The Cost of Borrowing SS.4.FL.4.1 Discuss that interest is the price the borrower pays for using someone else’s money. SS.4.FL.4.2 Identify instances when.

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The Cost of Borrowing SS.4.FL.4.1 Discuss that interest is the price the borrower pays for using someone else’s money. SS.4.FL.4.2 Identify instances when people use credit, that they receive something of value now and agree to repay the lender over time, or at some date in the future, with interest. Gr. 4 Financial Literacy

Vocabulary Annual Percentage Rates (APR): interest of loans or credit Credit Cards: buy now pay later Credit Limit: the maximum amount of money the bank will lend you Consumer: a person who purchases goods and services Debt: something, typically money, that is owed or due Interest / Finance Charge: fee for borrowing money (%) Grace Period: certain amount of time you have to pay the balance without having to pay interest. Principal: amount of loan not including interest Grade 4 Financial Literacy SS.4.FL.4.1, SS.4.FL.4.2

Essential Questions What can you do to develop and maintain creditworthiness? What are the advantages and disadvantages of credit cards? Grade 4 Financial Literacy SS.4.FL.4.1, SS.4.FL.4.2

What message does the proverb reveal about debt? (LAFS.4.L3.5) What information can be gained by analyzing the cartoon? (LAFS.4.RI.3.7) Image Source: Cartoon-Credit-Card1.png Grade 4 Financial Literacy SS.4.FL.4.1, SS.4.FL.4.2

Introducing Credit Explain the differences between Lucia and Marlon’s credit habits? Cite evidence from the video segment. (LAFS.4.RI.2.6) Grade 4 Financial Literacy SS.4.FL.4.1, SS.4.FL.4.2 LuciaMarlon Click here to play video outside of PPT. Click here to play video outside of PPT.

Introducing Credit Explain the differences between Lucia and Marlon’s credit habits? Cite evidence from the video segment. (LAFS.4.RI.2.6) Grade 4 Financial Literacy SS.4.FL.4.1, SS.4.FL.4.2 LuciaMarlon Buys what she can afford Pays entire balance at the end of the money to avoid interest charges Spends the limit Doesn’t pay the minimum monthly payment – interest and fees accumulate Stops managing credit card Manages account responsibly

Credit Score Managing your credit wisely is necessary in order to maintain creditworthiness. Analyze the graphic below and summarize what it shows. (LAFS.4.RI.3.7) Grade 4 Financial Literacy SS.4.FL.4.1, SS.4.FL.4.2

Elements of your Credit Score The pie graph shows elements that contribute to your credit score. According to the graph, what two factors have the greatest impact on your credit score and overall creditworthiness? What message does this send credit card users? (LAFS.4.RI.3.7) Grade 4 Financial Literacy SS.4.FL.4.1, SS.4.FL.4.2

Other Forms of Credit Mortgage Loans a loan towards the purchase of a home. (typically10-30 years) Grade 4 Financial Literacy SS.4.FL.4.1, SS.4.FL.4.2 Automobile Loan Home Loan Education Loan Refinance Loan Pay for a car 4-6 years Pay for a home years Pay for college years Modify terms of existing loan Lower interest rate REMEMBER: The longer it takes you to pay back, the more interest you will pay.

The Cost of Borrowing Mortgage Loans a loan towards the purchase of a home. (typically10-30 years) Grade 4 Financial Literacy SS.4.FL.4.1, SS.4.FL.4.2 Automobile Loan Home Loan Education Loan Terms: $ 20,000 5% APR 4 years $ 200,000 5% APR 30 years $5 0,000 5% APR 20 years Total Interest : $2, Total Cost: $21, Monthly Payments: $ Total Interest: $186, Monthly Payments: $ Total Cost: $386, Monthly Payments: $ Total Interest: $29, Total Cost: $79,194.69

Let’s Review 1.How can you avoid paying credit card interest? 2.What can happen to the cost of borrowing if you miss a payment? 3.What happens to your debt if you only pay the minimum required each month? Grade 4 Financial Literacy SS.4.FL.4.1, SS.4.FL.4.2 Click here to play video outside of PPT. Click here to play video outside of PPT.

Answers 1.How can you avoid paying credit card interest? 2.What can happen to the cost of borrowing if you miss a payment? 3.What happens to your debt if you only pay the minimum required each month? Grade 4 Financial Literacy SS.4.FL.4.1, SS.4.FL.4.2 Pay your entire balance within the grace period. Interest rate will increase and you will incur late fees. Interest keeps accruing and you will never get out of debt. CONGRATULATIONS! Based on your CREDIT SMARTS you have now been approved for your very first credit card. Use it wisely!

What message does the quote reveal about spending? (LAFS.4.L3.5) What information can be gained by analyzing the image? (LAFS.4.RI.3.7) Image Source: content/uploads/2012/12/baby-walker-trolley- cartoon-chris-madden1.gif Grade 4 Financial Literacy SS.4.FL.4.1, SS.4.FL.4.2

Sources Lesson adapted from Geeks on Finance: How to Become a Smart Consumer Grade 4 Financial Literacy SS.4.FL.4.1, SS.4.FL.4.2 Lesson Adapted from: Creditworthiness Lesson Plan: responsibility/corporate-responsibility-report-2011/community/financial-literacy- curriculum-pdfs/5-credit-and-debt-3-5/1-pwc-credit-and-debt-3-5-lesson.pdfhttp:// responsibility/corporate-responsibility-report-2011/community/financial-literacy- curriculum-pdfs/5-credit-and-debt-3-5/1-pwc-credit-and-debt-3-5-lesson.pdf Discovery Education, (2010). Rewards and Risks of Credit Cards. [Video Segment]. Available from Colgren Communications, (2003). Review: Credit and Credit Cards. [Video Segment]. Available from Common Craft, Inc., (2013). Credit Card Responsibility. [Full Video]. Available from ABCD02F48E3B?hasLocalHost=false ABCD02F48E3B?hasLocalHost=false