      3. Losing you income and property

List 2 Types of Credit

      1. Closed-end credit

             used for a specific purpose and involves a definite amount of
             money. Usually have lower interest rates

             Ex. Mortgage, auto loans

      2. Open-end credit

             given a certain limit on the amount of money you can borrow

             Ex. Department store cards, bank credit cards

What are the 2 Sources of Consumer Credit?

      1. Loans

             a. Inexpensive loans—family and/or friends

             b. Medium-priced loans-commercial banks, credit unions

             c. Expensive loans—finance companies and retail stores, high
                    interest rates (12-25%)

             d. home-equity loans—the difference between the current
                market value of you home and the amount you still owe on
                the mortgage

                 interest is tax-deductible

                 Use only for: education, home improvements, medical bills

                 Missing payment may result in loss of home

      2. Credit cards

             a. Debit cards-electronically subtracts money from
                checking/savings

             b. Smart cards—combine info onto one card (credit card
                balances, driver’s license, health care identification)
             c. Travel & Entertainment cards (T&E)—balance due in full
                each month. Ex. Diners Club card

                         Guided Notes Section #3
                          Protecting Your Credit

             Term                                    Definition
Co-Signing




What must you do if you believe you have been wrongfully billed for an item?




What should you do if you think your Identity has been stolen?

1.

2.

3.


How can you protect your credit card(s) from being stolen?

1.

2.

3.

How can you protect your credit information on the Internet?

1.

2.

3.

4.

5.

6.

7.
Consumer Credit Protection Laws

   1. Truth in Lending and Consumer Leasing Acts



   2. Equal Credit Opportunity Act (ECOA)



   3. Fair Credit Billing Act



   4. Fair Credit Reporting Act



   5. Consumer Credit Reporting Reform Act



What should you do if you feel you are being discriminated against?
                           Guided Notes Section #4

                  Measuring the Cost and Obtaining Credit

              Term                               Definition
Net Income



Annual Percentage Rate



Collateral



Simple Interest



Principal



Minimum Monthly Payment



Credit Rating




Methods Calculating the Cost of Credit:

1.
2.
3.
4.
5.
6.

The 5 C’s of Credit

C
C
C
C
C

Identify the 6 things that could be in your credit file:

1.

2.

3.

4.

5.

6.
Identify the 3 Steps that you could take to maintain a good credit:

1.

2.

3.
                         Guided Notes Answer Key #5

                   Measuring the Cost and Obtaining Credit

                Term                                Definition
Net Income                        The income a person receives (from
                                  sources such as take-home pay,
                                  allowance, gifts, and interest on bank
                                  accounts)

Annual Percentage Rate            The cost of credit on a yearly basis
                                  expresses as a percentage


Collateral                        A form of security to help guarantee that
                                  a creditor will be repaid


Simple Interest                   Interest computed only on the principal



Principal                         The amount borrowed



Minimum Monthly Payment           The smallest amount a person can pay on
                                  a credit card bill and remain a borrower in
                                  good standing

Credit Rating                     A measure of a person’s ability and
                                  willingness to make credit payments on
                                  time
Methods Calculating the Cost of Credit:

   1.   Simple Interest
   2.   Simple interest on the Declining Balance
   3.   Add-on interest
   4.   Cost of Open-end credit
   5.   Cost of credit and expected inflation
   6.   Avoid the minimum monthly payment trap


The 5 C’s of Credit

Character: Will you repay the Loan?

Capacity: can you repay the loan?

Capital: What are your assets and net worth?

Collateral: What if you don’t repay the loan?

Credit History: What is your credit History?


Identify the 6 things that could be in your credit file:

   1.   Your employer, position, and income
   2.   Your previous address
   3.   Your previous employer
   4.   Your spouse’s name, Social Security number, employer, and income
   5.   Whether you rent or own your home
   6.   Checks returned for insufficient funds


Identify the 3 Steps that you could take to maintain a good credit:

   1. Open a checking or savings account, or both
   2. Apply for a local department store credit card
   3. Take out a small loan from your bank. Make payments on time.

				
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