Using Credit Today you will - PowerPoint Presentation

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Using Credit Today you will - PPT Presentation

examine Reasons why people use credit 1 2012 National Endowment for Financial Education Lesson 21 Using Credit Good or Bad When is it OK to borrow money When is borrowing money not a good idea ID: 671784

financial credit lesson education credit financial education lesson 2012 national endowment interest card fraud costs rights today identity pay

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Slide1
Slide2

Using Credit

Today you willexamine Reasons why people use credit.

Good or Bad

When is it OKto borrow money?

When is borrowing money

not

a good idea?

2Slide4

Today you will …

Answer these questions:Why do people borrow money?When is it acceptable and unacceptable to use credit?

How does borrowing impact spending power? Use what you learn to recognize situations

when it makes sense to either use credit

or to avoid using credit.

Meet Mariah and Jesse

Mariah

–

junior

Lives at home

Part-time job

Responsible for own expenses

Saving for college

Wants her own credit card

Jesse

–

sophomore

Lives at home

No job now

Saving to buy a truck when he gets licenseSlide6

Using Credit

Credit

Buy something now; pay for it later

How we

use

credit is what’s good or badSlide7

Credit in the Community

Credit Options

Revolving credit (example: credit card)

Borrow for multiple purchases without going over credit limit

Repay what is owed each month

Installment credit

(example: car loan)

Borrow a specific amount of money to buy something now

Make regular payments to repay over time by a set date

Cash loans

Borrow a specific amount of cash to repay later by a set date

Service credit

(example:

cellphone

, electricity)

Promise to pay for services used each month

7Slide9

Jesse’s Plan

Jesse’s Monthly PlanNo Loan

Expense

Amount

Food

$ 50

Clothes

$100

Entertainment

$100

TOTAL EXPENSES

$250

Jesse’s Monthly Plan

With Loan

Expense

Amount

Truck Loan

$200

Food

$ ?

Clothes

$ ?

Entertainment

$ ?

TOTAL EXPENSES

$250Slide10

Now or Later

Instant Gratification An unwillingness to give up something now in return for something later

Delayed Gratification

willingness

to give up something now in return for something later

9Slide11

Stop Drop and Think Before Using Credit

10Slide12

Analogy

Mariah’s mom is not sure she even understands what credit is and asks her to compare it to something else. Mariah has a difficult time coming up with a comparison. Help her out.

Complete the following analogy:

“

Credit is like a car because …”

11Slide13

Credit Costs

Today you will . . .examine the costs of credit.

Which is better? Choose an Option

Computer: Make payments for 24 or 36 months?

Stereo System: Pay 13.5 or 18 percent interest?

Car: Lower price at higher interest rate?

TV: Delay payments for 90 days?

Truck: $1,500 cash back or no cash back?

13Slide15

Today you will …

Today we will answer these questions:How is credit used?

What are typical costs of credit?How do I calculate the cost of using credit?

Use what you learn today to

consider borrowing options

for a specific situation.

The Language of Credit

Buying on Credit Making a purchase now and promising to repay later

Principal $the cost of the item bought on credit

or the amount of money borrowed

Interest %

What the lender charges for using credit

usually a percentage of the principal

15Slide17

Adding It Up

Jesse’s brother had a flat tire on his car, but he didn’t have the money on hand to buy a new tire that day. He was able to purchase a new tire by arranging to repay the $150 owed (

principal) for the tire plus 10 percent (

interest

)

in 30 days.

Will Jesse pay more or less than $150 for the tire?

How could Jesse have avoided paying

more than the cost of the tire?

16Slide18

Simple Interest

Calculate a lump sum to be prepaid on a due date.Interest = Principal x Interest Rate x Time

(in dollars) (in dollars) (as decimal) (no. of years) $1.25 = $150 x .10 x 1/12

17Slide19

Average Monthly Payments

As principal is repaid, the interest owed changesUse the amortization calculation formula to determine the average payments

Fit average payments into spending plan

18Slide20

Amortization Chart

Monthly payments when $100 is borrowed at 40 percent interest to be repaid in six equal payments.

Monthly

Payment

Payment Amount

Principal Repaid

Interest Paid

18.66

15.33

3.33

18.66

15.84

2.82

18.66

16.37

2.29

18.66

16.92

1.74

18.66

17.48

1.18

18.66

18.06

.60

Totals

111.96

100.00

11.96Slide21

More Terms to Know

Annual Percentage Rate (APR) %Consistent way to report interest;

includes interest rate, fees, and loan costs

Maturity Date

When the final payment is due for a loan

Grace Period

The amount of time before interest

starts accumulating on charged purchases

if payment is not received

20Slide22

Credit Options

Revolving credit (example: credit card)

Charge at any timeNo interest charged if full payment is received by monthly due date

Very high interest rates if balance carried over each month

Installment credit

(example: car loan)

Make regular payments to repay amount owed by a set date

Know payments and total interest amount up front (helps in planning)

Cash loans

Borrow a specific amount of cash to repay later by a set date

Interest rates vary; compare options

Service credit

(example: cellphone, electricity)

Payments may vary by use (electricity) or be predictable (phone plan)

Late fees or overuse fees add to cost

21Slide23

When You Charge “Stuff”

You bought “stuff” with your credit card.

In fact, you bought $500 worth of “stuff” with your credit card.

Your APR is 18 percent.

You plan to pay $10 a month to pay it off.

You will pay

$431

in interest.

Final cost of your purchases =

$931.40

It will take

seven years and nine months

to pay off balance.

22Slide24

How Long Will it Take?

You owe $3,000.

The credit card APR is 18 percent.

You currently pay 4 percent of the current balance.

You will pay

$1,716

in interest

Final cost of your purchases =

$4,716

It will take nearly

eleven years

to pay off balance.

After the last payment is made,

will you still have the items

or want what you purchased?Slide25

Challenge 2-A: DECIDE the Best Deal

Compare credit costs and options fora major purchase, loan, or phone plan.

Use the DECIDE process to establish criteria and compare options to select the best credit option for your situation.

24Slide26

Credit Rating

Today you will . . .Start down the path To builda reputation as a responsible borrower.

Can I Borrow?

What were you trying to borrow, and were you successful in negotiating a deal to borrow the item? Why or why not?What were the conditions (if any) for you to follow so you could borrow or use the item?

When you were asked to loan the item, what influenced your decision to let the person borrow the item?

26Slide28

Preview

Today we will answer these questions:How do I get a loan or credit card?Will I automatically get approved for a loan?

How much can I borrow?

Use what you learn today to

establish a borrowing code of conduct.

Applying for Credit

Full, legal nameCurrent address and phone number

Date of birth and Social Security numberCurrent employer

Monthly income

Bank name and account number

Monthly rent or mortgage payment

Christina L. Anderson

[use your own address, phone number]

May 29, 1963, (SS # provided)

Ms. Anderson is a physical therapist at

Sargant

Care Clinic, 400 Medical Way, [your town]

Ms. Anderson started working at

Sargant

five years ago today and currently earns $5,100 per month.

The Andersons have a savings account (#123-45-6789) at a bank near you

Pay $975 per month for mortgageSlide30

You Make the Call

29Slide31

Credit Reporting

A history of how you have used credit:Where you live and workCredit account amounts (balances and limits)Payment history (on time or late)Recent inquiries from creditorsAny collection or legal action to collect debt

30Slide32

Who’s Watching?

Starting Out

32Slide34

Challenge Assignment

Devise a plan for action you can take nowto practice sensible borrowing habitsand to build a good reputation as a borrower.

33Slide35

Borrowing Rights

Today you will . . .Explore the rights and responsibilitiesof borrowers and lenders.

What do you think?

How we

use

credit

is what’s good or bad.Slide37

Preview

Today we will answer these questions:What are my legal responsibilities when I sign a contract?

What are guidelines for borrowing?Where can I get help when I have credit problems?

Use what you learn today to

take on the responsibilities of borrowing.

Win Loans and Influence Interest

Pay your bills on time.

Yes

, paying on time is the single best way to get a good credit score.

Open several accounts in a short period of time.

, opening several accounts in a short time frame hurts your score, especially when starting out. This makes you look desperate to borrow.

Own a credit card you don’t ever use.

, creditors want to see how well you use credit. If

there’s no activity for a long time, the account may be considered inactive.Slide39

Win Loans and Influence Interest

Frequently move credit card balances to new cards with better interest rates.

No,

card hopping decreases the average age of your credit accounts, and lenders like to see long-term relationships.

Get a credit card when you already have a car

and student loan.

Yes,

adding a credit card when you only have loans can help because lenders prefer to see a mix of credit types.Slide40

Win Loans and Influence Interest

Close a credit card that you made a lot of late payments on.

No,

closing an account with negative items won’t help.

The account will still remain on your credit report for up

to 10 years, whether inactive or closed.

Use a debit card responsibly.

No,

debit card usage doesn’t show up in a credit report because these transactions are withdrawals from your own bank account rather than borrowing from someone else. Slide41

Follow Through or Risk . . .

Embarrassment if card is declined at the checkoutHaving property repossessed

State of perpetual debt which can increase personal stressPaying higher interest rates and/or late fees

Negative details for others to see on your credit report

Having your wages garnished

Contact with a collection agency

Unplanned expenses for legal action to enforce the contract

40Slide42

The Contract

Ignorance is No Excuse

Read the fine print:Payment amountPayment due date(s)

Consequences of late or no payments:Payment penalties? Collection costs? Repossession of property?

Any insurance coverage requirements (i.e. car, apt)

How to notify about changes to personal information

What to do if you have problems with the arrangement

Pay attention to updates!

42Slide44

On Your Side

Federal Trade Commission, www.ftc.gov

Consumer Financial Protection Bureau,www.consumerfinance.gov

Equal Credit Opportunity Act

Fair Credit Reporting Act

Fair Credit Billing Act

Truth-in-Lending Act

43Slide45

Know the Limit: The 20-10 Rule

*This rule does not included mortgage-related debt.Slide46

When to Say When

Borrower

Annual

Net Income

Maximum

Total Debt

(20%

Net Income)

Maximum

Monthly Payments

(10% Monthly

Net Income)

Mariah’s sister

$6,500

x .20

($6,500/12) x .10

Jesse’s brother

$24,750

Jesse’s sister

$35,800

You

45Slide47

When to Say When: The 20-10 Rule

Borrower

Annual

Net Income

Maximum

Total Debt

(20%

Net Income)

Maximum

Monthly Payments

(10% Monthly

Net Income)

Mariah’s sister

$6,500

$1,300

$54.17

Jesse’s brother

$24,750

$4,950

$206.25

Jesse’s sister

$35,800

$7,160

$298.33

You

$N x .20

($N/12) x .10

46Slide48

Be a SHREWD Borrower

Is there a S

incere need or want? Am I

appy to pay?

Is there

oom in my spending plan?

Will there be

xtra cost?

What is the

aiting cost?

Will I be

isciplined to repay on time?

What Would You Say?

If you were to be interviewed on the street today, how would you answer this question:What two tips can you offer about using credit?

48Slide50

Challenge Assignment 2-C

Create your own Credit Code of Behaviorto use as a guide when you borrow items or money.

49Slide51

Identity Fraud

Today you will . . .Take steps toprotect yourself against fraud

What’s in your wallet?

Give yourself a point for each of these items listed below.

__ Credit card (The actual number of cards)__ ID card with photo (school, employment)

__ $5 bill

__ Change (coins) totaling $2 or more

__ Original Social Security card

__ Picture of a close relative

__ Computer password

(The actual number of passwords)

__ Bank/Credit Union ATM PIN number

__ Library card

__ Paycheck stub

__ Bank or credit union deposit slip

__ Any type of money-saving coupon

__ Car keys

__ Flash drive for computer

__ Cell phone

__ Driver’s license

__ Kleenex

__ Membership card

__ FoodSlide53

Preview

Today we will answer these questions:How am I at risk for identity fraud?What should I do if I’m a victim of identity fraud?

How can I protect my personal information?

Use what you learn today to take action

to keep your personal information safe.

Theft or Fraud … Both are Trouble

53Slide55

Teens are Targets Too!

10 percent of U.S. youth had someone else using their Social Security Number

Identity fraud is growing for minors. Teens 15 – 18 years old are the main target.

Fraud may go undiscovered for

years

Businesses only see clean credit history when someone applies.

Credit reports are not available for minors to check for any activity.

Fraud is often detected only when the victim applies for a loan or credit card in his or her own name.

Source: Richard Power, Child Identity Theft, Carnegie Mellon

CyLab

Report

54Slide56

Protect From Fraud

The Federal Trade Commission (FTC) recommends:Deter misuse of your information

Detect

when you have a problem

Defend

yourself from loses

55Slide57

7 Tips to Thwart Thieves

Keep sensitive information close to the vest. Lighten up your wallet.

Never leave blanks on a charge slip. Stick to secure web pages.

Shred ruthlessly.

Be computer safe by using firewalls, anti-spyware

and anti-virus software.

Guard your Smartphone too!

56Slide58

Be on the Lookout!

Review your accounts and billing statements.Sign up for email or text-messaging alerts.Review your credit report (at least once a year).

57Slide59

Take Action

Unauthorized Charges

File a disputeContact the FTC

Stolen Purse or Wallet

File a report with company

Call your cellphone company

File a police report

Place a

Fraud Alert

on your credit report with all three credit-reporting agencies

Write your credit card companies

Document everything

Check your credit report in a few monthsSlide60

Challenge Assignment

Put up your own shield to protect yourself from identity fraud.

Create a checklist of at least five actions you will take, starting now, to protect your personal data.

Over the next week, document evidence that you have carried out the actions.

Using Credit Today you will - PowerPoint Presentation

Using Credit Today you will - PPT Presentation

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