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!

Session 3: Banking

We kicked off the day with a fun game where the class is broken up into two groups and given a sheet of paper. I say a word, for example "world" and each team has 60 seconds to come up with as many songs as they can think of which features the word, "world" (for example, "Whole New World from Aladdin, "Heal the World" by Michael Jackson etc). When time is up, each teach goes through their list (they have to sing the song as a team) and if the other team also has it they have to cross it off their list (no points). It was a great way to kick off the class!

- What is a bank? A financial institution which serves to connect depositors with lenders. Examples: Bank of America, Wells Fargo, Chase Bank

- What are some services that banks offer?

Checking Account – a bank account in which you can deposit and withdraw money as you please. You can withdraw either by using a debit card, or by writing a check. Used more regularly. Don’t pay interest.

Savings Account – a bank account designed to help you save money. Pays interest. Not for frequent withdrawals.

Debit cards vs. credit card - 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. You can spend only as much as you have in your checking account. If you use more than what you have in your account, you might get charged an overdraft fee.

ATMs – Automated Teller Machines (the computerized machine designed to provide basic banking services without the need of human interaction)

Online Banking – a way to maintain your bank accounts over the internet. You can view your account. Transfer money. Pay bills etc.

FDIC Insured - If a bank is robbed, suffers a natural disaster or goes through some other change that makes it impossible to pay the customer his or her money, the government, through the FDIC, will replace the money that was damaged or stolen up to $250,000.

- What is interest? The “fee” you pay for borrowing money. Or the extra money you receive for lending money to a bank or financial institution. For example: If I borrow $100 from you, and you charge me 10% interest. When I return the $100, I will also have to pay you an extra $10 (10% of $100). The total I’ll owe is $110 which includes interest. I end up PAYING interest. YOU end up RECEIVING interest.

- What is Compounding Interest? (The interest will include interest calculated on interest). For example, if an amount of $5,000 is invested for two years and the interest rate is 10%, compounded every year: At the end of the first year the interest would be ($5,000 * 0.10) or $500. In the second year the interest rate of 10% will applied not only to the $5,000 but also to the $500 interest of the first year. Thus, in the second year the interest would be (0.10 * $5,500) or $550.

- We played the old brain teaser which goes something like this: Some wealthy parents were deciding how to pay their daughter her allowance this month. She was given two choices: Choice #1: Receive $300,000 for the month OR Choice #2: Starting with a penny on the first day, double her earnings every day for a month (e.g. day 1=$0.01; day 2=$0.02; day 3=$0.04; day 3=$0.08; etc). We take them through the value of the second choice every day. The table below shows that the second choice is by far the one that will result in higher earnings. In fact, the second choice will make the girl a millionaire in just 28 days! The girls LOVED this game!

- Article: Poor People Don't Just Need Cash, They Need Bank Accounts. Discussion questions:

1. What is the goal of Bank on San Francisco?

2. How do they achieve that goal?

3. How is Bank on San Francisco different to traditional banks?

4. Why do you think the President wants to support this program and copy it around the country?

5. Do you think it’s important that everyone (including the poor) has access to banks?

Session 2: Personal Mishap

Unfortunately I didn't make Session 2 due to a personal emergency so I can't recall exactly what Monica and Christine covered. Onto Session 3!

Session 1: Decision Making and Wants vs. Needs

Here is our general class outline. We started off with a fun icebreaker (Getting to Know You Bingo) which got everyone off their feet and interacting. We also had the girls establish their own group norms (aka rules) to help maintain a positive learning setting. Our class always ends with a current affairs article that somehow applies to our general topic of discussion. A link has been provided for you to read the article as well.

So here goes! Our general outline:

- What is Financial Literacy? Being educated, or “literate” about your personal money matters. It affects everyone, and the more you know the more financially successful you will be.

- Decision Making – we all have to make money decisions – Pepsi or coke? Candy or chocolate? Go to the movies with friends or stay in and study for a big exam.

- When we make a decision there is usually an Opportunity Cost – what is given up or sacrificed when one alternative is chosen instead of the next best alternative. So when you decide to stay in and study for a big exam, the opportunity cost is going to the movies and having fun with your friends.

- Wants vs. Needs – we all have wants vs. needs.

- Food, Shelter and Medicine are all needs.

- Ask class: What are examples of “wants"?

- What is Peer Pressure? Doing something because others are doing it.

- Some people make spending decisions because they are influenced by what their friends are doing.

- Remind them how we looked at different advertisements – marketers are always trying to influence the way you spend your money.

- Jobs/Income: Income is salary or money that is received by a person. For you, income might be through a regular allowance, for others maybe your income is from birthday money you receive.

- However you get money – it’s important to BUDGET so you don’t run out of money. By BUDGETING you will be able to afford what you need to as well as save up for some big things you might need or want.

- Current Affairs Article: Schools open lockers to advertising. Discussion Questions:

1. Why are schools considering selling advertising space?

2. If your school started doing this, do you think your spending decisions would be influenced by the advertisements?

3. Do you agree with advertising to children in school?

4. What the pros and cons of selling advertising space?

5. The article mentions “10% of the available surface” – is 10% too much, too little? What are the consequences of making 100% of available surface open for advertising, or going even further?

Happy New Year!

Happy new year everyone! A few weeks ago the personal finance club I’ve been teaching at a middle school in the Lower East Side came to a close. Over the various courses we covered: Decision Making and Wants Vs. Needs, Banking, Credit Cards and debt, Credit History, Credit Reports, Internet Scams, Identity Theft, Insurance and Investing and Taxes.

Once again, it was a great experience and I am extremely grateful for the opportunity to get in the classroom to discuss a topic that is so often neglected. Our goal was really to begin a conversation; to get the kids talking and thinking about money beyond simply their immediate wants. Over my next few posts I’m going to summarize the lessons plans I created. I taught along with two other ladies from High Water Women, Christine and Monica. They are both wonderful women who also shared an interest in expanding financial literacy in the classroom.

Hope you enjoy taking a look at the summaries of each class!

Vision Urbana After School Program

This week I started teaching a seven week personal finance course for middle school girls through the Vision Urbana After School Program. I’m serving as a volunteer with High Water Women (a non-profit organization for women in the hedge fund and financial services industry) and this is my second year teaching this course to middle school students. Earlier this week I met up with my co-teachers and fellow HWW members, Christine and Monica to discuss the curriculum and outline for our first class. After sharing ideas for ninety minutes, I left our meeting feeling prepared for our first class and confident that over the next seven weeks we were going to have a strong, positive impact on these kids.

As I approached the entrance on Thursday afternoon, a fight between a school boy and an older male was being broken up by school security outside the school gates…not the welcome I was expecting! Our class consists of about twelve middle school girls. They are a set of sassy, chatty ladies – but they are absolutely adorable. Walking into the room I felt like each of these ladies – going through puberty, endless peer pressure, non-stop homework and raging hormones - looked at us “grown-ups” thinking, “you have NO IDEA how stressful it is being me”!

Session 1: Decision Making, Opportunity Costs, Wants and Needs, Peer Pressure and Influence, Income and Jobs

I kicked things off with introductions, talked about High Water Women and asked them what they thought financial literacy was. Then we got them moving around with a human scavenger hunt icebreaker. Monica went through the decision making process, and how sometimes there are opportunity costs for our decisions. Next Christine had them share what they had bought in the last week – and separated them into wants vs. needs. My favorite was the young lady who argued that buying hair scrunchies was absolutely a need, “Imagine you wake up in the morning and your hair looks like a mess!” All her peers agreed that that scenario was completely unacceptable, and thus, scrunchies were indeed a necessity.

In the discussion about peer pressure, the ladies were able to define the term easily, but I was surprised that the group didn’t express that they felt like they made spending decisions based on pressure from their friends. After working with older teenagers in high school, it seems like that age group are more likely to buy certain brands or items out of peer pressure.

We divided them into teams of four and let them choose an advertisement out of a collection that we had found in magazines. We asked the students questions like: What is your initial impression of this advert? What product is being advertised? Why did the marketing team behind this ad choose this design? What type of audience are they trying to attract? Does it make you want to buy the product? Why/why not? If you were to design the next ad for this product would you stick with this theme or go for a new angle?

The three ads that the students picked to analyze: Ice breakers Sours with a girl with "weird eyebrows"; Covergirl Queen Collection with the astonishing tagline, "None of us are flawless" -Queen Latifah; and Edy's Ice Cream in Sr. and Jr. sizes

Monica led a discussion on jobs and income, and the ladies filled out some information about allowances and jobs that they could do today. She also had them discuss what it meant to “Invest in Yourself” and how level of education can affect your income potential. One of our ladies made the point, “it’s like, if you’re babysitting at 40 – you’ll be homeless basically” – we did clarify that being an au pair or nanny could actually be a lucrative career, but I think the girls had already convinced themselves otherwise.

Something I had wanted to do last year in our class was discuss a current affairs article with the students in each class. I found an article that I thought tied into our marketing discussion earlier. It was about how schools are considering selling advertising space to raise revenues. We asked them questions like why they thought schools were considering selling advertising space and if their school started doing this, would their spending decisions be influenced by the advertisements?

We finished up with a review of the class, and picked up the index cards we had left for them (to anonymously write any question that wanted to know about money). All in all it was a productive class and I can’t wait to go back now that I am familiar with the students. Unfortunately getting to stay engaged from 4pm-6pm on a Thursday evening for a topic as dry as personal finance will be tough, but with our passion, energy and fresh ideas, I can say with confidence that Christine, Monica and I are ready for the challenge.

Seminar at Operation HOPE

This past Saturday I led a money management and credit seminar for adults at Operation HOPE, Harlem. Even though I have taught the computer classes there for the last twelve months, I was a little nervous leading up to the class. My prior personal financial education teaching experiences have involved working with teenagers through High Water Women’s Financial Literacy program and the recent workshop with the READ Foundation. In those circumstances when discussing credit, the subject matter has been purely conceptual. Very few, if any at all, actually used credit cards so the workshops consisted of general advice for their future use. These adults had very real issues like high levels of credit card debt and low credit scores that were preventing a successful job search.

I did a lot of preparation for the class – and was sure to brush up on a range of topics that I was less well versed on (e.g. how declaring bankruptcy affects credit score, consumer’s rights with collection agencies and settling disputes on credit reports). I knew that most of the participants would be most interested in fixing their credit reports or improving their scores, but we began at the beginning – the psychology of spending. I felt that to understand how to improve a credit score we need to understand how credit works. To understand how credit works, we need to understand our income and expenses. To understand that, we had to begin by exploring our money values and habits. Over two and half hours we covered a lot of material!

The reason I was asked to lead this class was that the former credit and money management specialist retired and his replacement had only just been hired. The new credit and money management specialist happened to attend the class on Saturday and was so helpful for any questions that I wasn’t prepared for. For example, one question posed during the class was “Does using layaway affect your credit score”. My answer/guess was no (the item hasn’t left the store so there is no promise of repayment for a received good) and the new specialist was able to confirm that response for me. He also had some great perspective on how filing for bankruptcy can continue to haunt you even after the ten year period when it shows up on your credit report.

It was a fun class and I’m definitely looking forward to the next opportunity to lead a money management and credit class!