LESSON TWO: PERSONAL SPENDING DEBIT AND CREDIT LESSON TWO: PERSONAL SPENDING

INTRODUCTION DEBIT CARD: used like cash. Linked to a checking or savings account. Paying NOW for merchandise PAYPAL: online payment service that can be linked to savings, checking or credit card account

INTRODUCTION CREDIT CARD: provides an instant loan to a consumer from a bank or other financial institution. money will be repaid with interest if the debt is not paid in full each month

INTRODUCTION CREDIT: the ability to borrow money advantages: Freedom to carry small amounts of cash Opportunity to establish a good credit history Ability to track expenditures Financial flexibility Credit is not free!

INTRODUCTION Credit is not additional income! A credit card is an extension of your checking account---not an extension of your paycheck Too much credit card debt can be burdensome and reduce the amount of money available to spend on other items Can lead to foreclosure on your property and bankruptcy

VOCABULARY Bankruptcy Debit card Cash Debt Check Foreclosure Credit Credit card Debit Debit card Debt Foreclosure Paypal

ADVANTAGES OF DEBIT AND CREDIT CARDS Debit card Credit card

QUESTIONS A DEBIT CARD IS JUST ANOTHER NAME FOR A CREDIT CARD. FALSE DEBIT MEANS WITHDRAWAL OR DEDUCTION TRUE DEBIT CARD HOLDERS ARE CHARGED INTEREST EACH TIME THEY SWIPE THEIR CARDS

QUESTIONS CREDIT CARDS ARE A BUY-NOW-PAY-NOW PAYMENT OPTION FALSE CREDIT CARDS ARE A SAFE WAY TO PAY FOR ONLINE PURCHASES TRUE CREDIT CARDS ARE FREE MONEY

WHAT HAPPENS IF YOU CAN’T PAY FOR THE THINGS YOU BUY? Let’s look at a credit card statement

Cost of Using Credit Purchase price of goods Minimum monthly payment Time to pay off debt Interest paid True cost $1,000 $20 8 years $863 $1,863 $2,500 $50 23 years $5,363 $7,863 $5,000 $100 35 years $12,863 $17,863

Needs vs. Wants If you had the money to buy the number one thing on your must-have list, what would you buy? Is this a need or a want? Let’s look at the advantages and disadvantages of using a debit card

Needs vs. Wants Now lets look at the advantages and disadvantages of using a credit card On the credit card statement: What does Stacie owe on her credit card Is Stacie charging more than she is paying off Why might Stacie have $35 in Fees Charged on her bill What is Stacie’s annual fee for the use of her card? What will happen to Stacie’s finances over time if she keeps the same spending habits and pays the minimum due?

VOCABULARY Annual fee APR Credit Limit Finance Charges Minimum Payment Due Previous Balance