Lesson Plan
Course Title: Principles of Business Management, Finance, and Marketing
Session Title: The Purpose and Importance of Credit
Performance Objective (LSI Quadrant 1- Why are we doing this?):
To gain a better understanding of the purpose of credit and the importance of credit in our day-to-day lives.
Approximate Time:
3-5 days
Specific Objectives (LSI Quadrant 1- Why are we doing this?):
SWBAT (Student Will Be Able To)
 Understand the purpose of credit  Understand the importance of credit  Become a more educated consumer when it comes to credit and how it can help/hurt you
 Devise a personalized credit game plan
TERMS
Credit - confidence in a purchaser's ability and intention to pay, displayed by entrusting the buyer with goods or
services without immediate payment.
Credit Cards - standard-size plastic token, with a magnetic stripe that holds a machine readable code. Credit cards
are a convenient substitute for cash or check, and an essential component of electronic commerce and internet
commerce. Credit card holders (who may pay annual service charges) draw on a credit limit approved by the cardissuer such as a bank, store, or service provider (an airline, for example). Cardholders normally must pay for credit
card purchases within 30 days of purchase to avoid interest and/or penalties.
Annual Fee - a yearly fee charged by a credit card company each year for use of a credit card. This is a separate fee
from interest rate on purchases. While annual fees were once common, they largely disappeared in the '80s and '90s,
remaining only on a few classes of cards, such as secured cards or those that offer airline frequent flier miles as a
reward.
Annual Percentage Rate (APR) - the interest rate charged on credit card balances expressed in a standardized,
annualized way. This rate is applied each month that an outstanding balance is present.
Card Member Agreement - provides the terms and conditions of a credit card account. This agreement is required by
federal law as a consumer disclosure. It also represents a binding agreement between card issuers and their
customers. It must include the annual percentage rate, the monthly minimum payment formula, annual fees and
dispute resolution processes. Changes in the cardholder agreement can be made, with written advance notice, at any
time by the issuer. Cardholders have the right to cancel their cards if they do not accept such changes in terms, and
pay off existing balances under the previous account terms in such instances.
Charge-Back - a transaction returned through a credit card processing interchange by an issuer to an acquirer.
Consumers may, under certain circumstances, dispute a purchase made from a merchant and cause a charge-back. A
transaction also may be returned because it was noncompliant with the merchant account rules. Sometimes spelled
chargeback.
Credit Line - the amount of money that can be charged to a credit card account. The size of a credit line, and how
much of it has been borrowed, has a large influence on consumer credit scores. Low credit utilization -- that is, a credit
line on which little has been borrowed -- leads to a higher credit score. Credit line is also known as a credit limit.
Due Date - Credit card bills have a due date. If your credit card payment does not arrive -- and get posted -- by the
due date, you will be charged a late fee. It's important for credit cardholders to watch their payment due dates, since
they sometimes change. Some credit card issuers allow their customers to set their own due dates.
Finance Charge - the total cost of borrowing, including interest and fees, expressed in a dollar amount.
Fixed APR - a rate that does not change throughout the year, unlike an introductory APR that change after a specific
period of time. The credit card reform law President Obama signed in May 2009 changed the rules for cards
advertised as having fixed rates. Previously, fixed rates could be changed with as little as 15 days notice. Under the
reform law, fixed rates must remain fixed for at least a year, and then can be raised with 45 days notice to consumers.
Copyright © Texas Education Agency, 2012. All rights reserved.
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Grace Period - the time during which you are allowed to pay your credit card bill without having to pay interest. The
Credit CARD Act of 2009 requires that if issuers have grace periods, they must last at least 21 days. The grace period
usually applies only to new purchases. Most credit cards do not give a grace period for cash advances and balance
transfers; instead, interest charges start right away.
Minimum Finance Charge - You will be charged a minimum finance charge if the calculated amount of your finance
charge is less than the minimum finance charge set by your credit card company for a billing cycle. For example, your
finance charge may be calculated to be $0.35 but if the company's minimum finance charge is $0.50, you'll pay $0.50.
A minimum finance charge applies only when you must pay a finance charge -- that is, when you carry over a balance
from one billing cycle to the next. Not to be confused with minimum payment.
Minimum Payment - the lowest amount of money that you are required to pay on your credit card statement each
month. See your credit card "terms and conditions" document to see how your credit card's minimum payment is
calculated. Until 2004, minimum payments were as low as 2 percent, which meant that any large balance could take
decades to pay off, if only the minimum payment was made. Under pressure from federal banking regulators, card
issuers have in recent years ramped up the required minimum payment. The industry standard is now to calculate the
minimum in one of two ways: either 3 percent to 5 percent of the total balance due, or, all fees and interest due that
month, plus 1 percent of the principal amount owed.
Over-the-limit Fee - A fee charged when your balance goes over your credit limit (also known as over the limit fee).
When cardholders attempt to make purchases that will put them over their credit limit, card issuers used to routinely
decline the transactions. In recent years, many card issuers changed their policies and automatically enrolled
consumers in programs that allowed the transaction, but then added hefty fees. The Credit CARD Act of 2009 ended
the practice of automatically enrolling consumers into over-limit fees, and requires that credit card issuers give account
holders the option to opt-in to over-limit fees. Without the consumer's consent, they cannot charge over-limit fees. The
act also forbids issuers from charging a fee higher than the amount a consumer is over the limit.
Schumer Box - is named for the then-chairman of the Senate Banking Committee that passed landmark consumer
protection legislation, Sen. Charles Schumer. This standardized disclosure "box" features relatively consistent terms
and conditions for credit card offers, which allows consumers to compare cards in a consistent way. Specific terms and
conditions such as purchase and cash advance interest rates, annual fees and rate calculation methods are required
to be spelled out for consumers in conjunction with all new account solicitations.
Secured Credit Cards - Secured credit cards require collateral -- usually a cash deposit with the issuing institution -for approval. They are designed for people with no credit or poor credit. Some secured card marketers load these
cards with high fees and unfavorable terms.
Terms and Conditions - the common name for the document in which credit card issuers describe in detail their
practices. After a consumer applies for a credit card and receives it in the mail, the first use of the card turns the terms
and conditions into a legal contract.
Universal Default - a common practice among credit card issuers that allows them to increase cardholders' interest
rates for any change in risk profile with any lender. Under universal default, credit cardholders who fail to make timely
payments to other creditors -- such as other credit card issuers, utilities, car lenders, landlords or mortgage lenders -can see their rates raised by other creditors, even if they were never late in paying those other creditors.
Unsecured Credit Cards - the most common type of credit cards. They are not secured by collateral. That means that
unlike secured loans, such as mortgages or auto loans, unsecured credit cards are not directly connected to property
that a lender can seize if the cardholder fails to pay. Issuers of unsecured cards must make use of other means -such as the courts or garnishment -- to collect unpaid debts. Customers qualify for unsecured cards based on their
credit history, their financial strength and their earnings potential.
Variable Interest Rate - With variable-rate cards, your APR (annual percentage rate) can change. Usually, the rate is
tied to another rate called an index. Also known as a floating rate. In the United States, most credit cards have variable
rates, and most of them are pegged to one such index, the prime rate. The prime rate, in turn, moves in lock step with
an interest rate set by the Federal Reserve called the federal funds rate. So if you see a headline that says "Fed raises
interest rates" it means your cost of carrying a balance on your credit card likely just went up. In your credit card terms
and conditions document, the variable rate is often stated as an index plus a margin. For example, your document
might say your rate is "Index + 10.99 percent." If the prime rate is your index and is at 4 percent, your card's interest
rate is 14.99 percent.
Equifax - a consumer credit reporting agency in the United States, considered one of the three largest American credit
agencies along with Experian and TransUnion.
Experian - formerly known as CCN Systems, is a global credit information group with operations in 36 countries.
TransUnion - the third largest credit bureau in the United States, which offers credit-related information to potential
creditors.
Copyright © Texas Education Agency, 2012. All rights reserved.
2
Preparation
TEKS Correlations:
This lesson, as published, correlates to the following TEKS. Any changes/alterations to the activities may
result in the elimination of any or all of the TEKS listed.
130.112(c)
11) The student understands the fundamental principles of money. The student is expected to:
(F) summarize the purposes and importance of credit.
Interdisciplinary Correlations:
English-English 1
 110.31(b)(1). Reading/Vocabulary Development. Students understand new vocabulary and use it
when reading and writing.
 110.31(b)(11). Reading/Comprehension of informational text/procedural texts. Students understand
how to glean and use information in procedural texts and documents.
Math-Algebra I
 111.32(b)(1)(C). Interpret and make decisions, predictions, and critical judgments from functional
relationships.
Teacher Preparation:
The teacher will review the terms in the outline, presentation slides, and any handouts to become familiar
with the lesson.
Teacher should locate and evaluate various resources and websites before the lesson.
Teacher will have assignments and website information ready to distribute to students.
Occupational Correlation (O*Net – www.onetonline.org/)
Job Title: Financial Quantitative Analyst
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3
O*Net Number: 13-2099.01
Reported Job Titles: This title represents an occupation for which data collection is currently underway.
Tasks: Apply mathematical or statistical techniques to address practical issues in finance, such as
derivative valuation, securities trading, risk management, or financial market regulation. Collaborate with
product development teams to research, model, validate, or implement quantitative structured solutions for
new or expanded markets. Interpret results of analytical procedures.
Soft Skills: Creativity, Responsibility, and Autonomy.
References:
http://www.solvingdebt.ca/debt-scenarios-0
http://www.tea.state.tx.us/index2.aspx?id=6148&menu_id=720&menu_id2=785
Instructional Aids:
Lesson 6.4-The Purpose and Importance of Credit Presentation
Bank Rate and Debt Calculator websites
Materials Needed:
Bowl (or something to put the cards in from which to draw)
Debt Scenarios/Amount-in-Debt Cards
Debt Scenarios Tally Sheet
Equipment/Software Needed:
Computers
Internet
Word processing program
Spreadsheet program
Your choice of program to create a flyer
Learner Preparation:
Ask students to brainstorm situations when it is okay to use credit to make a purchase/purchases. Ask
students to brainstorm situations when it isn’t okay to use credit to make a purchase/purchases.
Introduction
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4
Introduction (LSI Quadrant I- Why are we doing this lesson?):
To help students gain a better understanding of credit, the good and bad of it, and how to keep it in the
‘good column’ for them.
ASK:
ASK:
ASK:
ASK:
ASK:
ASK:
ASK:
ASK:
How can credit help you?
How can credit hurt you?
Why do you think credit card companies were established?
Do you know when the first credit card company was established?
Do you see yourself using credit in the future?
If you answered ‘yes’ to using credit in the future, in what circumstances would you use it?
Can you tell if a person has used credit to get their possessions?
At what point, if you used credit, would you stop? Like…what is the maximum amount of credit debt
you would be willing to accumulate?
ASK: Why did you pick that dollar amount?
ASK: Can you live life without ever using a credit card?
Outline
Outline (LSI Quadrant II-What are we doing in this lesson?):
Instructors can use the presentation slides, handouts, and note pages in conjunction with the following
outline.
MI
Outline
Notes to Instructor
I.
Discovery
A. Ask students to brainstorm
situations when it is okay to use
credit to make a
purchase/purchases.
B. Ask students to brainstorm
situations when it isn’t okay to
use credit to make a
purchase/purchases.
You may want to provide any
personal situations where credit
has been a good thing and a bad
thing in your purchasing habits.
II.
Introduction
A. Introduce the ‘why’ of the lesson
1. Why we are doing this
assignment
2. Need to Know Terms.
Use the provided objective
and terms by method of
choice. You may want to look
around and find some online
information that could lead to
other discussions that go
along with this subject.
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5
III.
Guided Practice
A. Handout article for reading
B. Have students point out at least
one piece of information they
didn't know
Find an article online to print
out for students to read to
themselves or aloud.
IV.
Independent Practice
A. Debt Calculator
B. Debt Scenario Tally Sheet.
Get students set up with the
information they will need to
do this activity (download and
print your choice of debt
calculator and debt scenario
tally sheet). You may want to
go through the first one, and
then let them do the others on
their own.
Get students started on how to
put together their own
instructional manual on how to
remain debt free for life. Give
them category suggestions,
format suggestions, break it
into stages (Stage 1-Gather
Data, Stage 2-Organize Data,
Stage 3-Format Data).
Depending on which you
choose for them to do
(brochure or flyer), the time
involved will be different. A
brochure is more involved and
takes longer than a flyer.
V.
Independent Practice
A. My Debt Free Life Brochure or
Flyer (sample provided).
Suggestions on what to include
are:
1. An appropriate title
2. Credit Terminology
3. The big 3 credit bureaus
(their history, their data, etc.)
4. Graphics
5. 3 instances credit can help
6. 3 ways credit can hurt
7. 3 important points they
remember from the lesson,
stats regarding credit debt
among Americans/20somethings/families
8. A quote, etc.
VI.
Summary
A. Re-state the objectives and
check for understanding
Restate the lesson objectives
and then do a quick check for
understanding on key points
you’ve made throughout the
lesson.
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Verbal
Linguistic
Logical
Mathemati
cal
Visual
Spatial
Musical
Rhythmic
Bodily
Kinesthetic
Intrapersonal
Interpersonal
Naturalist
Existentia
list
Application
Guided Practice (LSI Quadrant III- How are we going to do this?):
Handout one article on debt for students to read to themselves or aloud. Have students point out one piece
of information they didn’t know.
Have students download (or you provide a hard copy handout) of the Time Value of Money Worksheet. Go
over directions and then get them started in the right direction on how to fill in the required information.
Independent Practice (LSI Quadrant III- How are we going to do this?):
Students will work on their own (or with partners/in groups) to complete the investment table.
They will also work on their own (after you’ve help them get started) on their ‘My Debt Free Life’
Brochure/Flyer.
Summary
Review (LSI Quadrants I- Why are we doing this lesson? and IV- Extending the lesson):
We are doing this so students will be able to see the good and bad of credit, to help them become familiar
with credit terminology, and to help them devise an individualized plan of action (attack) on credit.
To extend the lesson, you can have students go home and see if they can find ‘real life’ examples
(newspaper articles, online articles, news stories, know someone) who has had either a good or bad
experience with credit and have them email you that information.
Evaluation
Informal Assessment (LSI Quadrant III):
Walk around and spot check students as they work on their own
Give deadlines for different stages of the assignments
The Debt Scenario Tally Sheet
Formal Assessment (LSI Quadrant III, IV):
The ‘My Debt Free Life’ Brochure/Flyer
Extension
Extension/Enrichment (LSI Quadrant IV-Extending the lesson):
To extend the lesson, you can have students go home and see if they can find ‘real life’ examples
(newspaper articles, online articles, news stories, know someone) who has had either a good or bad
experience with credit and have them email you that information.
Copyright © Texas Education Agency, 2012. All rights reserved.
7
Formal Assessment
Students will create a ‘My Debt Free Life’ Brochure or Flyer (teacher choice). A rubric is
provided and some guideline suggestions can be found in the ‘outline’ section.
Content Rubric
Information
Name, Course/Class, Date
Title
Terminology
3 Ways Credit Can Help
3 Ways Credit Can Hurt
Quote
What I’ve learned
Credit Debt Statistics
Credit Bureau Info
Graphic(s)
Is it Present ?
Note: Each item is worth 10 points or can be weighted differently based on your
standards.
Format Rubric
Item
Points Awarded
Grammar and Spelling
Readability
Consistency in type
Quality of Graphics
Visually Interesting
Note: Each item is worth 20 points or can be weighted differently based on your
standards.
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8
Scenario 1
Scenario 2 Over many years, the balance of Susan and John's joint credit cards built up so high that their monthly minimum payments took up almost half their combined incomes. John has built up considerable debt over several years and then lost his job. He used his credit cards to survive for five months. The credit cards were at their limits and he is losing sleep. Total Amount in Debt=$120,000.00 Credit Card Interest Rate=19.2% Monthly Payment Amount=$500.00 Total Amount in Debt=$34,000.00 Credit Card Interest Rate=21.3% How many months until Debt Free?=60 Scenario 3
Sandra was on her own, with her two kids, for three years. She worked hard, but even with some child support she did not have enough money to pay her rent, day care, car payment, children's expenses, and pay back her debts. Each month the debt just grew and grew. Scenario 4 Stuart last attended school five years ago and had over $15,000 in student loans. He could not find a job in his chosen field and is only earning minimum wages. As a result he had incurred another $10,000 in credit card debt trying to keep up with all his expenses. Total Amount in Debt=$10,000.00 Credit Card Interest Rate=21.3% How many months until Debt Free?=12 Total Amount in Debt=$3,500.00 Credit Card Interest Rate=21.3% Monthly Payment Amount=$100.00 Scenario 5
Scenario 6 Jamal never learned how to budget his income and expenses. He had a good job but was constantly behind on payments and gradually incurred sizeable debts. Total Amount in Debt=$25,000.00 Credit Card Interest Rate=18% Monthly Payment Amount=$400.00 Felicia had been on long term disability for a year and did not know when she would be well enough to re‐join the work force. Her disability income was barely enough to pay his living expenses and nothing was left to pay her debts. Total Amount in Debt=$18,000.00 Credit Card Interest Rate=21.3% How many months until Debt Free?=36 Instructions: Transfer data from scenario cards and your research onto this document. Name
Debt Amount
How many months until I'm debt free? Debt Amount
How much will I have to pay a month to be debt free in my desired amount of time? Scenario 1
Scenario 3
Scenario 5
Name
Scenario 2
Scenario 4
Scenario 6
Copyright © Texas Education Agency, 2012. All rights reserved.
Instructions: Transfer data from scenario cards and your research onto this document. Name
Debt Amount
How many months until I'm debt free? Scenario 1 Susan and John
$ 120,000.00 Infinite Amount
Scenario 3 Sandra
$ 3,500.00
55
Scenario 5 Jamal
$ 25,000.00
186
Name
Debt Amount
How much will I have to pay a month to be debt free in my desired amount of time? Scenario 2 John
$ 34,000.00 $ 925.56
Scenario 4 Stuart
$ 10,000.00 $ 932.58
Scenario 6 Felicia
$ 18,000.00 $ 680.93
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Student Name
Course/Class
My Debt Free Life
Need to Know Terms
Three Ways Credit Helps
Three Ways Credit Hurts
Way 1
Way 1
Way 2
Way 2
Way 3
Way 3
Quote…
Never spend your money before you have
earned it. ~Thomas Jefferson
What I learned from the Lesson….
Credit Debt Statistics
Experian Facts
Equifax Facts
TransUnion Facts
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Date