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This is also the start of our third and final unit, the theme of which is Protecting and Preserving Wealth. If you’re wondering why we’d start the unit with credit cards, I invite you to think back to the last lesson’s Ponder and Predict which was a warning of sorts that there is a wealth-devouring predator on the loose, sucking up wealth in America and wreaking havoc on many of us. Yes, you guessed it. It’s the Credit Card! Credit cards are a big part of our financial lives. They are the main vehicle of consumer credit (and debt!) in the U.S. Credit cards give us, the consumers, that all-important purchasing power. Your students, one day, will have a credit card — maybe several.
In this lesson, students learn about credit card basics and how to responsibly use credit cards to protect wealth from being devoured by credit card debt. I think I’ve mentioned before that I am no fan of the National Standards for Financial Literacy and this is one of the areas that really bothers me. The Standards lump credit cards in with credit scores, credit reports, car and home loans and all sorts of other credit-related topics. This is a wrong approach. Credit cards are such an important subject they need to be addressed independently. Separating these topics — between Lessons 7 (The Credit Conundrum) and 13, enables us to hit credit cards harder and make more of an impact with students.
This lesson begins on page 232 of the Instructor’s Guide so let’s go there now.
The Instructional Resource is a credit card calculator. I’ve suggested the one found at Bankrate.com. You will demonstrate for students a few things about credit cards, such as how debt can pile up when irresponsibly using a credit card and how much more expensive something is when you buy it with a credit card and don’t pay it of right away. I suggest turning students loose on the credit card calculator so they can explore these things for themselves. You might want to prepare some scenarios such as “Andrea really wanted a pair of boots she saw online for $95. She used her credit card to pay for it. It took her 10 months to pay it of. Her credit card has a rate of 18%. How much more did the boots cost her?” You can play around with higher priced items, higher credit card rates, or have a default rate kick in on the credit card and calculate the cost at the default rate. This demonstrates how compounding works against the credit card holder if they don’t pay of their credit card each month or they make only minimum payments, which we’ll talk about later.
The online resource for this lesson is Kiplinger.com. Kiplinger is an old financial news publisher. It’s been around for a long time, since the 1920’s. The site publishes good personal finance articles and advice. The reason I included it in this course is because it has lots of short, online quizzes. For example, I just took a 10 question quiz on what income the IRS can tax and yes, I got 10 out of 10. I’ll bet you didn’t know that the IRS can tax, as income, any treasure you find buried in your backyard. Anyway, Kiplinger is a good site you can use to differentiate instruction or maybe even shake up the start of your lessons by using one of the quizzes. There’s a fun one for pretty much any topic covered in this course. For example here’s one mini quiz: ‘Outlet Malls: Deal or No Deal?’ or another: ‘Should You Buy or Lease Your Car?’.
Turning to the Presentation of Content on page 234. A lot of students and frankly, just regular people, don’t understand that credit cards are a little piece of plastic that represents a loan. The creditor, that is — the credit card issuer — has reserved funds just for your personal use! When you slide or chip read that card to buy something, the credit card issuer has lent you the money to pay for it. You can read on page 234 about the differences between revolving and non-revolving credit, but obviously credit cards are a form of revolving credit. As you repay the funds you’ve borrowed, they become available again. It all revolves around and around. With non-revolving credit, the loaned funds are paid back and the loan is gone. You cannot draw on it again.
On page 234, there’s a section called Types of Cards. Students should be on alert for cards that are called charge cards. They look and smell just like credit cards. They feel just like credit cards. But they actually have two big differences: One is they have no credit limit and the second is the balance must be paid of every month in full. Students should be on alert that if they’re ever offered a charge card, their financial literacy warning bell should ring. Unless they have the means of paying of the borrowed funds, in full, each month, it’s best to steer clear. Students should know the differences between charge cards and credit cards, and they should be able to give a definition of what a line of credit is.
Let’s focus for a minute on The Credit Card APR, which is Roman Numeral II on page 235. Something many people don’t understand, particularly first time credit card holders, is that there is usually more than one interest rate in effect on a card at one time. Interest rates charged on a card are linked to what you used it for. Let’s dispel for students once and for all, that there is a single rate in effect. There can be a purchase rate, a cash advance rate, a balance transfer rate, and a penalty (sometimes called a default) rate. The other thing that students may not know is that in addition to the interest charged, there are often fees charged on credit cards and there can be a lot of them! An annual fee, a cash advance fee, a balance transfer fee, a late payment fee, an over-the-credit line fee. It goes on and on. You can read about the fees on page 236, but the interest rate and the fees are bundled into what you will recall from Lesson 7: The Credit Conundrum, is the APR. Annual Percentage Rate. Understanding that different interest rates apply is a step toward understanding how credit card debt can quickly spiral out of control.
Please spend some time with students reviewing the chart on page 236, which is duplicated in the student workbook. Of course, there are many different credit card models and some are much simpler than others, but students should understand that, more than likely, when they get a credit card, there will be multiple interest rates, potentially very high and, in addition to the interest charged, most also have very costly fees. They should know what the fees are and what actions trigger a rate change or a fee charge.
Moving on to Roman Numeral III on page 236, we talk about The Credit Card Timeline. All credit cards have timelines with four important dates which are easy to remember: They are the billing cycle, billing cycle closing date, the grace period, and the payment due date. These dates vary from card to card. For example, if you have a VISA issued by your bank, it’s quite likely that it would have a different billing cycle closing date, grace period, and payment due date from a MasterCard issued by another credit card issuer. Student should not get comfortable thinking that, for example, credit card A has the same timeline as credit card B and that they can make all their credit card payments on, for example, the 10th of the month. They should very carefully calendar the key dates for each of their credit cards. Most people have more than one credit card so right of the bat they should have a system in place to pay the right card on the correct payment due date.
Moving over to the top of page 237, we talk about billing cycles, closing dates, grace periods, and payment due dates. These dates are stated right there in black and white on a card holder’s credit card billing statement. A credit card holder really doesn’t have to count out these days out on the calendar or figure it all out for themselves but I wanted students to get the concept of billing cycles, grace periods, closing dates, and payment due dates, so I’ve included calendars and had them kind of walk through circling these key dates. Although these dates are all provided on credit card billing statements, they should understand the particular pattern or timeline that applies to their card.
Let’s move to Roman Numeral IV on page 237. The beauty and the curse of the credit card is that you do not have to pay your charges back, in full, each month. You can roll charges over from billing period to billing period and indeed, many, many people do that. Students probably know this about credit cards and they think, “Oh great!” But this is where the credit card beast gets of the leash and starts devouring wealth. Too many people juggle more than one credit card so they have to start making minimum payments on each of them in trying to pay a little bit to each card each month. This is really a danger zone and where credit card debt gets out of control. You can read about the effect of the minimum payment and how it creates a bad financial habit if you become a minimum payment payer on your credit card because it causes compounding interest to work against you adding on to the debt. The cost of the goods you bought eventually far exceeds the price you paid.
Moving to Roman Numeral V, the Credit Card Billing Statement. One of the best ways to maintain control over your little credit card beast is to stalk it. Know all about it. Everything about your credit card is revealed in the credit card billing statement, which the cardholder gets each month at the close of the billing cycle. The credit card billing statement can look intimidating even overwhelming, but if you have a credit card, it’s an essential tool for controlling it. Students should know that they should not toss their credit card billing statement on a pile and forget it. They should open it and pour over it. You can read about the credit card billing statement on pages 238, 239, and 240. This alone is actually worth a whole lesson period. I know this is a long lesson, but dwelling on the Credit Card Statement and really learning how to read one and what’s revealed in it is worth the instructional time.
Also, at this point in the lesson, you could do the Practice Activity Credit Card Cred, as a whole group guided exercise because it uses the Credit Card Statement on pages 238-240.
On page 241, Roman Numeral VI, we talk about using credit cards responsibly. Credit card debt is consumer debt. In the U.S., credit card debt is very high. A lot of wealth in America is being devoured by the credit card beast. To be financially literate, students should be aware of the potential dangers of credit cards and have a plan to use them responsibly. They must have a very disciplined approach to managing their credit card — or just skip getting one until they are at least out of college and have a regular, reliable income. You can read about some of these suggestions on pages 241 and 242. Students should know that the number 1 way to keep that credit card beast on a leash is to pay it of every month. That means, keeping the balance low and using the card very sparingly. There are a few other ideas on the list to help them keep them under control and these should become lifelong habits.
As you can tell, I am no fan of credit cards and this is one area where this curriculum will definitely diverge from free curriculum sponsored by a bank, credit card company or credit union. You should drill into your students that to protect and preserve their wealth they should minimize their involvement with credit cards. They are not our friends. Your students are a long way from graduating college and getting a job, but they should predict that when they graduate, they will probably have high levels of student debt. They will also need stuff like furniture for an apartment, clothes for a new job, or they just may really want to take that trip to Bali for graduation. This potentially lethal combination of high levels of student debt and over use of a credit card to buy all those things, should set their alarm bells ringing. The last thing they’ll need as young college graduates is to burden themselves with a heap of credit card debt on top of their student loan debt. If they do not have enough self-control to avoid impulse buying or if they don’t have the resources to pay of their credit card debt each month, they’re probably best to avoid them.
On page 242, we have The Big Picture. This lesson’s Big Picture may be worth reading twice because there’s a lot of information in the lesson. The Let’s Practice Activity A: Credit Card Cred, as I said, can be completed in class as a whole class guided exercise because it uses the credit card billing statement that starts on page 238.
Activity B is A Closer Look at Credit Cards. This encourages students to learn about the value of reading the credit card disclosure. That’s the document they will receive when they get a credit card. It tells them all about their card, the APR’s, and timelines, what triggers a rate increase, etc.
On page 243, we have the Debate, Persuade, Inform activity. Normally these activities are optional, but I encourage you to require students to do this one. In it, students learn what predatory lending is, and how to recognize it before it happens to them or to a loved one. They also learn where to report a predatory lender. The curated technology is VisMe at VisMe.com. This is a really good college readiness resource that enables students to make a poster, a brochure, or an infographic. In this case they will make one about protecting yourself from predatory lending. This topic lends itself particularly well to an infographic.
I want to mention before closing that Credit Card.com is a really good resource for delving deeper into this subject. It has a credit card glossary of terms which is useful. It also has a lot of short and informative articles you could assign as at home reading with classroom discussion such as: The 10 Worst Credit Card Mistakes You Should Never Make, How to Use the Grace Period to Avoid Paying Interest , and 8 Key Things to Know about Credit Card Debt.
Our next lesson’s Ponder and Predict asks students to ponder a particular tool they can use to preserve and protect their wealth. What tool is at their disposal that can help them control their spending so they have enough money to make ends meet at the end of the month?
The Blog Q has students reflecting on their personal self-control and self-discipline. Could they resist the lure of a credit card? They need to give this a great deal of thought and have a game plan before they get to the point of being offered a credit card. They may realize it’s best for them to practice credit card abstinence and delay getting a credit card for several years or severely restrict how and when they can use it.
That’s it for this Lesson. Thank you for joining me. I’ll see you next time for Lesson 14, when we explore The Beauty of the Budget.