2Warm-Up Answer the following in three or more complete sentences Besides a student loan, what other types of loans might you need to apply for in the next few years?Chapter 18 Lesson Plans, Day 1Have students answer the warm-up on a separate sheet of paper (while students are working on this take attendance)Hand out the pre-test to students. Explain to them they are not going to be graded on this except for participation. This is to help me see what they know about credit and what we will learn in this chapter.Hand out the red pens…have students grade their own papers – go over the answers. (collect them at the end)Begin the Oprah’s Debt Diet Disk 1 for the remainder of the class.
3Warm-UpWhen you hear the word “credit” what do you think of? How do you think consumer credit affects the economy?Day 2Have students answer the question on a separate sheet of paperHand out the study guides for Chapter 18.
4Credit Borrowing money with the promise to repay in the future Ask students if they have every asked or been asked “can you lend me a couple of bucks?” followed of course by a promise to pay it back. Ask for situations when running short of cash can be inconvenient…have you thought ahead about borrowing money from specific people (friend with a job, sibling that would want a favor…)This is what credit and lending is all about. People sometimes need to borrow money to meet their financial situations. If that person borrows money with a promise of future repayment he/she is using credit.
5Credit Terms Credit Limit Finance Charge Maximum amount that may be owed at one timeFinance ChargeTotal dollar cost of credit including interest and all other chargesAs part of revolving credit accounts you will have a credit limit – meaning you cannot go over a certain amount of credit/loan. You will have a minimum payment each month that you will have to pay…watch out for this, typically if you only pay the minimum payment you will be paying a ton of money in fees (interest)Finance charge is the total cost of the loan or credit. All the fees that can be added to the “privilege” of using credit
6Credit Card Allows you to buy now, pay later Credit cards offer convenience – in our society we want instant gratification…we do not want to wait. Credit allows us to do this. Not only credit cards, but other types of credit such as loans allows us to have the items we want with the option of paying later or a bit at a time
7Types of Credit Cards Bank Cards Travel and Entertainment Visa or Master CardMost commonTravel and EntertainmentDiner’s Club, American ExpressPay yearly membership fee and pay full balance when bill comesThe most common type of credit card is the Master Card or Visa; these are accepted at almost all retail or other business establishments; There are costs to using these cards such as some will charge an annual fee; we will discuss these fees in more detail later; These banks also charge the business a fee for accepting the credit cards as payments.Businesses prefer to pay this fee because the bank accepts the liability and expense of granting the credit – so if you buy a computer at Best Buy and use a bank credit card (Visa), the bank will pay the amount owed to Best Buy; if you do not pay your credit card bill, Best Buy doesn’t really care because they received their payment from the bank…it will be the Visa issuer (bank) that will call you for the money.Travel and entertainment cards such as American express are typically used for business travelers – these types of cards are not revolving as you pay the entire balance when you receive you bill
8Types of Credit Cards Oil Company Cards Retail Store Cards Cards offered by oil companiesRetail Store CardsCards offered by a specific retail store that can only be used at that storeMost oil companies team up with banks and you can get a Standard Oil Visa card. This may get you special discounts at a Standard oil gas stationHow many times have you been to a retail store and they ask you “will you be using your ____ card today?” And if you say you do not have one, they offer a discount if you sign up for the card right now… This can be dangerous. Store credit cards charger the highest amount of interest. If you are not able to pay the balance when you receive the bill my advice is use your bank card.Assignment: have students complete questions 1 on page 474 (Under the communicate Business concepts)Watch 15 minutes of Oprah’s Debt Diet.If there’s time: When finished have students write one paragraph of the most surprising information they learned in the video
9Warm-upWhen is using credit a good idea? How can you tell when taking out a loan is not a good idea?Chapter 18 Lesson Plans, Day 3Have students answer the warm-up on a separate sheet of paper (take attendance)Hand back any study guides that have been collected.Discuss the warm-up
10Installment CreditMake monthly payments in specific amounts over a period of time.examples = car payments, mortgageThis type of credit means that you have to pay a specific amount on a specific date…you usually will get a payment booklet with this type of loan…like a car loan: example: if you have a 3 year car loan you may be paying $350 on the first of every month (for 36 months)
11Benefits of Credit Convenience Immediate possession Savings Credit RatingUseful for EmergenciesWe have discussed that credit is convenient – it allows you to shop without carrying a lot of cash or write checksCredit allows you to have the item right now – if you buy a couch on credit you can take it home today and use itSometimes credit allows you to buy an item on sale at a good price – sometimes stores will send special sales to credit customersIf you buy on credit and pay your bills on time, you gain a reputation for being dependable – thus establishing a favorable credit ratingWe have also talked about emergencies – credit can be useful if an emergency arises and you do not have enough cash to pay for it…for example your heater stops working and you do not have the 1,500 to pay for it in cash
12Credit Concerns Overbuying Careless buying Higher prices Overuse of creditOverbuying just means buying something more expensive than you can afford…Let’s think back to the Bradley family from the Debt Diet DVD. They bought a house they couldn’t afford and two cars they really couldn’t affordCareless buying – sometimes credit makes us lazy – we figure we can just pay for it later and forget to comparison shop to make sure we are getting the best deal for our money or tempt you to not wait for a better price on an item you want now…think about all the new gaming systems – what happens to the price of those systems in 6 months to a year? Would it be better to wait until it’s been out a while to get a better price?Some store that accept only cash sell items at a lower price than stores that offer credit. As we have discussed earlier, stores have to pay a fee to allow customers to pay with a credit card, or there could be a bigger cost if a store offers loans to customers (if the customer doesn’t pay the loan)Buying now and paying later may sound like a good idea, but too many payments need to be made then you may have a problem – it is important to keep records of what you are spending so you can make the payments when they come due
13Help with Credit Collateral Co-signer Property pledged to back a loan Example: a car is the collateral for a car loanCo-signerAgrees to pay the loan if the signor does notExample: your parents co-sign your first car loan
14Questions to Ask How will you benefit from the use of the credit? Is this the best buy you can make or should you shop around?What will be the total cost of your purchase including finance charges?What would you save if you paid cash?Will the payments be too high for your income?Before you buy on credit you need to ask yourself some of these questions:If there are no benefits to using the credit, then you may need to wait to purchase the itemIf you think you could still shop around, then do so…Make sure you do the math. Find out what it will cost you to borrow the money. If you are paying with a credit card estimate how much interest you will pay based on how long you think it will take to pay it offIf there is a savings, pay cashFigure what the payments will be…again, do the math based on your monthly income and your other expenses can you handle these payments?Tell students we are going to skip (for now) the Interest and go to #15 (credit card comparison)
15Credit Card Comparison Annual FeesInterest ratesOther FeesBenefitsIntroductory ratesGo over the followingWhen you are deciding on a credit card, you need to compare all the fees and benefitsAnnual fees are fees charged just to have the card. There are many cards that do not have annual fees, so shop around.Interest rates…you want the lowest possible interest rateOther fees include, late fees, over the limit fees, cash advance fees, balance transfer fees, find a card with the fewest and lowest feesBenefits – what can you earn by using the card? Some cards offer points or cash backIntroductory rates are offered on a lot of cards, some are 0% interest for a period of time – as long as the rate after the introductory rate isn’t outrageous, then try to get one with a low or zero introductory rateAssignment: Credit Card Comparison – hand out the comparison worksheet and the packet of the three credit card offers. Go through 1 of the offers and complete one of comparisons to show students how to find the answers – students may work with a partner on this, but each student must turn in an assignmentIF there is time left Watch Oprah’s Debt Diet
16Warm-Up Convert each of the following percents to decimals: 40% 5% 3.5% 9% 112%Convert each of the following decimals to a percent:Applied Business Practices – lesson Plans Day 4Have students write the answers to the warm-up on a separate sheet of paper. (take attendance)Have students come up to the smart board and write the answers of the warm up (using the electronic markers)
17Simple Interest Interest Principal Rate Time The cost of borrowing moneyPrincipalAmount of the loanRatePercent of interest chargedTimeLength of time for which interest will be chargedThis is back to #13 & 14Interest on a loan is the cost of using someone else’s moneyPrincipal is the amount you borrow – say you are going to buy a car for $10,000 and need to take a loan out for it – the principal is $10,000The interest rate or rate or APR – is the percentage of interest charged to borrow the money – most loans will list the interest rate as an annual or yearly rate, so if you want to break it down to a monthly rate what would you do? (divide the rate by 12)Time is the amount of months or years the loan is for – some loans are calculated in months others are for years – typically you see car loans in months (36 months which is 3 years) or home loans in years (15 year mortgage)
18Simple Interest Formula: I = PxRxT Example: borrow $10,000 at an APR of 6% for 4 yearsI = 10,000 x .06 x 4 = 2,400Total loan = 12,400Have one person from each row get their row’s box of calculators and pass them out to the people in their rowAssignment: Have students complete the simple interest worksheet
19Do some examples on the smart board: Principal = 15,000Interest Rate = 6%Time = 5 yearsI = $4,500 Total = 19,500Principal = 5,000Interest Rate = 9%Time = 3 yearsI = 1,350 total = 6,350Watch Oprah’s Debt Diet
20Warm-UpCalculate the amount of interest for each of the following loans$6,000 borrowed for 1 year at 7%$2,000 borrowed for 4 years at 8%$1,000 borrowed for 2 years at 6%Day 5Have students complete the warm-up on a separate sheet of paper (take attendance)Have one person from each row get their row’s box of calculators and pass them out to the students in their rowPass back study guides that were collected (in the class folder)
21Credit Worthiness Your reliability to repay a loan When you apply for a loan you must show your reliability to repay this is your credit worthiness…Are you worthy to handle this money – will you pay this back willingly, do you have enough available money to repay this back, and if not do you have anything of value to possible pay this back
22The Three C’s of Credit Character Capacity Capital Willingness to repayCapacityAbility to repay the debtCapitalValue of your assetsWhenever you ask for a loan the lender will check these three C’sCharacter just means that you will repay the loan. When you apply for the loan you are honest on the application; your credit report shows that you repay your debtsCapacity means that you have enough money to repay the debt over time. It means you have a steady income and that you do not have too much debt already.Capital which is the value of things you own and could include your checking account a car that is paid for, or a house that is mostly paid for – this gives the lender some assurance that you will be able to meet your credit obligationWatch Oprah’s Debt Diet
23Review What is the total cost of credit? Give an example of a travel/entertainment card.Give an example of revolving creditWhat is the formula for interest?Applied Business Practices – Lesson Plans Day 6Have students write the warm-up on a separate sheet of paper. (take attendance)Collect the warm-upsHave students answer the review on a separate sheet of paper (see answers above)Have students get a calculator (there are five tubs with six calculators each for each row)Have students put their things away. Hand out chapter 18 quiz.TELL Students they will need to bring in poster board for next week for a project – they can buy poster board from the office and split it with someone (cut it in half) it is $0.50Hand out the Loan Comparison worksheet – go through the instructions with the students.Have one person from each row get their row’s box of calculators and pass them out to the people in their row. (make sure they get collected before the end of the hour)Have the students complete the worksheetWatch Oprah’s Debt Diet
24Warm-Up How can you establish Credit? Applied Business, Lesson Plans – Day 7Have the students answer the question but keep it open.Watch “Three stories of credit”Now have students answer the warm-up again (collect this warm-up)Hand out the “Credit Expert” Assignment – give instructions (answers must be on a separate sheet of paper)Go through one example with them…actually use the sample on the next slide (have them copy it)Give them about 15 – 20 minutes to complete.
25ExampleDear Freebie: Wow, it’s a good thing you are in college…you have a lot to learn, especially about credit. These companies offer free stuff because they want you to sign up for their credit….and you will have to pay interest if you carry a balance. They know that college kids are good “targets” because most of you don’t have jobs to pay back the credit…thus they can charge you interest. So they afford this free stuff from interest that people (like you) will have to pay. Cancel the accounts because you are not ready for credit. Signed: Credit Expert
26The Credit Application form you provide information needed by a lender to make a decision about granting creditBefore you can take out a loan, you will have to fill out a credit application (even for a credit card)
27Establish Credit Good record of grades and attendance Start a checking and/or savings account and make regular depositsMake small credit charges and pay on timeHave a steady job (part-time or full-time)Believe it or not you can start establishing your credit now…Both employers and lenders know that school behavior patterns tend to carry on later in life, so if you have a record of good grades and attendance, then you are establishing favorable credit and are more apt to get a job.If you start a checking account and make regular deposits and do not overdraw the account the lender can see that you can handle money. Also if you have a savings account and make regular deposits you are showing you will be a good credit riskSome people establish credit by charging small purchases. So you can buy something small on credit, then pay it off in 30 days (to avoid credit) to show you can handle creditChanging jobs often doesn’t look good on a credit record – being on the job for two years or more is a positive part of a good credit record.Hand out the You be the Expert Assignment – have students answer all five questions on a separate sheet of paper. Go over # 2 togetherDear Freebie:Don’t fall into the Credit Card Company’s trap…they want you to sign up for their card without reading what you will be charged. The reason they can give away all that free stuff is because students sign up for the cards, use them, then end up paying interest. Read before you sign and only choose a card that has low interest rates.
28Reporting Agencies Credit Bureau Credit Report Company that gathers information on credit users and sells the information to banks and other lendersCredit Reportshows the debts you owe, how often you use credit and whether you pay your debts on timeThe credit bureaus (Trans Union, Equifax, and Experian) keep debt records of consumers – they can only record information that is officially reported to them…they report payments if they are on time or overdue and if any actions have been taken to collect overdue bills. The credit bureaus do not make value judgment on individuals, the simply gather facts as reported to them – Let’s think back to the Bradley family from Oprah’s debt diet – their credit report was 66 pages long…The credit report is what actually shows your debt and how often you use credit. The top half of the report contains background information about the individual the bottom is the information about your accounts. At the bottom will show any information if there were any disputes settled in small claims courtAssignment: You be the Expert…make sure the students answer each scenario on a separate sheet of paper and in complete sentences. Do the first one as an example
29Warm-UpWhy is good credit important to a landlord? Who else might request a copy of your credit report?Applied Business Lesson PlansHave students complete the warm-up on a separate sheet of paper – take attendanceHand back any study guides collected.Discuss Warm-up
30Before you sign… finance charges include costs of services any add-ons feature so you can buy other items laterPay-in full before end of contract – any discountsDraw a line through any blank spacesMake sure you will get a copyRepossessionKWYS – Know what you are signingWhat are the finance charges – make sure you are clear what the total cost of the credit will be – do the mathDoes contract include costs of services you may need? – if there is any service that may be needed for the product is it included in the contract? (such as repairs, etc)Does contract have any add-ons feature so you can buy other items later? For example you may buy a TV but now you want a surround sound system, can you add that to your existing contract?If you pay the contract in full before the ending date will finance charges be reduced? This is important – can you reduce your finance charges by paying the loan off earlyIs the contract completely filled in before you sign? Draw a line through any blank spaces – go through the contract and draw a line through any blank spaces to avoid anything being written in after you sign itWill you be given a copy? If the business will not give you a copy, walk away.Under what conditions can the seller repossess the merchandise if you do not pay on time? Know when they will come and get the merchandise – if you miss one payment and there is no contact…
31Statement of AccountRecord of the transactions completed during the billing periodThis is just your statementThis will list out exactly what you charged for the billing period. Make sure you thoroughly check this
32How to Avoid Credit Card Fraud Check statements very carefully for errorsCompare statements with your receiptsVerify payments and other creditsIf there are errors, notify creditor immediatelyHere is what you need to do to avoid fraudCheck you statement – if there are any mistakes or unfamiliar charges notify your credit card company immediatelyKEEP YOUR RECEIPTS until your statement arrives…then compare again to make sure there are no errorsMake sure your payments are accounted for OR if you returned something and were supposed to receive credit make sure it is accounted forOTHER things you can do….do not share your credit card numbers with anyone. Only shop online with secure payment sites. If you are throwing away bills or other records, shred them. Get a copy of your credit report once a year.Begin the Good Life ProjectHand out the worksheet – explain that they will list their items on the front table, and then they will need to answer the questions on the back. They will also make a collage of their good life – Posters must identify the person and label each item – be creativeGive students 20 minutes to start this projectWhen time is up – if class has not done the You be the Expert assignment – have them do that assignment (responses should be on a separate sheet of paper and in complete sentences)OR Have students do the Creating credit history worksheetWith 20 to 25 minutes to go watch the Oprah’s Debt Diet
35Credit Protection Truth in Lending Equal Credit Opportunity Act Must provide the total cost of credit before signing an agreementEqual Credit Opportunity ActProhibits creditors from denying a person credit because of age, race, gender, or marital statusFair Credit Billing ActRequires prompt correction of billing mistakesThe truth in lending law states that lenders must provide the total cost of the loan…all fees…of course it does not say it has to be easy for the consumer to figure out…think back to our credit card comparison assignment…this law also protects consumers from unauthorized use of credit cards limiting the liability to $50 – so if someone steals your credit card and uses it the most you would have to pay (if any) would be $50The equal credit opportunity act means that any lender must decide to lend you money based on your credit worthiness. The only time they can deny credit because of your age is if the state law says that a person under a certain age cannot enter into a contract. Also upon request the lender must give you a written statement of the reason of denialFair credit billing act:must notify creditor of mistake in writing within 60 days of mistakewhile waiting for an answer, you are not required to pay any amount in question; creditor must acknowledge your complaint within 30 days; you do not pay finance charges on any amount in error; if no error is found, creditor must bill you again – they can add finance charges accumulated plus any minimum payments that were missed
36Credit Protection Fair Credit Reporting Act Gives consumers the right to know what information credit bureaus are reportingConsumer Credit Reporting Reform ActNow the burden of proof of unfavorable credit is now on the credit reporting agency not the consumerFair Debt Collecting Actbans threats and other inappropriate actions when a creditor is trying to collect debtIf you are denied credit based on a credit report, you must be given the name, address, and phone number of the credit bureau that provided the information. Prior to this act, most consumers were unaware that potential lenders had access to their bill paying habits this make the reports available to the consumersThis act also requires credit bureaus to delete information dealing with bankruptcy after 10 years and any other adverse information if it is more than 7 years old.Before the reform act, the consumer had to do all of the research and investigation to prove the errors on their report were in fact errors. Now the creditor must certify that the disputed data is accurate – and the reporting agency must get that certification not the consumer. If it is verified that it is incorrect you the consumer has the right to sue the creditor for damagesDebt collecting is a thankless job, however, the debt collectors may not harass you or threaten you while trying to collect a debt. They may contact you via phone, mail, fax, or telegram; may not contact you at inconvenient times or places such as before 8 a.m. or after 9 p.m.; May not contact you at work if your employer prohibits such contact
37Warm-Up Read “A Question of Ethics” page 471 Answer #1 in complete sentencesApplied Business Practices Lesson PlansHave students answer the warm-up on a separate sheet of paper (Take Attendance)Pass back any study guides that were collectedDiscuss this warm-up
38When you cannot pay Contact your creditor first Make a realistic proposal for when and what you can payKeep any promisesMake a written copy of your agreementThe first thing you must do when you know you cannot pay a lender or creditor is to call them. Almost always they will work with you to help you. They want you to pay, they don’t want you to default and they don’t want to repossess the item. They will do what they can to help you out while you are struggling…some things could include a smaller payment for a short amount of time (they will add the amounts to payments at the end) they could suspend payments for a month or so and add them to the end, they might even be able to re-finance for a lower interest rate to help make payments lower…Look at your situation and make a new budget for your circumstances – be realistic on what you can do, don’t just say “I can’t pay” you have an obligation to pay this debt, make an effortIf you say you will pay $10 per week then you better do it. If you fail to do so you can get yourself into major trouble and ruin your creditMake sure you write down who you talk to and what agreement you and the lender have made (and the date and time of the contact). This way if there is any issues later you have something written down.Assignment: Decision-making Strategies page 476 #21 – 22Watch Oprah’s Debt Diet
39Credit CounselingHelp to reduce spending and eliminate credit difficultiesA credit counselor will sit down with you and discuss actions you can take to reduce your spending and eliminate your credit difficultiesThere are many non-profit agencies around the nation that will help you at no cost to youJust be careful to know the one’s that are non-profit…there are agencies that will say they can change your credit score or the for-profit services…No agency can change your score only you can by paying off your debtHave students look at page 472 “Work as a Group” – have them get into groups of 4 to 5 and create the lists and solutions.
40Bankruptcy Legal process of reducing or eliminating an amount owed Chapter 7Wipes out most of your debtyou still may have to pay certain other debts such as taxes, child support, etc.Chapter 13Repayment Planyou pay your debt back within a specific time allottedmost interest charges are stoppedNew changes:All debtors will have to get credit counseling before filing and after filingEligibility changes and Income requirementsAverage monthly income based on past 6 monthsProperty valued at replacement costsMore property subject to be takenResidencyMust live in a state for two years to be allowed to take state’s bankruptcy exemptionsAssignment: page 474 #3 a - dOprah’s Debt Diet
42Warm-UpWhat are some reasons that a loan application would be turned down?Applied Business Practices – Lesson PlansHave students write down their ideas for the warm-up on a separate sheet of paper. (take attendance)Pass back students’ study guides that have been collected.Have students share their ideasGive students 20 minutes to work on their Good Life projectsWhen the time is up have students read the Focus on Real Life on page 469
43Warm-UpCreate a list of questions that a credit counselor might ask when meeting with a person having credit problems.Applied Business, Lesson PlansHave students answer the warm-up on a separate sheet of paper.Answer: Some questions a credit counselor may ask a person having credit problems are: What is your current income? What is your current debt? How many credit cards do you have? What is the interest rate of these cards? Do you have a bank account? Do you have any savings? What caused the debt? Have you contacted your creditors?Hand out the test your credit knowledge.Assignment: My credit plan – essay – explain to students this is a 5 paragraph essay on their credit plan. (see instruction sheet) There needs to be an introduction that states the three main points, three body paragraphs that explains the three main points, and a conclusion that re-states the three main points.
44Warm-upBefore you sign a credit contract, what two questions should you consider?Applied Business PracticesHave students answer warm-up on a separate sheet of paper.Hand out the crossword puzzleReview game for chapter 18 test.