The Secret History The Secret History of Credit Cardsof Credit Cards

Mrs. SylvaMrs. SylvaEconomicsEconomics

What do you know about credit cards? What do you know about credit cards? How do they work?How do they work? How many credit cards would you think How many credit cards would you think

the average person uses?the average person uses? Why do you think people have more than Why do you think people have more than

one credit card?one credit card?

Terms to Know…Terms to Know…

Credit Receipt of money either directly or indirectly to

buy goods and services in the present with the promise to pay for them in the future.

Principal Amount originally borrowed

Terms to Know…Terms to Know…

Interest "A charge for a loan, usually a percentage of

the amount loaned" vary widely, both for one individual’s account

and for the industry at large. Interest rates for credit cards can change with

15 days notice to the cardholder.

Annual Percentage Rate (APR) Cost of credit expressed as a yearly

percentage (includes noninterest costs)

Terms to Know…Terms to Know…

American Bankers Association (ABA) Represents banks of all sizes on issues of national

importance for financial institutions and their customers.

Promote the strength and profitability of the banking industry.

Bankruptcy "A legal proceeding that relieves you of the

responsibility of paying your debts or provides you with protection while attempting to repay your debts.“

Terms to Know…Terms to Know…Deadbeat Normally means "one who does not pay one's

debts," For credit card companies, "deadbeat" means

someone who avoids interest and fees by paying her/his account balance in full each month

Terms to Know…Terms to Know…

OCC (Office of the Comptroller of the Currency)

An agency of the U.S. Dept. of the Treasury Responsible for overseeing credit card policies

Terms to Know…Terms to Know…

"Revolver:" a customer who does not pay her/his balance

in full each month. Customer fees and interest fees generate

income for the credit card companies. About 90 million Americans do not pay their

bills in full each month and carry balances on their credit cards.

Average balance is $8000.

Terms to Know…Terms to Know…

"Universal default:" Communication among lending institutions means

that a late payment on any debt may lead to a consumer being declared in "universal default," which can lead to an increase in fees and interest on all outstanding debts, even those on which the consumer’s payments are up to date.

Usury: An excessive or illegally high rate of interest

charged on borrowed money.

Questions to Answer…Questions to Answer…

Answer the following questions after watching the video:

1. What information in the documentary most surprised you?

2. Do you think the government should have a role in regulating both who can get credit cards and what interest and fees consumers should pay? If so, who should be the regulators? Who would benefit from such regulation? Who would lose? Explain.

Questions to Answer…Questions to Answer…

3. How, according to the four "normal consumers" in the documentary, does owning a credit card or credit cards affect purchasing decisions?

4. Who loses and gains the most from credit card companies’ policies? Explain.

5. Has the documentary influenced how you might use credit cards in the future? Explain.

The Video….The Video….

http://www.pbs.org/wgbh/pages/frontline/http://www.pbs.org/wgbh/pages/frontline/shows/credit/view/shows/credit/view/

The Cost of CreditThe Cost of Credit

Figure out how much repaying an $8000 credit

card debt will cost at interest rates of 12 percent,

19 percent and 29 percent:

a) With only the required minimum monthly payment

b) With a fixed payment of $250

c) With a fixed payment of $500CalculatorCalculator

The Cost of CreditThe Cost of Credit

Imagine that you have used a credit card to buy $900 in gifts for friends and family. Using the link below, calculate your repayment schedule.

Click for Cost of Credit Worksheet2

http://aol1.bankrate.com/aol/calc/MinPayment.asp?nav=cc&page=calc_home

Checklist for Buying on Checklist for Buying on CreditCredit

Do I really need this item? Can I Do I really need this item? Can I postpone the item until later?postpone the item until later?

If I pay cash, what will I be giving up that If I pay cash, what will I be giving up that I could buy with this money?I could buy with this money?

If I borrow or use credit, will the If I borrow or use credit, will the satisfaction I get from the item I buy be satisfaction I get from the item I buy be greater than the interest I must pay?greater than the interest I must pay?

Checklist for Buying on Checklist for Buying on CreditCredit

Have I done comparison shopping for Have I done comparison shopping for credit?credit?

Can I afford to borrow or use credit now? Can I afford to borrow or use credit now? Do I know how much it will cost me?Do I know how much it will cost me?

The Credit Card:The Credit Card:Best Friend or Foe?Best Friend or Foe?

Click the link below to watch a 1-minute Click the link below to watch a 1-minute video.video.

http://articles.moneycentral.msn.com/http://articles.moneycentral.msn.com/video/default-ap.aspx?cp-video/default-ap.aspx?cp-documentid=d841dd9a-9375-4ee7-853c-documentid=d841dd9a-9375-4ee7-853c-16bae04c6a46&from=cp_en-16bae04c6a46&from=cp_en-us_Money_video_default&fg=MSNmoney us_Money_video_default&fg=MSNmoney

New Credit Card Laws New Credit Card Laws (Signed into law on 5-22-09)(Signed into law on 5-22-09)

Click the link below to watch a 1-minute Click the link below to watch a 1-minute video.video.

http://articles.moneycentral.msn.com/video/http://articles.moneycentral.msn.com/video/default-ap.aspx?cp-default-ap.aspx?cp-documentid=d841dd9a-9375-4ee7-853c-documentid=d841dd9a-9375-4ee7-853c-16bae04c6a46&from=cp_en-16bae04c6a46&from=cp_en-us_Money_video_default&fg=MSNmoney us_Money_video_default&fg=MSNmoney

New Credit Card Laws New Credit Card Laws (Signed into law on 5-22-09)(Signed into law on 5-22-09)

Limited interest rate hikes Limited interest rate hikes Mandatory 45-days advance notice of changeMandatory 45-days advance notice of change

No universal defaultNo universal default More time to pay monthly billsMore time to pay monthly bills Highest interest balances paid firstHighest interest balances paid first Limits on over-limit fees (must opt-in)Limits on over-limit fees (must opt-in) No more double-cycle billingNo more double-cycle billing Lower sub prime feesLower sub prime fees Disclose minimum payments consequencesDisclose minimum payments consequences

Source:Source: http://articles.moneycentral.msn.com/Banking/CreditCardSmarts/What-the-new-credit-card-law-means-for-you.aspxhttp://articles.moneycentral.msn.com/Banking/CreditCardSmarts/What-the-new-credit-card-law-means-for-you.aspx

The End…The End…

Summarize your Cornell notesSummarize your Cornell notes Due next classDue next class

Let’s Review Let’s Review (Post answer online in the forum due 9/16)(Post answer online in the forum due 9/16)

Credit Cards Ahas & Huh?Credit Cards Ahas & Huh?

1.1. Should you have a credit card or not? Should you have a credit card or not? Why or why not?Why or why not?

2.2. What are some things to keep in mind if What are some things to keep in mind if you have a credit card? you have a credit card?

3.3. How can you use a credit card How can you use a credit card responsibly and wisely?responsibly and wisely?