1. Chapter 4: Debt
Unit 2: Credit and Debt

2. 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.

3. 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?”

4. 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!

5. Debt: Product, Not Privilege
Section 1

6. 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

7. 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.

8. 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.”

9. 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.

10. Activity
Activity: Hidden Costs of Credit (25 minutes)

11. Debunking the Credit Myths
Section 2

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

13. 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

14. Activity
Activity:
Making the Minimum

15. 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.

16. 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.

17. Activity
Activity: Drive Free (60 minutes)

18. 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.

19. 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.

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

21. 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.

22. 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

23. 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.

24. 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.

25. 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.

26. 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!

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

28. Activity – House Shopping
9/19/2018
Calculate your maximum mortgage payment using the equation in the box.
Annual Gross Income
x %
Max. House Expense
÷ 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.

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

30. 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)

31. 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

32. Activity
Activity: Rent to Own (30 minutes)

33. The Credit Score
Section 3

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

35. 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!

36. Activity
Activity: Debunking the Credit Myth (30 minutes)

37. Credit Bureaus and Identity Theft
Section 4

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

39. 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

40. 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.

41. Activity
Saving: The Debt Snowball (30 minutes)

42. 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