Review WHAT DID YOU LEARN LAST WEEK? org (c) 2012 National Endowment for Financial Education | Lesson 1-4 Spending Plan 1

Using Credit TODAY YOU WILL... EXAMINE REASONS WHY PEOPLE USE CREDIT. 2 (C)2012 National Endowment for Financial Education | Lesson 2-1 Using Credit

Good or Bad When is it OK to borrow money? When is borrowing money not a good idea? (C)2012 National Endowment for Financial Education | Lesson 2-1 Using Credit 3

Today you will … Answer these questions: Why do people borrow money? When is it acceptable and unacceptable to use credit? How does borrowing impact spending power? Use what you learn to recognize situations when it makes sense to either use credit or to avoid using credit. 4 (C)2012 National Endowment for Financial Education | Lesson 2-1 Using Credit

Meet Mariah and Jesse (C)2012 National Endowment for Financial Education | Lesson 2-1 Using Credit 5 Mariah– junior Lives at home Part-time job Responsible for own expenses Saving for college Wants her own credit card Jesse– sophomore Lives at home No job now Saving to buy a truck when he gets license

Using Credit Credit Buy something now; pay for it later (C)2012 National Endowment for Financial Education | Lesson 2-1 Using Credit 6 How we use credit is what’s good or bad

What are good things about using credit? Quicker Gratification Special Offers Bonuses Convenience Protection Emergencies Opportunity to Build Credit

Credit in the Community (C)2012 National Endowment for Financial Education | Lesson 2-1 Using Credit 8 Consumers spend more money Demand for products and services rises Companies spend more and hire more employees Employees earn more money

4-C-1 Credit means someone is willing to loan you money – called principal – in exchange for your promise to repay the money later, usually with interest. Interest is the amount you pay to use someone else’s money, usually a percentage of the principal. The higher the interest rate, the higher the total amount you pay to buy something on credit. The Language of Credit Pg 9

Credit Options Revolving credit (example: credit card) – Borrow for multiple purchases without going over credit limit – Repay what is owed each month Installment credit (example: car loan) – Borrow a specific amount of money to buy something now – Make regular payment to repay over time by a set date Cash loans – Borrow a specific amount of cash to repay later by a set date Service credit (example: cellphone, electricity) – Promise to pay for services used each month (C)2012 National Endowment for Financial Education | Lesson 2-1 Using Credit 10

Jesse’s Plan Jesse’s Monthly Plan No Loan Jesse’s Monthly Plan With Loan (C)2012 National Endowment for Financial Education | Lesson 2-1 Using Credit 11

Now or Later Instant Gratification An unwillingness to give up something now in return for something later Delayed Gratification A willingness to give up something now in return for something later (C)2012 National Endowment for Financial Education | Lesson 2-1 Using Credit 12

Stop Drop and Think Before Using Credit NEFE High School Financial Planning Program® ©2012 | Lesson 2-1 Using Credit 13 Do I need this or do I want it?If I don’t need it, why do I want it?Exactly when will I use (or wear) it?Can I find it for less somewhere else?What will I have to give up or put off by using credit to buy this now?

Credit Costs TODAY YOU WILL... EXAMINE THE COSTS OF CREDIT. 14 (C)2012 National Endowment for Financial Education | Lesson 2-2 Credit Costs

Is it a Deal?  Computer: Make payments for 24 or 36 months?  Stereo System: Pay 13.5 or 18 percent interest?  Car: Lower price at higher interest rate?  TV: Delay payments for 90 days?  Truck: $1,500 cash back or no cash back? (C)2012 National Endowment for Financial Education | Lesson 2-2 Credit Costs 15

(C)2012 National Endowment for Financial Education | Lesson 2-1 Using Credit 16

Next you will … We will answer these questions: How is credit used? What are typical costs of credit? How do I calculate the cost of using credit? Use what you learn today to consider borrowing options for a specific situation. 17 (C)2012 National Endowment for Financial Education | Lesson 2-2 Credit Costs

More Credit Language Annual Percentage Rate (APR) % Consistent way to report interest; includes interest rate, fees, and loan costs Maturity Date When the final payment is due for a loan Grace Period The amount of time before interest starts accumulating on charged purchases if payment is not received (C)2012 National Endowment for Financial Education | Lesson 2-2 Credit Costs 18

When You Charge “Stuff” You bought “stuff” with your credit card. In fact, you bought $500 worth of “stuff” with your credit card. Your APR is 18%. You plan to pay $10 a month to pay it off. You will pay $431 in interest. Final cost of your purchases = $ (C)2012 National Endowment for Financial Education | Lesson 2-2 Credit Costs 19 It will take seven years and nine months to pay off balance

How Long Will it Take? You owe $3,000. The credit card APR is 18%. You currently pay 4 percent of the current balance. You will pay $1,716 in interest Final cost of your purchases = $4,716 (C)2012 National Endowment for Financial Education | Lesson 2-2 Credit Costs 20 After the last payment is made, will you still have the items or want what you purchased? It will take nearly eleven years to pay off balance

4-L The Five “ C s” of Credit Capital Capacity Character Collateral Conditions Pg 25

4-M-1 How Credit Scores Are Determined Your payment history Your payment history – Information about how you make your payments on credit cards, store accounts, car loans, finance companies, mortgages – Accounts in collection or past due, and how long past due – Information in public records, such as bankruptcy, judgments, liens, wage attachments or child support Pg 49

How Credit Scores Are Determined Your overall debt Your overall debt – How much you owe on all your accounts – How much credit you have available to use Your credit account history Your credit account history – When you opened and used each of your accounts – How recently you applied for new credit – Recent good credit history following past payment problems 4-M-2

How Credit Scores Are Determined Types of Credit Types of Credit – The different types of credit accounts you have – The total number of accounts you have 4-M-3

4-N Get and Keep a Good Score Make sure your credit report is accurate. Make sure your credit report is accurate. Pay all your bills on time. Pay all your bills on time. Apply for credit only when you need it. Apply for credit only when you need it. Lower the balances on all your credit accounts. Lower the balances on all your credit accounts. Pay off debt rather than moving it around. Pay off debt rather than moving it around.

Identity Fraud TODAY YOU WILL... TAKE STEPS TO PROTECT YOURSELF AGAINST FRAUD 26 (C)2012 National Endowment for Financial Education | Lesson 2-5 Identity Fraud

What’s in your wallet? Give yourself a point for each of these items listed below. __ Credit card (The actual number of cards) __ ID card with photo (school, employment) __ $5 bill __ Change (coins) totaling $2 or more __ Original Social Security card __ Picture of a close relative __ Computer password (The actual number of passwords) __ Bank/Credit Union ATM PIN number __ Library card (C)2012 National Endowment for Financial Education | Lesson 2-5 Identity Fraud 27 __ Paycheck stub __ Bank or credit union deposit slip __ Any type of money-saving coupon __ Car keys __ Flash drive for computer __ Cell phone __ Driver’s license __ Kleenex __ Membership card __ Food

Preview How am I at risk for identity fraud? What should I do if I’m a victim of identity fraud? How can I protect my personal information? Use what you learn today to take action to keep your personal information safe. 28 (C)2012 National Endowment for Financial Education | Lesson 2-5 Identity Fraud

Theft or Fraud … Both are Trouble Your wallet is stolen Electronic files are hacked Your personal information is stolen from the trash Identity Theft Your account information is used for purchases New accounts are opened or insurance purchased using your personal information Your information is used for another crime Identity Fraud (C)2012 National Endowment for Financial Education | Lesson 2-5 Identity Fraud 29

Teens are Targets Too! 10 percent of U.S. youth had someone else using their Social Security Number Identity fraud is growing for minors. Teens 15 – 18 years old are the main target. Fraud may go undiscovered for years: – Businesses only see clean credit history when someone applies. – Credit reports are not available for minors to check for any activity. Fraud often detected only when the victim applies for a loan or credit card in his or her own name. Source: Richard Power, Child Identity Theft, Carnegie Mellon CyLab Report (C)2012 National Endowment for Financial Education | Lesson 2-5 Identity Fraud 30

Protect From Fraud The Federal Trade Commission (FTC) recommends: Deter misuse of your information Detect when you have a problem Defend yourself from loses (C)2012 National Endowment for Financial Education | Lesson 2-5 Identity Fraud 31 Pg 35

Take Action Unauthorized Charges File a dispute Contact the FTC Stolen Purse or Wallet File a report with company Call your cellphone company (C)2012 National Endowment for Financial Education | Lesson 2-5 Identity Fraud 32 File a police report Place a Fraud Alert on your credit report with all three credit- reporting agencies Write your credit card companies Document everything Check your credit report in a few months