© 2010 South-Western, Cengage Learning SLIDE 1 Chapter 16 Do Now10/21 & 10/22 Study Chapters 8, 9, 10, & 20 for Unit 2 Test

© 2010 South-Western, Cengage Learning SLIDE 2 Chapter 16 Agenda10/21 & 10/22 Do Now: Study for Unit 2 Test Unit 2 Test Hand Back Step 1 of PFM Project Discuss Resumes Go Over Step 2 of PFM Project Closure: Watch and Discuss Wealth Inequality in America

© 2010 South-Western, Cengage Learning SLIDE 3 Chapter 16 Do Now10/24 & 10/25 Answer the following in your notebook: In the early part of our nation’s history, we had no credit. People used coins or paper money to make purchases. Today, we are moving toward a paperless and cashless society. Would it be possible to live without ever using coins, paper money, or even checks? Explain how people might live on credit alone.

© 2010 South-Western, Cengage Learning SLIDE 4 Chapter 16 Agenda10/21 & 10/22 Do Now: Paperless and Cashless World Discussion Homework and Project Discussions Chapter 16 – Credit: What and Why Activity: Credit Scenarios Closure: Why is it important to make credit card payments on or before the due date?

© 2010 South-Western, Cengage Learning SLIDE 5 Chapter 16 Homework10/24 & 10/25 Find a credit card offer online, in your mail, at a bank, or at a retail store. Read the fine print and make a list of all the potential traps you find. Print or write your answers on paper and hand in next class.

© 2010 South-Western, Cengage Learning SLIDE 6 Chapter 16 PFM Project10/24 & 10/25 Any questions on what to do for Step 2 of the PFM Project?

Chapter © 2010 South-Western, Cengage Learning Credit in America Credit: What and Why Types and Sources of Credit 16

© 2010 South-Western, Cengage Learning SLIDE 8 Chapter 16 The Need for Credit Credit is the use of someone else’s money, borrowed now with the agreement to pay it back later. Early forms of credit Credit today

© 2010 South-Western, Cengage Learning SLIDE 9 Chapter 16 The Use of Credit A debtor is a person who borrows money from others. This money, called debt, must be repaid. A creditor is a person or business that loans money to others. Creditors charge money for this service in the form of interest and fees. A debtor must be qualified to receive credit.

© 2010 South-Western, Cengage Learning SLIDE 10 Chapter 16 Qualifying for Credit To qualify for credit, you must have the ability to repay the loan. Qualification is based on three things: Income Financial position Collateral

© 2010 South-Western, Cengage Learning SLIDE 11 Chapter 16 Income Sources of income include: Job Interest Dividends Alimony Royalties Income represents cash inflow. When your earnings exceed your expenses, you have the capacity to take on debt.

© 2010 South-Western, Cengage Learning SLIDE 12 Chapter 16 Financial Position Capital is the value of property you possess (such as bank accounts, investments, real estate, and other assets) after deducting your debts. Having capital tells the creditor that you have accumulated assets, which indicates responsibility. Your debt represents cash outflow and will be compared to your cash inflow (income).

© 2010 South-Western, Cengage Learning SLIDE 13 Chapter 16 Collateral To borrow large amounts of money, creditors often want more than just your promise to repay; they want collateral. Collateral is property pledged to assure repayment of a loan. If you do not make your loan payments, the creditor can seize the pledged property.

© 2010 South-Western, Cengage Learning SLIDE 14 Chapter 16 Making Payments Once you have completed a credit purchase, you owe money to the creditor. The principal (amount borrowed) plus interest for the time you have the loan is called the balance due. The finance charge is the total dollar amount of all interest and fees you pay for the use of credit.

© 2010 South-Western, Cengage Learning SLIDE 15 Chapter 16 Advantages and Disadvantages of Credit Advantages Purchasing power Emergency funds Convenience Deferred billing Proof of purchase Safety Disadvantages Higher costs Finance charges Tie up income Overspending

© 2010 South-Western, Cengage Learning SLIDE 16 Chapter 16 Activity 10/24 & 10/25 Break up in groups of four. You will be given credit scenarios. Your group must discuss how you would handle the scenario. Record your response on a sheet of paper. Make sure write all the names of the members of your group. You will then read aloud your scenario and present your response.

© 2010 South-Western, Cengage Learning SLIDE 17 Chapter 16 Closure10/21 & 10/22 Why is it important to make credit card payments on or before the due date?

© 2010 South-Western, Cengage Learning SLIDE 18 Chapter 16 Do Now10/25 & 10/26 Respond to the following in your notebook: Credit can be very beneficial or it can lead to financial ruin. Describe the advantages of credit in terms of purchasing power. Describe how credit can become a trap and lead to overspending and other problems.

© 2010 South-Western, Cengage Learning SLIDE 19 Chapter 16 Agenda10/25 & 10/26 Do Now: Pros and Cons of Credit Discussion Continue Chapter 16 – Types and Sources of Credit Classwork: Vocabulary Closure: Accepting Credit Cards Discussion

© 2010 South-Western, Cengage Learning SLIDE 20 Chapter 16 Homework10/25 & 10/26 Read and take notes on Chapter 17. Quiz on Chapters 16 and 17 will be on Friday for A-day class Monday for B-day class

© 2010 South-Western, Cengage Learning SLIDE 21 Chapter 16 PFM Project10/25 & 10/26 Any questions regarding Step 2 of the PFM project?

© 2010 South-Western, Cengage Learning SLIDE 22 Chapter 16 Lesson 16.2 Types and Sources of Credit GOALS List and describe the types of credit available to consumers. Describe and compare sources of credit.

© 2010 South-Western, Cengage Learning SLIDE 23 Chapter 16 Types of Credit Open-end credit Closed-end credit Service credit

© 2010 South-Western, Cengage Learning SLIDE 24 Chapter 16 Open-End Credit Open-end credit is where a borrower can use credit up to a stated limit. Charge cards Revolving accounts

© 2010 South-Western, Cengage Learning SLIDE 25 Chapter 16 Credit Card Agreements A credit card is a form of borrowing and usually involves interest and other charges. The terms of the credit card agreement affect the overall cost of the credit you will be using.

© 2010 South-Western, Cengage Learning SLIDE 26 Chapter 16 Credit Card Agreements Credit card agreement terms to consider: Annual percentage rate (APR) The annual percentage rate (APR) is the cost of credit expressed as a yearly percentage. Grace period The grace period is a timeframe within which you may pay your current balance in full and incur no interest charges. Fees Annual fees, transaction fees, and penalty fees Method of calculating the finance charge (continued)

© 2010 South-Western, Cengage Learning SLIDE 27 Chapter 16 Closed-End Credit Closed-end credit is a loan for a specific amount that must be repaid in full, including all finance charges, by a stated due date. Also called installment credit Does not allow continuous borrowing or varying payment amounts Often used to pay for very expensive items, such as cars, furniture, or major appliances

© 2010 South-Western, Cengage Learning SLIDE 28 Chapter 16 Service Credit Service credit involves providing a service for which you will pay later. For example, your utility services are provided for a month in advance; then you are billed. Many businesses extend service credit. Terms are set by individual businesses.

© 2010 South-Western, Cengage Learning SLIDE 29 Chapter 16 Sources of Credit Retail stores Credit card companies Banks and credit unions Finance companies Pawnbrokers Private lenders Other sources of credit

© 2010 South-Western, Cengage Learning SLIDE 30 Chapter 16 Retail Stores Examples of retail stores include department stores, discount stores, and specialty stores. Many retail stores offer their own credit cards. These cards are accepted only at the issuing store. Store credit customers often receive discounts, advance notice of sales, and other privileges not offered to cash customers or to customers using bank credit cards. Most retail stores also accept credit cards issued by major credit card companies.

© 2010 South-Western, Cengage Learning SLIDE 31 Chapter 16 Credit Card Companies Credit card issuers Financial institutions Other organizations

© 2010 South-Western, Cengage Learning SLIDE 32 Chapter 16 Banks and Credit Unions Credit cards Closed-end loans

© 2010 South-Western, Cengage Learning SLIDE 33 Chapter 16 Finance Companies A finance company is an organization that makes high-risk consumer loans. There are two types of finance companies: Consumer finance companies Sales finance companies Loan sharks are unlicensed lenders who charge illegally high interest rates. A usury law is a state law that sets a maximum interest rate that may be charged for consumer loans.

© 2010 South-Western, Cengage Learning SLIDE 34 Chapter 16 Pawnbrokers A pawnbroker (or pawnshop) is a legal business that makes high-interest loans based on the value of personal possessions pledged as collateral. Possessions that are readily salable (such as guns, cameras, jewelry, radios, TVs, and collector’s coins) are usually acceptable collateral.

© 2010 South-Western, Cengage Learning SLIDE 35 Chapter 16 Private Lenders One of the most common sources of cash loans is the private lender. Private lenders might include parents, other relatives, friends, and so on. Private lenders may or may not charge interest or require collateral.

© 2010 South-Western, Cengage Learning SLIDE 36 Chapter 16 Other Sources of Credit Life insurance policies Borrowing against a deposit Borrowing against an asset

© 2010 South-Western, Cengage Learning SLIDE 37 Chapter 16 Classwork10/25 & 10/26 Activity: Student Activity Guide, p. 155 Complete vocabulary worksheet

© 2010 South-Western, Cengage Learning SLIDE 38 Chapter 16 Closure10/25 & 10/26 If you were going into business for yourself, you would have to decide whether or not to accept credit cards from customers. Explain the points in favor of both positions.

© 2010 South-Western, Cengage Learning SLIDE 39 Chapter 16 Homework10/24 & 10/25 Find a credit card offer online, in your mail, at a bank, or at a retail store. Read the fine print and make a list of all the potential traps you find. Print or write your answers on paper and hand in next class.