Grade: 6 Lesson # 2
What fees are associated with using credit cards?
SS.8.FL.4.2 Identify a credit card purchase as a loan from the financial institution that issued the card. Explain that credit card interest rates tend to be higher than rates for other loans. In addition, financial institutions may charge significant fees related to a credit card and its use.
Correlated Literacy Standards:
LAFS.6.RI.2.4 Determine the meaning of words and phrases as they are used in a text, including figurative, connotative, and technical meanings.
LAFS.6.RI.3.7 Integrate information presented in different media or formats (e.g., visually, quantitatively) as well as in words to develop a coherent understanding of a topic or issue.
LAFS.6.W.2.5 With some guidance and support from peers and adults, develop and strengthen writing as needed by planning, revising, editing, rewriting, or trying a new approach.
LAFS.6.SL.1.2 Interpret information presented in diverse media and formats (e.g., visually, quantitatively, orally) and explain how it contributes to a topic, text, or issue under study
http://www.creditcards.com/credit-card-news/images/convenience-fees.jpg
S.8.FL.4.2 Identify a credit card purchase as a loan from the financial institution that issued the card. Explain that credit card interest rates tend to be higher than rates for other loans. In addition, financial institutions may charge significant fees related to a credit card and its use.
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The “Hidden Costs” of Credit Cards
Lesson Number : 2
Correlated Florida Standards (See Full Text on Cover Page)
LAFS.6.RI.2.4,LAFS.6.RI.3.7, LAFS.6.W.2.5, LAFS.6.SL.1.2
Essential Question
· What fees are associated with using credit cards?
Learning Goals/Objectives
· Understand that credit card purchases are loans
· Understand the advantages and disadvantages of using credit cards
· Identify fees associated with owning and using credit cards
· Identify interest rates as a cost of using credit cards
· Understand the “cost” of making only the minimum monthly payment on credit cards.
Overview
· Students will explore all aspects of credit card use, examining both the advantages and disadvantages. They will be able to explain what a credit card is, explain interest rate and identify fees associated with owning and using a credit card. They will also examine and understand the problems associated with making only minimum payments on credit cards.
Materials
· Handout #1 Advantages and Disadvantages of Credit Cards (Included)
· Handout # 2 Credit Card Statement (Included)
· Handout # 3 Credit Card Statement Analysis Worksheet. (Included)
· Handout # 4 Making the Minimum Payment… Is It a Good Idea?
· Handout # 5 Comparing Credit Card Offers
· Credit Card Offers: http://isite.lps.org/squible/web/documents/CreditCardOffers123.pdf
Time
50 minutes
Activity Sequence
INTRODUCTION/HOOK
Introduce to the students a picture of credit cards.
(Or hold up actual credit cards)
Ask students: What is a credit card? Discuss answers. Introduce definition of a credit card.
A credit card is a card issued by a financial company giving the holder an option to borrow funds, usually atpoint of sale. Credit cards charge interest and are primarily used for short-termfinancing. Interest usually begins one month after a purchase is made and borrowing limits are pre-set according to the individual'scredit rating. (3 minutes)
Definition From: http://www.investopedia.com/terms/c/creditcard.asp
ACTIVITY(32 minutes)
1. Explain to students that there are advantages to owning credit cards but there are also disadvantages. Discuss the advantages and disadvantages of owning a credit card ( 5 minutes)
2. Distribute Handout # 1 Advantages and Disadvantages of Credit Cards (2 column notes worksheet) Have students complete the worksheet. Discuss answers (5minutes)
3. Introduce the fact that credit cards have fees. Discuss the different fees associated with credit cards.
Explain how these fees can make it difficult to keep a credit card balance to a minimum or pay it off. ( 2 minutes)
4. Explain to students that they are going to review and analyze a simulated credit cards statement. They are to evaluate the statement carefully and then complete the analysis worksheet, Distribute Handout # 2 Credit Card Statement and # 3 Credit Card Statement Analysis Worksheet. Review and discuss answers (10 minutes)
5. Now distribute Handout # 4 Making the Minimum Payment… Is that a Good Idea? Explain how paying a credit card over a long period of time can cost you extra money. Go over the handout as a class. Give students time to complete the questions and then discuss their answers. (10 minutes)
CLOSURE (15 minutes)
1. Review the definition of credit card
2. Review the advantages and disadvantages of owning a credit card
3. Distribute Handout # 5 Comparing Credit Card Offers. Complete the credit card research table finding information on three credit cards (can be done together or independently) Credit Card Offers may be found at: http://isite.lps.org/squible/web/documents/CreditCardOffers123.pdf
4. Discuss the handout. Review Essential Questions.
OPTIONAL EXTENSION SUGGESTION/HOME LEARNING
Have students visit the “Debt Calculator” and practice calculating credit card interest using this interactive site http://www.themint.org/teens/debt-calculator.html
Have students take the interactive quiz “What’s Your Credit Card I.Q.? http://www.themint.org/teens/what-is-your-credit-card-iq.html
Sources/Bibliographic Information that contributed to this lesson:
Investopedia: http://www.investopedia.com/terms/c/creditcard.asp
360 Degrees of Financial Literacy: http://www.360financialliteracy.org/Topics/Credit-and-Debt/Credit-Cards/Advantages-and-Disadvantages-of-Credit-Cards
Take Charge America- Understanding Credit Card Essentials: http://isite.lps.org/squible/web/documents/CreditCardOffers123.pdf
Handout #1
Advantages and Disadvantages of a Credit Card
Advantages / Disadvantages
Handout #2 Credit Card Statement Name______
We’re in Your Pocket!
Account Holder:
Mr. & Mrs Creditworthy
4211 Riches Street
Miami, Florida / Account Summary
Previous Balance $1,000.00
Charges This Month $ 200.00
$1,200.00
LATE FEE* $50.00
Over Credit Limit Fee ** $50.00
Interest Fee 12% *** $12.82
New Balance $1,312.83
Minimum Payment Due $312.83
Payment Due Date NOW!!
Purchases/Charges This Month:
Toys r Us…………………………………..…………………………………………….$52.00
Pollo Tropical…………………………………………..……………………………..$18.00
Miami Heat (Tickets)……………………………….……………………………..$50.00
TJ Maxx…………………………………………………….……………………………$25.00
Target……………………………………………………….…………………………..$55.00
Total Monthly Charges………………………………………..………………………………$200.00
Notes to Mr. & Mrs. Creditworthy:
There are some problems with your account:
* #1- Did you forget to make your payment last month? The Financial Literacy Credit Card Company did not receive your payment. You were charged a $50.00 late fee.
**#2- Your credit limit on this card is $1000. Your balance is $1,200. YOU ARE OVER YOUR CREDIT LIMIT. You were charged a $50.00 fee for going over your credit limit. You may not use your card until your balance is under $1,000
*** #3 Because of your late payment history, starting now, the interest rate on this card will be 21.9%
Thank you for Your Business! And Don’t Forget to Make Your Payment!!
Handout #3 - Credit Card Statement Analysis Worksheet
Name______Date______
1. What is the name of the credit card company?
______
2. How much were Mr. & Mrs. Creditworthy charged for not making their payment on time?______
3. What other penalty are they receiving for not making their payment on time? ______
4. What is their current interest rate?______
5. Why is the credit card company raising their interest rate?
6. What is the new interest rate? ______
7. Will this cost the Creditworthys more money each month?______
8. What is the credit limit on the card?______
9. What is a credit limit?______
______
10. What was the fee for going over the credit limit? ______
11. What must the Creditworthys do before they can use their credit card again?______
12. From this activity, what did you learn about credit cards?
______
Handout #3 - Credit Card Statement Analysis Worksheet Answers
Name______Date______
1. What is the name of the credit card company?
Financial Literacy Credit Card Company
2. How much were Mr. & Mrs. Creditworthy charged for not making their payment on time?______$50.00______
3. What other penalty are they receiving for not making their payment on time? ____Their interest rate is being increased
4. What is their current interest rate?______12%______
5. Why is the credit card company raising their interest rate? Because they didn’t pay their bill on time
6. What is the new interest rate? ______21.9%______
7. Will this cost the Creditworthys more money each month?__yes__
8. What is the credit limit on the card?______$1000______
9. What is a credit limit?______the amount of money you are allowed to charge
10. What was the fee for going over the credit limit? _____$50.00___
11. What must the Creditworthys do before they can use their credit card again?__bring their balance below $1,000
12. From this activity, what did you learn about credit cards? Answers will vary, but should include an understanding of: credit card fees, interest, and penalties.
Handout #4 Making the Minimum Payment… Is that a Good Idea?
Imagine that you have accrued a $1000 balance on your credit card.
Your credit limit is $1000, so you may not put any more on the credit card.
Your annual interest rate is 16%.
Now, you have decided to pay off the credit card in full before you use it again: But, you have OPTIONS:
1) You may pay the entire balance at once- Good Choice!!! You will pay $0 interest
2) You may make the minimum payment of $20/month. At this rate, it will take you almost 7 years to pay off the credit card. And you will pay $659 in interest! That is a total of $1,659.00
3) You may choose to pay different amounts each month. Look at the chart below.
Account Purchases / Amount of Monthly Payment / Annual Interest Rate 16% / How Many Months will it Take to Pay Off? / Total Cost- original $1000 plus interest$1000 / $1000. / $0 / 1 / $1000
$1000 / $100 / $81 / 11 / $1081
$1000 / $50 / $171 / 24 / $1171
$1000 / $20 / $659 / 83 / $1659
What do you think is the best way to pay off your credit cards? Why?
Suppose that the $1000 original purchase was to buy a laptop. If you paid the minimum $20/month payment, it would have taken you nearly 7 years to pay off the laptop (and would have actually cost you $1659) Will you still have the laptop 7 years later? Will it be outdated? What advantages do you see for paying off this debt earlier?
Handout #5
Comparing Credit Card Offers
Credit Card Name:Details / Rates / Fees / Rewards / Other
Credit Card Name:
Details / Rates / Fees / Rewards / Other
Credit Card Name:
Details / Rates / Fees / Rewards / Other
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