Chapter 4: Debt Unit 2: Credit and Debt.

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Presentation transcript:

Chapter 4: Debt Unit 2: Credit and Debt

Explore Examine the charts, graphics, and reading excerpts in Chapter 4: Debt. Make a list of questions you would like to have answered as we go through the chapter.

Introduction WB: Before You Begin, pgs. 74-75 Journal: Review the Learning Outcome objectives and Key Terms Complete the “Before” column on the “Measure Your Progress” chart Journal: What have you heard about “building your credit score?”

Public Service Announcement Activity Get into groups of three, research case studies about the negative effects of debt on young adults. Create a public service announcement about the dangers of debt. (The goal is to call your audience to action). Create a movie Commercial Movie Maker Website Animoto.com Blog Goanimate.com Write a song Film a video Act out a skit BE CREATIVE! HAVE FUN! WORK TOGETHER!

Debt: Product, Not Privilege Section 1

Debt is Everywhere Video 1.1 (13 minutes): Debt is Everywhere Journal: Explain how debt is actually a product that is bought and sold. Read: The Devastating Effects of Credit, p. 77

Discussion Questions Does viewing debt as a product instead of a service, reward, or privilege, change your perspective on credit cards? Describe some of the powerful marketing tactics used by the credit card industry. Marketing to youth; marketing credit as a privilege, reward, etc.

Financial Myths Young Adults Fall For Video 1.2 (12 minutes): Financial myths young adults fall for. Journal: Explain what Dave means when he says, “The borrower is slave to the lender.”

Discussion Questions Have you ever been told that you need to “build your credit?” This is a myth. You do not need credit to navigate the financial world. What do credit card companies and other lenders have to gain by consumers falling for these myths? Huge profits through interest and fees. What are other financial myths that young adults often fall for? Spend as much money as they want on college and pay for it later, they need a new car.

Activity Activity: Hidden Costs of Credit (25 minutes)

Debunking the Credit Myths Section 2

Debunking the Credit Myths Video 2.1 (12 minutes): Debunking Credit Myths Journal: Explain why co-signing a loan is never a good idea.

Discussion Questions Explain why cosigning a loan for a friend or relative is never a good idea. You will probably end up paying back the loan yourself and ruining the relationship. What is predatory lending? Money lending companies that take advantage of lower income people with extremely high interest rates, fees, and unethical debt collection practices. Why are people drawn to predatory lending companies? They offer fast cash

Activity Activity: Making the Minimum

The Truth About Car Loans Video 2.2 (8 minutes): The truth about car loans Journal: Explain how the “drive free” method of buying a car works.

Discussion Questions How does having a car payment stand in the way of building wealth? Having a car payment means that, every month for 5-6 years, a portion of your income goes to the bank or finance company. That’s money that can’t be saved! Besides payments, describe two additional ways you lose when buying a new car. Interest – you pay more than the sticker price Depreciation – your car will immediately lose value when you drive it off the car lot.

Activity Activity: Drive Free (60 minutes)

The Truth About Car Loans Video 2.3 (13 minutes): The truth about car loans Journal: Explain why leasing a car is a bad idea.

Discussion Questions What does it mean to be upside down on a credit purchase? You owe more than the product is worth. What are some of the myths regarding car leasing? Myth 1: Leasing your car is what sophisticated financial people do. Myth 2: You should always lease things that go down in value Myth 3: There are tax advantages.

Activity Activity: The True Cost of Ownership (20 minutes) Google: Total cost to own _______ Edmunds.com is a good site.

Buying a House Video 2.4 (9 minutes): Buying a House Journal: Explain why it is better to take out a 15 year mortgage instead of a 30 year mortgage.

Discussion Questions List some wise decisions you should make when buying a house? Get no longer than a 15-year fixed rate mortgage. Limit your monthly payment to no more than 25% of your monthly take-home pay Save at least a 10% down payment Why are teens such a huge target for credit card companies? The adult market is saturated There is a strong brand loyalty to your first credit card

Calculating Down Payments Principal is the money you have to borrow from a bank or mortgage company. You will have to make a down payment – usually 3 to 20% of the home’s price – and then make monthly mortgage payments.

Calculating Down Payments $220,000 Initial value x 10% Percentage for DP $ 20,000 Down payment $220,000 Initial value - 20,000 Down payment $200,000 Loan amount The bank owns your home until you pay off your loan. If you don’t pay your mortgage, the bank can foreclose the property – reclaim their property – and sell the home to someone else.

Components of a Mortgage Payment Interest is the percentage you pay to get the loan. Fixed mortgage – the interest payments are the same over the course of the loan. Variable mortgage – the interest payments go up and down with changes in interest rates.

Components of Mortgage Payments Homebuyers will pay more in interest charges than principal. Interest on mortgages are compounded – you pay interest on the principal and also pay interest on top of your previous interest!

Helpful Websites Mortgage Calculators Real Estate Websites Mortgage Payment Calculator Total Mortgage Expense Calculator Real Estate Websites Zillow.com Trulia.com 9/19/2018

Activity – House Shopping 9/19/2018 Calculate your maximum mortgage payment using the equation in the box. Annual Gross Income x 25% Max. House Expense ÷ 12 Months Total Monthly Budget - $300 for taxes & insurance Maximum Monthly Mortgage Go to Bankrate.com’s mortgage calculator to determine the maximum home value you can afford. Shop for a home, in your budget, that fits your lifestyle and needs, based on your life scenario.

Credit Cards Video 2.5 (14 minutes): Credit Cards Journal: Explain the difference between a credit card and a debit card.

Debt vs. Wealth Building Video 2.6 (13 minutes): Debt vs. Wealth Building Journal: Which credit myths did you believe prior to hearing this lesson? Explain why each of those are myths and not facts. Read: What About Credit Card Rewards (p. 88)

Discussion Questions What is your largest wealth-building tool? Your income List the steps to get out of debt. Quit borrowing money, save money, sell something, get a part-time job or work overtime, use the debt snowball method. What are some of the serious consequences of not repaying a debt? Foreclosure, repossession, bankruptcy, garnishment, surrender of collateral, delinquency

Activity Activity: Rent to Own (30 minutes)

The Credit Score Section 3

What Your Credit Score Really Measures Video 3.1 (9 minutes): What your credit score really measures. Journal: What does a credit score measure?

Discussion Questions Why is the FICO score really an I love debt score? It only measures your debt history with the purpose of establishing your credit worthiness. Can you really live without a credit score? Yes! It just takes some foresight, planning and a little patience. What are the five components of the FICO Score? Debt history, debt levels, duration of the debt, type of debt, new debt. Does the FICO score measure wealth or how well you manage money? No!

Activity Activity: Debunking the Credit Myth (30 minutes)

Credit Bureaus and Identity Theft Section 4

What is a Credit Bureau? Video 4.1 (13 minutes): Credit Bureaus and Identity Theft Read: Consumer Credit Laws, pg. 94-95 Journal: Explain why the credit industry wants you to believe that you need a credit score.

Discussion Questions What is a credit bureau? An agency that researches and collects individual credit information and sells it for a fee to creditors so they can make a decision on granting loans. What are the three main credit bureaus? Equifax, Experion, TransUnion How often should you check your credit report for errors? Once per year

Discussion Questions What issues was the Fair Credit Reporting Act (FCRA) intended to address? Concerns over consumers credit report accuracy, privacy, and fairness. A strong password should include what elements? A combination of letters, characters, and numbers What is the Federal Trade Commission? The FTC is one of the many U.S. federal agencies which regulate the consumer credit system and enforce the laws related to it.

Activity Saving: The Debt Snowball (30 minutes)

Chapter Summary Budget Builder – foundationsU.com/4 Complete the “After” column on the “Measure Your Progress” chart, pg. 75. Take Action Challenge, pg. 97 Study Guide: Money in Review, pgs. 98-99