PAY CREDIT WHEN CREDIT IS DUE

OVERVIEW

In this lesson, students will learn about credit cards and credit scores. They will investigate and comprehend the concepts of credit and credit ratings, or scores. Students will then watch a clip of WHAT'S UP IN FINANCE? to see how a small-business owner named Anna is reviewed positively by a lending committee based on her strong credit rating. Students will use the "It Costs What?!" online interactivity to learn about the different costs of borrowing money on a credit card. Students will then complete a hands-on activity in which they examine a hypothetical credit-history scenario and learn how specific actions impact a person's credit score. Then, students will have an opportunity to help repair the person's credit score by choosing a series of actions that will help build a positive credit history.

Finally, students will compare different credit card offers for young people, and determine which card offers the best deal. Students will use a chart to make a comparison of the different features of the cards, including annual fees, APRs, and rewards.

TIME ALLOTMENT: 3 classes at 45 minutes per class

SUBJECT MATTER: Math, Finance, Economics

LEARNING OBJECTIVES

Students will be able to:
• Understand the concept of credit
• Understand the components of a credit score
• Understand the importance of having good credit
• Learn techniques for building a strong credit history
• Understand the concept of interest
• Compute interest amounts on a loan
• Learn how to analyze different interest rates
STANDARDS

1. National Council of Teachers and Mathematics
Principles and Standards for School Mathematics

Number and Operations
• Understand numbers, ways of representing numbers, relationships among numbers, and number systems;
• Understand meanings of operations and how they relate to one another;
• Compute fluently and make reasonable estimates.

Problem Solving
• Build new mathematical knowledge through problem solving;
• Solve problems that arise in mathematics and in other contexts;
• Apply and adapt a variety of appropriate strategies to solve problems;
• Monitor and reflect on the process of mathematical problem solving.

Connections
• Recognize and use connections among mathematical ideas;
• Understand how mathematical ideas interconnect and build on one another to produce a coherent whole;
• Recognize and apply mathematics in contexts outside of mathematics.

2. JumpStart Coalition for Personal Financial Literacy

Money Management
Students will be able to:

1. Explain how limited personal financial resources affect the choices people make.
2. Identify the opportunity cost of financial decisions.
3. Discuss the importance of taking responsibility for personal financial decisions.

Spending and Credit
Students will be able to:

1. Compare the benefits and costs of spending decisions.
2. Evaluate information about products and services.
4. Analyze the benefits and costs of consumer credit.
5. Compare sources of consumer credit.
6. Explain factors that affect creditworthiness and the purpose of credit records.
7. Identify ways to avoid or correct credit problems.

3. Mid-continent Research for Education and Learning (McREL)

Benchmarks for Economics

Standards
Understands that scarcity of productive resources requires choices that generate opportunity costs.

MEDIA COMPONENTS

Video:

Web site:

"It Costs What?!" game
http://www.thirteen.org/finance/games/itcostswhat.html
The goal of this game is to compare the cost that interest and fees can add to a purchase when the purchase is made using a credit card. Students compare the costs of using credit cards with varying interest rates, learn about important credit card terminology, and discover ways to responsibly manage credit.

MATERIALS

Teachers will need the following supplies:
• Computer with connection to a screen or television on which to project the Web-based video clips, or computer stations where students can watch the clips
• Board and/or chart paper
• "Credit Card Components" Teacher Organizer
• "Credit Card Offers" and "Credit Card Comparison" Answer Key

Students will need the following supplies:
• Computers with Internet access (for individuals or groups)
• Notebook or journal
• Pens or pencils
• Calculator
• "Credit Score" Student Organizer
• "Credit History" Student Organizer
• "Credit Card Offers" and "Credit Card Comparison" Student Organizers

PREP FOR TEACHERS

1. Bookmark the Web sites used in the lesson on each computer in your classroom, or upload all links to an online bookmarking utility such as www.portaportal.com.

2. Preview all of the video clips and Web sites used in the lesson to make certain that they are appropriate for your students, currently available, and accessible from your classroom.

4. Print out the "Credit Card Components" Teacher Organizer to copy the terms and definitions on the board.

5. Print out the Student Organizers: "Credit Score," "Credit History," "Credit Card Offers," and "Credit Card Comparison," and make enough copies so that each student has one copy of each organizer.

6. When using media, provide students with a FOCUS FOR MEDIA INTERACTION, a specific task to complete and/or information to identify during or after viewing of video segments, Web sites, or other multimedia elements.

INTRODUCTORY ACTIVITY: SETTING THE STAGE

1. Open the discussion by asking if any of the students has a credit card, and if so, if they use it very much. Also, ask students if their parents have credit cards and if they understand how credit cards work.

2. Next, using the "Credit Card Components" Teacher Organizer, write the following terms relating to credit on the board: credit, credit card, credit risk, interest, APR, and credit limit. Discuss each of the terms with the class.

3. Explain how credit cards work. Clarify that credit cards allow you to purchase something, but put off the payment until the payment is due on the card, usually sometime within a month of making the purchase. However, if you leave your payment on the card for more than a month, you have to pay interest on the balance, or the amount still owed to the credit card. It is important for students to understand that the percentage of interest can vary widely, depending on the credit card.

4. Discuss the difference between credit cards, debit cards, and cash. Both credit cards and debit cards allow you to use a plastic card to pay for a purchase, but debit cards actually take the money directly from your savings or checking account within a couple of days.

5. Next, ask students if they have any ideas about how banks and credit card companies make decisions about granting credit cards to individuals.

6. Explain to the students that the most important issue for a bank or credit card company is how likely is it that the money owed to the card will be repaid on time. Tell the students that banks use a numerical score called a "credit score" or a "credit rating" to help them predict a person's future behavior with a credit card. The credit rating takes into account a variety of behaviors made in the past -- it is a way to numerically represent a person's history of using credit cards and other loans.

7. Explain to the class that they will be watching a short video on a fashion designer who is trying to expand her business, and needs to take out a loan in order to do so.

8. Provide students with a FOCUS FOR MEDIA INTERACTION, asking them to think about how a good credit rating, or score, could help you in life. Play the "Green Chic" segment for the class.

LEARNING ACTIVITIES

1. Review the "Green Chic" segment that was viewed, discussing with students why a strong personal credit rating would help Anna get a loan for her business. (Answer: Because her strong personal credit rating, or score, showed that Anna has a history of using credit wisely -- e.g., repaying loans and credit cards on time).

2. Begin a discussion about credit scores, how lenders use them, and what makes up an individual's credit score. Explain that a credit score is a number calculated using a number of different variables. The resulting score helps lenders determine how likely a borrower is to pay a loan or credit card back on time. In other words, a score is a snapshot of "credit risk" at a given time.

3. Ask students if they know which organizations calculate credit scores: is it the banks, the government, or private organizations? (Answer: Private organizations calculate credit scores. One well-known organization is the Fair Isaac Corporation, which produces the "FICO score" -- the most widely used credit score. Other scores include NextGen, VantageScore, and the CE Score.)

4. Hand out the "Credit Score" Student Organizer. Ask students to read about how a strong credit score can help them. Discuss about why it is important to have a good credit score (Answer: A good credit score facilitates the process of borrowing money for much-needed items like homes or cars, and also helps with credit card approvals, apartment approvals, etc. It also allows borrowing with lower interest rates, which saves money.)

5. Using the "Credit Score" Student Organizer, write the percentages that make up a credit score on the board. Have students read about each on their "Credit Score" Student Organizers.

6. Next, explain to students that they will be analyzing a credit history scenario, looking at the actions that one person made and how they affected her credit score.

7. Hand out the "Credit History" Student Organizer. Ask students to complete the grid for Part 1, filling in the "Why Does Her Action Affect Her Score?" column (they should refer to the "Credit Score" Student Organizer).

8. Review Part 1 as a class, and discuss why each of Angela's behaviors had an impact on her credit score. Compute how much the credit score fell as a result of the behaviors. Refer to the "Credit History" Answer Key for solutions.

9. Next, ask students to complete the grid for Part 2, filling in the "Follow-up Action" and "Score" columns. The information for this is listed on the "Credit Score" student organizer.

10. Discuss Part 2 as a class, looking at the different ways a person can improve a credit score. Compute how much the credit score rose with these behaviors. Refer to the "Credit History" Answer Key for answers.

CULMINATING ACTIVITY

1. Introduce the "It Costs What?!" online interactivity. There are three parts to this interactivity: a credit card "Crash Course," a set of "Case Files," and a section on "Choosing Wisely." Provide students with a FOCUS FOR MEDIA INTERACTION, asking them to go through the three sections of the interactivity and to consider how they would make decisions about borrowing money on a credit card. Students will then play the online interactivity "It Costs What?!" to apply the concepts that they have learned.

2. Ask students to report back on the four characters in the "Case Files" section of the interactivity. How did the various credit cards, and the different ways the cards were used by the players, affect how much the characters paid for the digital music players?

3. Hand out the "Credit Card Offers" Student Organizer. Ask students to read through each of the five different credit card offers.

4. Discuss which offers look good and why. Ask students to compare the offers to the terms of the credit cards they learned about in the "It Costs What?!" interactivity. (Answer: The credit cards with high interest rates ends up costing students much more money).

5. Next, hand out the "Credit Card Comparison" Student Organizer. Ask students to fill out the grid given the information from the "Credit Card Offers" Student Organizer. Advise them that the offers may be described in ways that make them look attractive, but they should carefully read the details of each offer.

6. Now, ask students to take a good look at the grid. Which card actually offers the best overall deal? (Answer: For ongoing balances, #3, because the interest rate is the lowest and the rewards of the other two are not worth much. The best option overall is the ATM card, because there is no concern for rates or fees.)

7. As an extension activity, have the students collect credit card offers that arrive at home or that they notice displayed in public places. Once some offers have been compiled, do a similar activity to the above to analyze and evaluate real-world credit card offers.

Lesson plan written by Melissa Donohue

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