## Module 3:Power of credit Edit

### Math standards covered in this module include: Edit

understand various meanings of multiplication and division • understand the effects of multiplying and dividing whole numbers • compute fluently and make reasonable estimates • select appropriate methods and tools for computing with whole numbers from among mental computation, estimation, calculators, and paper and pencil according to the context and nature of the computation and use the selected method or tools

### Social studies standards covered in this module include: Edit

Ia. explore and describe similarities and differences in the ways groups, societies, and cultures address similar human needs and concerns; IIIc. use appropriate resources, data sources, and geographic tools such as atlases, data bases, grid systems, charts, graphs, and maps to generate, manipulate, and interpret information; IIIk. consider existing uses and propose and evaluate alternative policies for the use of resources and land in home, school, community, the region, and beyond. IVe. identify and describe ways family, groups, and community influence the individual’s daily life and personal choices; IVh. work independently and cooperatively to accomplish goals; Vc. identify examples of institutions and describe the interactions of people with institutions; Vf. give examples of the role of institutions in furthering both continuity and change; VIa. examine the rights and responsibilities of the individual in relation to his or her social group, such as family, peer group, and school class; VIg. explore the role of technology in communications, transportation, information-processing, weapons development, or other areas as it contributes to or helps resolve conflicts; VIId. give examples of the various institutions that make up economic systems such as households, business firms, banks, government agencies, labor unions, and corporations; VIIf. describe the influence of incentives, values, traditions, and habits on economic decisions; VIIg. explain and demonstrate the role of money in everyday life; X. identify and practice selected forms of civic discussion and participation consistent with the ideals of citizens in a democratic republic.

### Vocabulary words: Edit

**Borrow**

When a person receives something but is expected to pay it back. When the person borrows from the bank, she will be returning the same amount plus interest. This term generally refers to money.**Credit**

Amount of money at a person’s disposal for purchasing of goods or services. The person must pay it back within a specified or pre-arranged time line.**Credit card**

A tool issued that allows you to make purchases within your credit limit.**Credit rating**

A trust developed in you that you will pay back loans and

credit card debts faithfully that is based on your credit history.**Identity theft**

A crime that occurs when someone uses your personal information without your permission to commit fraud or other crimes.**Interest**

The amount of money that one pays for the money that was borrowed, or the amount of money that the financial institution pays the shareholder or customer for maintaining their money with said institution.**Interest rate**

The percentage that is charged for the money that is borrowed; usually it is set at a yearly rate.**Lend**

Money that is given to someone for their use, with the knowledge that they will return that money with interest and within a specified period of time**Loan**

Taken by a person or individual with the purpose of obtaininggoods or services. The money borrowed will be repaid with an additional fee and within a specified period of time.

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'*Props/supplies' :*

• Worksheets• Credit Card

### Lesson: credit Edit

Begin lesson by holding up a credit card and a debit card. Tell students that even though these cards look very similar, they are actually very different

Draw a brain map on the board to illustrate how the conversation progresses. Start with a central bubble in the middle (what is credit?) with lines and bubbles leading out from it including other concepts and ideas we will cover in the discussion.Ask students if they can tell you how credit cards and debit cards are different. After getting answers from your students, fill in any gaps that remain.

**Explain that **

->When you use a debit card, the money comes directly out of your checking account. You can use your debit card for the amount of money that you have in your account. When you use a credit card, you are given a credit limit. This is the amount of money you can charge to your credit card.

->To decide what your credit limit is, the bank looks at your credit rating. A credit rating is determined by looking at whether someone paid all of his or her bills on time as well as by looking at the amount of money someone makes every month. From this, the credit card company decides how much money will be used for your credit card limit.

->Credit cards are NOT free money! If you charge $300.00 on your card, then you have to pay that money back.

->Credit card companies make money by charging an Annual Percentage Rate of interest. This means that if you don’t pay all of the money back at the end of the month, then the credit card company will add interest onto the amount you owe, which willmean that you oweeven more money

Ask students if they know about the crime of identity theft.

• Explain or field answers from students concerning this issue.

• Explain that identity theft can occur when someone goes through records from their employer, hacks into the organization’s computers, goes through your trash, or steals your mail or wallet.

• Explain to students that they can avoid identity theft by not giving out personal information such as your SSN, mother’s maiden name, or account numbers over the phone or the internet unless you know the information is secure, and keeping license numbers, social security card numbers, and credit card numbers safe and private.• If someone does become a victim of identity theft, they should contact a nationwide consumer reporting agencies place “fraud alerts” in your file to let potential creditors and others know that you may be a victim of identity theft.

This is a lot of information for your students to absorb. After you’ve gone through the basics of credit cards, ask them if they can think of anything they wish they could buy.

Take one student’s example of what they’d like to buy and figure out how much it would actually cost them to buy if they used a credit card.**For instance, you might write on the board** **the following:**

New bike: $400.00

New bike: $400.00

APR interest: 20%

Say you paid back the bike in one year. That means that you would have to pay back the $400.00 you charged on the credit card, plus 21% interest:

$400.00 x 20%

400 x 0.20= 80

$80.00 is your interest.That means that you actually owe $480.00 for your bike. However, if it takes you more than a year to pay back your bike, it will actually be more than that, because the APR will add up if it takes longer for you to pay back the card!

**Notes:**

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HOPE Corps volunteer worksheet: give me some credit!

**Answer key:**

1. Mark each of the following statements True (T) or False (F). Gabe and Joy answered the first statement, but they need your help!

F You don’t ever have to pay back a credit card.

T Your credit rating will be better if you pay your bills on time.

T If it takes you longer to pay your credit card bill, you will have to pay more money back.

F It’s smart to always charge items on your credit bill.

T An emergency is a good time to use a credit card.

F Once you get a credit card, you should buy anything you want.

T The credit company looks at how much money you make when deciding what your credit limit will be

T Your credit limit is the amount of money you are allowed to charge every month on your credit card bill.F If you don’t pay your credit card bill, you can still charge however much money you want on your credit card.

2. Joy’s mom is thinking about charging a sofa to her credit card. She will take one year to pay back her sofa. If the sofa costs $800.00, and her APR interest is 20%, how much will the interest on the couch cost? HINT: 800 x .20= the amount of interest.)

$160.00

3. How much will the couch cost when you add in the cost of interest, too?

$960.00

4. Would you charge items to a credit card if it means you will pay back more money than the item you bought is worth? Why or why not?Answers will vary.

**HOPE Corps volunteer tip**: Go over answers as a group.

### Give me some credit! Edit

False (F). Gabe and Joy answered the first statement, but they need your help!

..F..You don’t ever have to pay back a credit card.

....Your credit rating will be better if you pay yourbills on time.

.....If it takes you longer to pay your credit card bill, youwill have to pay more money back.

......It’s smart to always charge items on your credit bill..

.....An emergency is a good time to use a credit card.

......Once you get a credit card, you should buyanything you want.

......The credit company looks at how much money youmake when deciding what your credit limit will be.

......Your credit limit is the amount of money you areallowed to charge every month on your credit card bill.

......If you don’t pay your credit card bill, you can still chargehowever much money you want on your credit card.

2. Joy’s mom is thinking about charging a sofa to her credit card. She will take one year to pay back her sofa. If the

sofa costs $800.00, and her APR interest is 20%, how much will the couch cost after she pays back the credit card, including interest?(HINT: 80 X .20 = interest rate)

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3. How much will the couch cost when you add in the cost of interest, too?

.......................................................................................................................4. Would you charge items to a credit card if it means you will pay back more money than the item you bought is worth? Why or why not?

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After you’ve gone through the credit card section proceed to the loan section of this session.**Use the following questions and prompts to direct the conversation:**

->Have they ever lent a friend money, or has a friend, sibling, or parent ever loaned someone money?

->What is a loan?

->Why do people take out loans?(Students should say something to the effect that people take out loans when they have to pay for something that’s really expensive but don’t have the money in their pocket or in their bank account to pay for that item).

->What kinds of expensive items do people takeloans out for?

->Ask students if they know why banks chargeinterest for loans.

Finish this discussion by helping the students go through an example of how much more a house will cost with interest. Tell the class that you know that a friend recently bought a house for $500,000.00. He took out a loan for the house, and he is now paying back a 5% interest rate on the loan. It will take the friend 20 years to pay back the loan. Help the students figure out how much the interest will cost over 20 years.

First have students figure out how much interest will be paid for one year:$500,000 x .05 = $25000

Then figure out how much interest will be paid over 25 year:$25,000 x 25 = $625,000

This means that over 25 years, the friend will pay as much in interest as he will for the house. Talk to students about why someone would take out a loan when they would have to pay back so much interest (help students to understand that this is the only way that most people can afford to buy large ticket items, such as homes).

### HOPE Corps volunteer worksheet: Taking an interest Edit

**Answer key (actual worksheet on the following page):**

1. Joy’s family is going to buy a new car. The car costs $20,000.00. Joy’s family is going to take out a car loan from the bank. The interest rate is 5%, and it will take her family 5 years to pay off the car. How much will the interest cost on the car?

$5000.00

2. How much will the car cost in all (interest + cost of car)?

$25,000.00

3. Gabriel’s family has a home loan for their house. The house costs $500,000. Their interest rate is 5%. It will take Gabriel’s family 30 years to pay off the loan. How much interest will they pay over 30 years?

$750,000.00

4. How much will the house cost in all (interest +

cost of house)?$1, 250,000.00

Notes:

### Taking an interest Edit

1. Joy’s family is going to buy a new car. The car costs $20,000.00. Joy’s family is going to take out a car loan from the bank. The interest rate is 5%, and it will take her family 5 years to pay off the car. How much will the interest cost on the car?

2. How much will the car cost in all (interest + cost of car)?

3. Gabriel’s family has a home loan for their house. The house costs $500,000. Their interest rate is 5%. It will take Gabriel’s family 30 years to pay off the loan. How much interest will they pay over 30 years?

.......................................................................................................................4. How much will the house cost in all (interest + cost of house)?

1. Joy’s family is going to buy a new car. The car costs $20,000.00. Joy’s family is going to take out a car loan fromthe bank. The interest rate is 5%, and it will take her family 5 years to pay off the car. How much will the interest cost on the car?

.........................................................................................................2. How much will the car cost in all (interest + cost of car)?

.........................................................................................................3. Gabriel’s family has a home loan for their house. The house costs $500,000. Their interest rate is 5%. It will take Gabriel’s family 30 years to pay off the loan. How much interest will they pay over 30 years?

.........................................................................................................4. How much will the house cost in all (interest + cost of house)?

### Game: you deserve some credit Edit

Have students split up into groups of 4 to 5. Explain that by answering a question correctly, each team will get to draw an Earn it! card from the pile that you’re holding. The questions are drawn from material that they’ve learned in the lesson that day.

**Questions:**

1. What is a credit rating?A trust developed in you that you will pay back loans and credit card debts faithfully that is based on your credit history.

2. What is a credit card?A tool issued that allows you to make purchases within your credit limit.

.......................................................................................................................3. What is a loan?Money taken out by a person or individual with the purpose of obtaining goods or services. The money borrowed will be repaid with an additional fee and within a specified period of time.

.......................................................................................................................4. Your dad bought a bike for $400.00. He put it on his credit card. The APR is 20%. How much will the bike cost if your dad pays off the card in a year?$480.00

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5. Your brother loans you $20.00. He says he’s going to charge you $5.00 in interest. How much money do you have to pay back?$25.00

6. Why do people take out loans?People take out loans because they don’t have enough money in their pocket or in their checking accounts to pay for that item in full on their own.

7. How do you get a good credit rating?A good credit rating comes from having a dependable income and paying your bills on time.

.......................................................................................................................8. What is a credit limit?A credit limit is the amount of money you are allowed to charge on your credit card, as determined by your credit rating.

.......................................................................................................................9. Your parents bought a house for $100,000. The interest rate on their loan is 5%. It will take them 20 years to pay back the loan. How much is the interest on this house?$100,000

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10. How much will the house cost in all, including interest?$200,000

### Earn it! game cards Edit

When a student group answers a question correctly, they can come up and take one of the following cards. Have them read the card aloud.