On individual pieces of paper write the terms that appear in the bulleted list below (one term per piece of paper). Also create a title on paper called “Spending Options” and put the title at the top of a large space such as a wall. Hand out the pieces of paper with the bulleted terms to random students in the class. Give a short lecture using the notes provided in your Teacher Aid. Instruct students holding the terms to place them on the wall in the appropriate place as they come up. When your lecture is completed, there will be a visual representation of the topics on the wall. Keep this large visual up for the remainder of the SPEND IT portion of this unit.
- Installment Loans
- Automobile Loans
- Student Loans
- Mortgage Loans
- Credit Cards
- Lines of Credit
- Credit Bureaus
- Credit Report
- Credit Score
Review notes with students (Note: This content gives a solid foundation to the rest of the finance stage):
When you spend money, you have two options. You can spend cash or you can use credit.
First, let’s talk about cash. In today’s society, cash is not just dollar bills and coins. Cash also includes electronic transfers from your bank account through online banking, online bill pay, debit cards, or online purchasing through platforms like PayPal. Writing a check to pay for something is also considered spending cash, even though check writing has become a casualty of advancements in technology.
If you don’t have the cash to spend or you choose not to spend cash on a particular purchase, you have the option of using credit. Credit is simply a form of an I OWE YOU in which you walk away with the purchase right now, but you pay for it later. Often times you pay for it later in small amounts, and you end up paying more for the purchase than if you had just bought it with cash. The biggest thing to realize is that any time you use credit, you are really building debt.
There are two categories of credit – closed-ended and open-ended.
Closed-ended credit is tied to what is called a term. The term is simply the length of time before what you owe has to be completely paid off. It is your deadline. Examples of closed-ended credit would be automobile loans, student loans, and mortgage loans.
Whereas closed-ended credit is tied to a term, open-ended credit is more tied to an amount of money. With open-ended credit, you have access to a certain amount of spending money and how long it takes you to spend or to pay it back doesn’t really matter. That being said, the longer it takes you to pay it back, the more you will end up paying, Examples of open-ended credit would include credit cards and lines of credit.
Over the next few lessons, we will discuss what each of these types of credit purchases are really like. We will talk about how to buy a car, what student loans are all about, how to purchase a home, and then we will look at the process of using credit cards and lines of credit.
One last thing to point out, is all your payments are tracked and recorded in a central location. All payments means all. Not just those purchases made using credit. What you pay for in cash matters as well. For instance, if you pay your electric bill on time with some form of cash, you are building a positive financial reputation for yourself. If you pay late or don’t pay the total amount, then you are building a negative financial reputation for yourself. So, all your purchases, bills, and debts create a financial reputation, whether you are using cash or credit. This compilation of your financial reputation is housed by credit bureau. There are three main credit bureaus: Equifax, Experian, and TransUnion. These companies simply track and organize all the pieces that create that financial reputation for you. This reputation is summarized in your credit report and you are assigned a credit score that represents your financial reputation.