agenda11/1 & 11/4
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Agenda11/1 & 11/4. Do Now: Study for Quiz Chapter 16 & 17 Quiz Chapter 18.1 - Using Credit Wisely Activity: True or False Game - Student Credit and Debt Statistics Closure: Stealing Credit Card Info Electronically Discussion. 18. Responsibilities and Costs of Credit. - PowerPoint PPT PresentationTRANSCRIPT
AgendaAgenda 11/1 & 11/411/1 & 11/4Do Now: Study for QuizChapter 16 & 17 QuizChapter 18.1 - Using Credit
WiselyActivity: True or False Game -
Student Credit and Debt Statistics
Closure: Stealing Credit Card Info Electronically Discussion
Chapter 18
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1
Responsibilities and Responsibilities and Costs of CreditCosts of Credit18.118.1 Using Credit Wisely
18.218.2 Costs of Credit
18
Lesson 18.1Lesson 18.1
Using Credit WiselyUsing Credit WiselyGOALSDescribe the responsibilities of
consumer credit.Discuss how to protect your
credit from fraud.Explain how you can reduce or
avoid credit costs.
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3
Responsibilities ofResponsibilities ofConsumer CreditConsumer CreditYou have responsibilities to
yourself.You have responsibilities to
creditors.Creditors have responsibilities to
you.
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Responsibilities to Responsibilities to YourselfYourselfUse credit wisely and do not get
into debt beyond an amount you can comfortably repay.
Check out businesses before making credit purchases.
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Responsibilities to Responsibilities to YourselfYourselfComparison shop and avoid
impulse buying.◦Comparison shopping involves
checking several places to be sure you are getting the best price for equal quality.
◦Impulse buying occurs when you buy something without thinking about it and making a conscious decision.
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6
(continued)
Responsibilities to Responsibilities to YourselfYourselfHave the right attitude about
using credit.◦Enter into each transaction in good
faith and with full expectation of meeting your obligations and upholding your good credit reputation.
◦Garnishment is a legal process that allows part of your paycheck to be withheld for payment of a debt.
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7
(continued)
Responsibilities to Responsibilities to CreditorsCreditorsWhen you open an account, you
are pledging your honesty and sincerity in the use of credit.
Some of your responsibilities are:◦Limit your spending◦Make payments◦Read and understand terms◦Contact creditor to resolve problems
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Creditors’ Responsibilities to Creditors’ Responsibilities to YouYouAssisting consumers in making wise
purchases by honestly representing goods and services.
Informing customers about all rules and regulations, interest rates, credit policies, and fees.
Cooperating with established credit reporting agencies.
Establishing and adhering to sound lending and credit policies.
Using reasonable methods of contacting customers who fail to meet their obligations and assisting in solving credit problems.
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Protecting Yourself from Protecting Yourself from Credit Card FraudCredit Card FraudCredit card fraud costs businesses and
consumers millions of dollars each year.
Common types of fraud◦ Illegal use of a lost or stolen credit card◦ Illegal use of credit card information
intercepted onlineWhile the credit card holder’s liability
is limited to $50, the merchant is not protected from loss.
Merchants often raise their overall prices to cover such losses.
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Safeguarding Your CardsSafeguarding Your CardsSign and activate cards
immediately.Carry only cards you need.Keep a list of cards and information
about them in a safe place.Notify creditors if a card is lost or
stolen.Watch card during transactions.Tear up old receipts.
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Safeguarding Your CardsSafeguarding Your CardsDo not lend cards or leave them
lying around.Destroy expired cards.Do not give credit card
information by phone or online to people or businesses you don’t know.
Keep receipts and verify charges on statements.
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(continued)
Protecting Your Accounts Protecting Your Accounts OnlineOnlineDeal with companies you know
and trust.Look for secure site symbol.
◦Encryption is a code that protects your account name, number, and other information.
◦When information is encrypted, it is made unreadable to others trying to read it.
Review privacy policy.Chapter 18
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Protecting Your Accounts Protecting Your Accounts OnlineOnlineLook for the seal of a non-profit
watchdog group.Initiate all transactions yourself at
sites you trust.◦ Phishing is a scam that uses online pop-
up messages or e-mail to deceive you into disclosing personal information.
◦ “Phishers” send messages that appear to be from a business that you normally deal with, such as your bank or Internet service provider (ISP).
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(continued)
Avoiding UnnecessaryAvoiding UnnecessaryCredit CostsCredit CostsAccept only the amount of credit that you
need.◦ Unused credit can count against you.◦ Unused credit is the remaining credit
available to you on current accounts.Make more than the minimum payment.Do not increase spending as income
increases.Keep your credit accounts to a minimum.Pay cash for small purchases.
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Avoiding UnnecessaryAvoiding UnnecessaryCredit CostsCredit CostsUnderstand the cost of credit.Shop for loans.Take advantage of credit incentive
programs.◦ With a rewards program, you will receive
a payback in the form of points that can be redeemed for merchandise or airline tickets.
◦ With a rebate plan, you get back a portion of what you spent in credit purchases over the year.
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(continued)
Activity: True or False Activity: True or False GameGame91% of undergraduates have at
least one credit card, up from 76% in the same study conducted in 2004. The average number of cards has grown to 4.6, with half of college students having four or more cards.
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Activity: True or False Activity: True or False GameGameTrue
91% of undergraduates have at least one credit card, up from 76% in the same study conducted in 2004. The average number of cards has grown to 4.6, with half of college students having four or more cards.
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Activity: True or False Activity: True or False GameGameThe average undergrad has less
than $500 in credit card debt, the highest since the study began. The average senior will graduate with less than $1,100 in credit card debt, up 41% from the same study conducted in 2004.
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Activity: True or False Activity: True or False GameGameFalse
The average undergrad carries $3,173 in credit card debt, the highest since the study began. The average senior will graduate with $4,100 in credit card debt, up 41% from the same study conducted in 2004.
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Activity: True or False Activity: True or False GameGame92% of undergraduates use credit
cards to pay for educational expenses and 30% admitted to using their credit cards to pay for college tuition.
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Activity: True or False Activity: True or False GameGameTrue
92% of undergraduates use credit cards to pay for educational expenses and 30% admitted to using their credit cards to pay for college tuition.
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Activity: True or False Activity: True or False GameGameGraduates will amass almost
$20,000 in student loan debt.
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Activity: True or False Activity: True or False GameGameTrue
Graduates will amass almost $20,000 in student loan debt.
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Activity: True or False Activity: True or False GameGameLess than 15% of the students
surveyed in US PIRG's 2008 Campus Credit Card Trap report said that they have paid a late fee, and 15 percent have paid an "over the limit" fee.
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Activity: True or False Activity: True or False GameGameFalse
25% of the students surveyed in US PIRG's 2008 Campus Credit Card Trap report said that they have paid a late fee, and 15 percent have paid an "over the limit" fee.
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Activity: True or False Activity: True or False GameGamePeople in the 18 to 24 age bracket
spend nearly 30% of their monthly income just on debt repayment - half the percentage spent in 1992.
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Activity: True or False Activity: True or False GameGameFalse
People in the 18 to 24 age bracket spend nearly 30% of their monthly income just on debt repayment - double the percentage spent in 1992 (10% of net income is a recommended amount for debt obligation).
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Activity: True or False Activity: True or False GameGame4% of undergraduates admitted
the need for more financial management education. Of these, 64% would have preferred some type of financial literacy education in high school and 40% as college freshman.
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Activity: True or False Activity: True or False GameGameTrue
4% of undergraduates admitted the need for more financial management education. Of these, 64% would have preferred some type of financial literacy education in high school and 40% as college freshman.
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Lesson 18.2Lesson 18.2
Costs of CreditCosts of CreditGOALSExplain why credit costs vary.Compute and explain simple
interest and APR.Compare methods of computing
finance charges on revolving credit.
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Why Credit Costs VaryWhy Credit Costs VarySource of creditAmount financed and length of timeAbility to repay debtCollateralInterest rates
◦ The prime rate is the interest rate that banks offer to their best business customers, such as large corporations.
◦ Individuals pay higher rates because the risk is greater to the lender.
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Why Credit Costs VaryWhy Credit Costs VaryEconomic conditionsType of credit or loan
◦ Fixed-rate loans are loans for which the interest rate does not change over the life of the loan.
◦ With variable-rate loans, the interest rate goes up and down with inflation and other economic indicators.
The business’s costs of providing credit.
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(continued)
Computing the Cost of Computing the Cost of CreditCreditSimple interest formulaAnnual percentage rate formulaCredit card billing methods
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Simple Interest FormulaSimple Interest FormulaSimple interest is interest
computed only on the amount borrowed (or saved), without compounding.
The simple interest method of calculating interest assumes one payment at the end of the loan period.
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Simple Interest FormulaSimple Interest FormulaThe cost is based on three
elements: ◦A loan’s principal is the amount
borrowed, or the unpaid portion of the amount borrowed, on which the borrower pays interest.
◦The rate is the percentage of interest you will pay on a loan.
◦Time is the period during which the borrower will repay a loan; it is expressed as a fraction of a year.
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(continued)
Simple Interest FormulaSimple Interest FormulaThe formula for simple interest is:
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(continued)
Interest (I) = Principal (P) × Rate (R) × Time (T)
I = P × R × T
Annual Percentage Rate Annual Percentage Rate FormulaFormulaThere are two ways to calculate
APR: ◦APR formula◦APR tables
The APR tables are more precise; the formula only approximates the APR.
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Annual Percentage Rate Annual Percentage Rate FormulaFormula
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APR 2 n fP (N 1)
Where: n = number of payment periods in one year f = finance charge P = principal or amount borrowed N = total number of payments
(continued)
Down PaymentDown PaymentAn installment contract requires
a down payment, which is part of the purchase price paid in cash up front.
The down payment reduces the amount of the loan.
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Credit Card Billing Credit Card Billing MethodsMethodsAdjusted balance methodPrevious balance methodAverage daily balance methodTwo-cycle billing
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