Session 4: Credit and Borrowing

I was particularly excited to teach our middle school girls this class. "If there is one thing that you take away and remember from this class," I told them, "I hope it will be how a credit card actually works". Of course I wanted them to remember a bit of everything, but how credit cards work is probably one of the most misunderstood aspects of our personal finance. We started off with Banking Pictionary where we had the girls draw out ATM, Online Banking, Piggy Bank, Bounced Check and Bank of America -all terms we had discussed the previous week.

Then we got into the good stuff - credit and borrowing!

- Credit is basically borrowing. Credit is based on a promise that you will pay it back.

- Explain how a credit card works with an example transaction and statement.

While looking at the example statement, ask the class the following questions:
1. How much did Aliya spend at Best Buy?
2. What is the minimum monthly payment?
3. When is the December payment due?
4. Is it a good idea for Aliya to just pay the minimum?

- A debit card looks like a credit card, but when you use it money automatically and immediately comes out of your checking account. With a credit card no money immediately comes out of your account – you just borrow the money and agree to pay later.

- If you pay the full amount of your bill within one month, you will be charged NO interest at all.

- Avoid only paying the minimum –it get’s expensive because they charge interest on what you haven’t paid back. Best thing to do is pay off your bill in full every month.

- We make our spending decisions based on the pricetag, but if you wait a long time to pay it back, it costs more.

- Pros: Convenient, important to build a history of good credit (we will discuss further next week) , useful in emergencies, online purchases, rewards.

- Cons: High interest rates and fees so it can be expensive if you don’t pay bill immediately, temptation to overspend, stress of making payments on time.

- Article: Consumers Union warns teens: Don't keep up with the Kardashian Kard.

We had an open discussion about the high fees this "Kard" was offering. The girls all agreed that it sounded fairly ludicrous especially when they realized that by the end of two years the consumer would rack up fees of over $200! Amazingly, the following week the Kardashian Kard was canceled once they realized it was actually hurting, not helping their public image. Good riddance!