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AOF Financial Planning

Lesson 9Credit Cards

Teacher Resources

Resource Description

Teacher Resource 9.1 Presentation 1 and Notes: Introduction to Credit Cards (includes separate PowerPoint file)

Teacher Resource 9.2 Presentation 2: Actual Credit Card Offer (separate PowerPoint file)

Teacher Resource 9.3 Rubric: Wise Use of Credit Cards Brochure

Teacher Resource 9.4 Template: Wise Use of Credit Cards Brochure (separate Word file)

Teacher Resource 9.5 Key Vocabulary: Credit Cards

Teacher Resource 9.6 Bibliography: Credit Cards

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AOF Financial PlanningLesson 9 Credit Cards

Teacher Resource 9.1

Presentation 1 Notes: Introduction to Credit CardsBefore you show this presentation, use the text accompanying each slide to develop presentation notes. Writing the notes yourself enables you to approach the subject matter in a way that is comfortable to you and engaging for your students. Make this presentation as interactive as possible by stopping frequently to ask questions and encourage class discussion.

This presentation covers some of the considerations that must be taken into account when deciding to get a credit card. It follows the story of Tran as he considers a credit card offer at his college.

Presentation notes



Credit cards are one type of consumer borrowing.

Credit cards can be very useful because they are accepted in many situations instead of cash, they can be used to make online purchases or in an emergency, and proper use of credit cards can boost your credit score.

It is also possible to get a loan from a bank or other lender. These loans can be used for many purposes, such as to buy a car or a house. Usually, the borrower must begin paying interest on the full amount of the loan immediately.

Another type of borrowing is a home equity line of credit, where a bank or other lender will provide a line of credit at an agreed-upon amount with the house as collateral. The advantage of a home equity line of credit over a bank loan is that you only pay interest on the money you borrow rather than on the full amount of the loan. Many banks provide cards drawing from the line of credit, which are accepted as credit cards in many places, including with online vendors.

There are illegal lenders, sometimes known as “loan sharks,” that will sometimes lend money when others won’t. Usually, the interest rates of loan sharks are very high, and if you can’t pay them back you might be forced to take out another loan, at even worse terms.

Presentation notes



Basically, a credit card allows you to borrow money from a financial institution in a very convenient way. Like other forms of borrowing, the lenders charge you interest for the convenience of borrowing their money.

In addition to the interest, most lenders charge a sometimes confusing variety of fees and penalties. It is important to know these fees and penalties so that you aren’t surprised later!

The amount you borrow is called the principal. The interest (and any penalties or fees) is added to the principal on a regular basis, sometimes daily and sometimes weekly, or at other intervals.

Each month, the credit card company sends out a statement or bill, usually with a minimum payment required to avoid penalties. It is important to know that if this minimum amount is paid, it may take a very long time to pay off the loan, and interest will continue to accrue. Interest can accrue rapidly, and it is not uncommon for people to owe more in interest than the original principal!

Presentation notes



Like many students, Tran pays for his college education with a mixture of money from his parents, scholarships and grants, and a part-time job. For many young people, credit cards seem like an attractive and convenient way to borrow money.

Presentation notes



Sometimes it is difficult doing without things that others have. Tran is also hoping to avoid those emergency times when his money runs out at the end of the month. What can Tran do to make sure he doesn’t run out of money before his next paycheck?

Presentation notes



Credit card companies frequently set up tables at college campuses and offer special gifts and promotions to encourage young people to get their card.

Presentation notes



Depending on your credit history and income, credit card companies set a limit to the amount of credit you are supposed to take out on the card. If you exceed this limit, there is often a fee or interest rates are raised.

Your credit history reflects all of the time you have used credit before. Lenders report your borrowing and repayment behavior to Fair Isaac & Company, which gives you a score (commonly known as the FICO score, or credit score). The higher your score, the more likely you are to get good terms on credit.

Presentation notes



Credit card companies often offer good introductory rates to first-time cardholders with their company. These rates usually last a year or two, and often go up significantly if the borrower breaks any of the rules in the card agreements.

APR stands for annual percentage rate and is a simplified way of expressing how much interest you’ll pay on the money you borrow. The prime rate is one of several standard rates, often set by governments, which credit card companies use to set their variable interest rates. Fixed interest rates always stay the same (again, unless the borrower breaks the agreement) and variable rates go up and down, depending on the rate to which they are tied.

Often when you sign up for a credit card, the card will allow you to transfer the money you owe from other cards to it. These transfers often have special interest rates. You should know that most credit card companies will apply payments to balances with the lowest rates first. This means that while you’re paying off your low-rate transfers first, your higher-rate balances will continue to accrue interest! Do you think it would be more fair to tell the credit card company where you want to apply your payment?

Presentation notes



Many credit card companies offer attractive introductory rates, but if the borrower breaks any rules, including making a payment on time, these rates often go up significantly, to 30% or more for some cards.

Presentation notes




Rubric: Wise Use of Credit Cards BrochureStudent Names:_____________________________________________ Date:_______________

Exemplary Solid Developing Needs Attention

Visual Design Assignment is highly attractive, well designed, and professionally laid out. Appropriate graphics are used tastefully, effectively support the content, and make it easy to follow.

Assignment is attractive and has a good design and an organized layout. Graphics help support the content.

Assignment contains graphics and multimedia, but it lacks good design and organization. Too many or too few graphics are used and are ineffective in supporting the content.

Assignment is messy and contains no coherent visual design. Graphics are not present at all or, if present, distract from the content.

Creativity Assignment shows tremendous creativity and contains unique, imaginative ideas. It’s clear that much thought and effort went into innovation.

Assignment demonstrates creativity and unique ideas. Effort clearly went into creating a unique and imaginative project.

Assignment demonstrates little creativity, and minimal effort was put into creating a unique or innovative project.

Assignment shows almost no creativity, unique ideas, or time and effort.

Required Format and Elements

Required format and all elements are included in the assignment. Some additional elements are included to enhance the assignment.

Required format and all elements are included in the assignment.

Format does not meet the assignment specifications, and one or two of the required elements are missing.

Format is completely different from the assignment specifications, and more than two elements are missing.

Vocabulary Exhibits skillful use of new and vivid vocabulary that is precise and purposeful.

Exhibits proficient use of new vocabulary that is purposeful.

Exhibits minimal use of new or vivid vocabulary, and new vocabulary is not precise.

Lacks use of new vocabulary. Language is dull and tedious.

Mechanics No grammatical, spelling, or punctuation errors. All sentences are well constructed and vary in structure.

Few grammatical, spelling, or punctuation errors. Most sentences are well constructed, with some variation in sentence structure.

Some grammatical, spelling, or punctuation errors. Most sentences are well constructed, with little variation in sentence structure.

Many grammatical, spelling, or punctuation errors. Most sentences are poorly constructed.

Additional Comments:

_____________________________________________________________________________

_____________________________________________________________________________

_____________________________________________________________________________

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Key Vocabulary: Credit Cards

Term Definition

annual fee A once yearly charge for having a credit card. Cards with annual fees usually have a lower interest rate.

balance transfer A transfer of debt from one credit card to another, usually for a fee.

bankruptcy A legal declaration by a person or organization that it cannot pay its creditors. The debtor’s assets are sold to pay the debt, and the debtor can have a fresh start (although the debtor may have difficulty getting credit).

credit counseling A package of services designed to help consumers manage their debt, including credit education and a debt management plan.

credit limit The maximum amount of credit a borrower can use on a particular line of credit (e.g., a credit card). Exceeding the limit usually involves a penalty fee.

default Failure to pay a debt.

default rate A particular interest rate charged when a consumer defaults on a credit agreement, usually much higher than the normal rate.

fixed rate An interest rate that does not vary during the life of a loan.

grace period A period of time when no interest is charged on a credit card.

interest rate The charge for borrowing a sum of money, usually expressed as a percentage of the original loan charged annually.

introductory APR A lower interest rate offered on a new credit card, usually the first six months. After the introductory period, the interest rate increases.

late fee A fee assessed for paying the minimum balance of a credit card after the due date.

minimum monthly payment The smallest amount of money a borrower can pay monthly toward a credit card, usually 2% of the balance.



Term Definition

prime rate (or prime) A rate of interest that serves as a benchmark for most other loans in a country. In the United States, the prime rate is the interest rate banks charge to the most financially sound customers for short-term loans.

secured credit card A kind of credit card where a borrower makes a deposit of collateral in the amount of credit that he or she is seeking. Secured credit cards are good for those who are building or rebuilding their credit histories.

transaction fee A fee assessed for using a credit card for certain types of transactions, like in an ATM.

variable rate An interest rate that changes based on the moves of another rate index, usually the prime rate.




Bibliography: Credit CardsThe following sources were used in the preparation of this lesson and may be useful for your reference or as classroom resources. We check and update the URLs annually to ensure that they continue to be useful.

PrintHallman, Victor and Jerry Rosenbloom. Personal Financial Planning. New York: McGraw Hill, 2003.

Online“Building Wealth.” Federal Reserve Bank of Dallas, http://www.dallasfed.org/microsites/cd/wealth/index.html (accessed February 22, 2015).

“Credit Cards: Consumer Rights Regarding Credit Cards.” BCS Alliance, http://www.bcsalliance.com/credit_cards_consumer_rights.html (accessed February 22, 2015).

Papadimitriou, Odysseas. “The Island Approach to Credit Card Use.” Investopedia, http://www.investopedia.com/articles/pf/11/island-approach-credit-cards.asp (accessed February 22, 2015).


http://www.investopedia.com/articles/pf/11/island-approach-credit-cards.asp

http://www.bcsalliance.com/credit_cards_consumer_rights.html

http://www.dallasfed.org/microsites/cd/wealth/index.html

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