Smart Spending: Credit and Budgeting Glow Online Curriculum Session 2 Glow Foundation 2010

Page 2 What We Will Cover in this Session  Credit  Credit Score  Credit Cards  Building a Spending Plan  Budgeting

Page 3 Credit Match Quiz __ Annual Fee a) A company that gathers information on consumers who use credit. __ Annual Percentageb) A document issued by an independent credit Rate (APR)agency that contains information concerning a loan applicant’s credit history and current credit standing. __ Credit Bureau c) An amount a credit card company charges a credit card holder to use the card for a year. __ Credit Reportd) A rating system that indicates a person’s creditworthiness based on a number of criteria. __ Credit Scoree) The total amount of money borrowed not including interest of service charges. __ Principalf) A measurement used to compare different loans which takes into account the loan’s interest rate, term, and fees.

Page 4 Credit Quiz Answers _c _ Annual Fee a) A company that gathers information on consumers who use credit. _ f _ Annual Percentageb) A document issued by an independent credit Rate (APR)agency that contains information concerning a loan applicant’s credit history and current credit standing. _a_ Credit Bureau c) Amount a credit card company charges a card holder to use the card for a year. _ b_ Credit Reportd) A rating system that indicates a person’s creditworthiness based on a number of criteria. _d_Credit Scoree) The total amount of money borrowed not including interest of service charges. _ e _ Principalf) A measurement used to compare different loans which takes into account the loan’s interest rate, term, and fees.

Page 5 Credit THINK ABOUT: 1.What is credit? 2.What are the benefits of having credit? 3.What are the risks of having credit?

Page 6 Credit Credit is the ability to BORROW money. Benefits:  Easier to rent an apartment/purchase a home  Get a lower interest rate from lenders  Financial flexibility – you can buy now and pay later Risks:  Easy to overspend  You can hurt your credit score/history if you can’t make payments  With bad credit, it can be hard to get a loan or a good interest rate in the future

Page 7 Credit How can you start to build good credit? Good Credit Signs Paying at least the minimum balance Paying on time Making all payments Staying within your credit limit Bad Credit Signs Paying less than the minimum balance Paying late Missing payments Exceeding your credit limit What are signs of bad credit? Establishing credit is important for borrowing money later. No credit is not the same as good credit!

Page 8 Credit How do lenders decide whether to lend you money? 5 C’s of Credit: 1. Character 2. Capacity 3. Capital 4. Collateral 5. Conditions

Page 9 Credit Score Having good/bad credit affects your ability to:  Get a credit card  Purchase/rent a home or apartment  Get a lower interest rate from lenders  Borrow money A credit score numerically indicates how strong your credit is.

Page 10 Credit Score Credit Score: A number between that indicates your creditworthiness. The higher the number, the stronger your score. Points are earned based on factors like your payment history, the length of your credit history, and account balances.

Page 11 Credit Report What is a credit report? A document issued by an independent credit agency that contains information concerning a loan applicant’s credit history and current credit standing. How are credit reports like report cards?

Page 12 Credit Cards Credit cards allow you to purchase something TODAY and pay it off over time. Credit cards are not the same as debit cards Credit CardsDebit Cards PaymentPay LaterPay NOW Interest Charges Yes, if there is a remaining balance No Pros Potential to get freebies / points Prevent major debt ConsAdditional feesFees if you overdraw

Page 13 Credit Cards Before getting a credit card, shop around. Know:  Are there annual fees or other regular charges?  What is the credit limit?  What is the interest rate? Is it fixed or variable?  What is the APR? ANNUAL PERCENTAGE RATE: Measurement that takes into account the interest rate, term, and fees  Are there benefits to getting this card (points, freebies, etc)?

Page 14 Credit Cards Original Balance APR Monthly Payments Number of Monthly Payments Term (Years) Total Amount Paid $100018%Minimum877 $1,516 $100018% Minimum + $ $1,187 $100018%Minimum $1,119 Pay as much of the balance as possible to reduce the term and amount of interest paid

Page 15 Credit Cards Credit Card Tips:  Use cash or debit cards to daily expenses  Know how you are going to pay for your credit card purchases before you start spending  Get a card with low interest and pay as much of the balance as possible  Pay on time  Don’t spend more than you have. Stay within your budget.  Don’t exceed your credit limit  Others?

Page 16 Spending Plans / Budgeting What should you pay FIRST to make your monthly income last?

Page 17 Spending Plans / Budgeting  Pay your monthly bills  Set aside money you’ll need for your weekly and day-to-day expenses  Put money into savings  Set aside money for larger expenses  If you can begin to earn more, increase the amount you save as much as you can  Set aside money for your major future goals

Page 18 Spending Plans / Budgeting Creating a Daily Spending Diary You should have receipts or notes from last week’s spending (the previous session’s homework was to save receipts for a week. Write down the days of the week and log what you spent money for and how much on each day. Categorize expenses by fixed [regular monthly expenses you have to pay, like rent], flexible [expenses that vary, like texting usage], and discretionary [things you can do without]. Calculate the subtotal for each category and then total the amount spent in the last week

Page 19 Spending Plans / Budgeting Creating a Spending Plan Now use this record to plan your spending for the next month. Add things that you know are coming up, and add in the next week the things you missed. Don’t forget to add savings! Also categorize these expenses by fixed [regular monthly expenses you have to pay, like rent], flexible [expenses that vary, like texting usage], and discretionary [things you can do without]. Calculate the subtotal for each category and then total the amount you plan to spend in the next month. You now have the start of a spending plan!

Page 20 Recap of what we have covered  Credit  Credit Score  Credit Cards  Building a Spending Diary and Plan  Budgeting

Page 21 Homework: Get ready to apply Spend 15 minutes exploring the FAFSA website ( Be sure you go to this site to learn about financial aid. The service should be FREE

Page 22 = it’s free!

Page 23 = they charge!

Page 24 Next Session Will cover FAFSA and the advantages of applying by March of your Senior school year to qualify for ALL KINDS of great financial aid from the government and colleges.