Return to flip book view

UNIT 17Credit (14 days)

UNIT 17 - CREDIT (14 Days)All teaching resources in this document are free for teachers. Here is how to you access them:1. Many are hyperlinked in the document, so you can get started right away. 2. Lessons that do not have a hyperlink can be found on the lesson plan resource calledVirtual Economics 4.5 or 5.0 (VE). All teachers can and should get this resource for freeby participating in a VCEE training session. Visit www.vcee.org for more information.3. Lessons from Financial Fitness for Life are on VE. They also have educationaltechnology tools that can be found here:https://www.econedlink.org/resources/collection/fffl-9-12/Understanding credit and the impact of its use and misuse are crucial to financial health.EPF.13 The student will demonstrate knowledge of credit and loan functions bya) evaluating the various methods of financing a purchaseDays 1 and 2 Credit: Is it free? Is it worth it?EPF.13 The student will demonstrate the knowledge of credit and loan functions bye) comparing terms and conditions of various sources of consumer creditDay 1 Where is credit obtained?EPF.13 The student will demonstrate the knowledge of credit and loan functions byc) identifying qualifications needed to obtain creditg) explaining the need for a good credit ratingDay 1 Creditworthiness and credit ratingsDay 2 Why credit ratings matter and what you can do to improve themDay 3 Why credit ratings matter and what you can do to improve them, continuedEPF.13 The student will demonstrate the knowledge of credit and loan functions byb) analyzing credit card features and their impact on personal financial planningDay 1 Understanding your credit cardsEPF.13 The student will demonstrate the knowledge of credit and loan functions byd) identifying basic provisions of credit and loan lawsDay 1 and 2 Consumer loan lawsEPF.13 The student will demonstrate the knowledge of credit and loan functions byf) identifying strategies for effective debt management, including sources of assistanceDay 1 Managing your debtEPF.13 The student will demonstrate the knowledge of credit and loan functions byh) comparing the costs and conditions of secured and unsecured loansDay 1 What is a secured loan and what does it cost? What is an unsecured loan and whatdoes it cost?Virginia Council on Economic Education

EPF.13 The student will demonstrate the knowledge of credit and loan functions byi) comparing the types of voluntary and involuntary bankruptcy and the implications of eachDays 1 and 2 Understanding bankruptcyEvaluation DayVirginia Council on Economic Education

EPF.13 The student will demonstrate knowledge of credit and loan functions bya) evaluating the various methods of financing a purchaseDay 1 and Day 2 – Credit: Is it free? Is it worth it?Content KnowledgeCredit is not free. Before borrowing money, consumers need to determine what the costs areand whether the benefits of obtaining credit are greater than those costs.VocabularyClosed-end Credit – A loan where the entire amount is loaned at the beginning and allrepayment and interest must be repaid by a specific date.Collateral - Something of value (often a house or a car) pledged by a borrower as security for aloan. If the borrower fails to make payments on the loan, the collateral may be sold; proceedsfrom the sale may then be used to pay down the unpaid debt.Installment Plan – A credit system where payment for goods is made with fixed payments overa period of time.Layaway – A system where period payments are made on goods and upon final payment, thegoods are delivered.Open-end Credit – A loan where a total amount is set and the borrower can use any or the entireloan, repaying it over time, also known as a line of credit.Rent-to-Own – An arrangement whereby consumers rent something (often furniture), makingregular rental payments, and become owners of the rented object(s) after a specified period oftime--sometimes automatically and sometimes with an additional payment. A legal business butvery costly to consumers.Revolving Credit – A credit system whereby the borrower can make periodic purchases andpayments.Secured Loan – Credit with collateral (for example, a house or a car) for the lender.Unsecured Loan – Debt without collateral; credit card debt, for example.Virginia Board of Education FrameworkSome methods of financing a purchase are● Installment plan● Layaway● Secured and unsecured loansSome sources of financing are● Retail stores● Banks and credit unions● Finance companies● Pawn shops● Payday loansVirginia Council on Economic Education

● Title loans● Private lendersSome types of credit are● Open-end credit● Closed-end credit● Service credit● Revolving credit● Secured loans● Unsecured loansTo use a decision model to determine which type of financing would be best, first establish thecriteria.The opportunity cost of using credit is the resulting decrease in future purchasing power; theindividual will have less money to spend in the future as some of it will go toward repaying theloan or paying a credit card bill.Teaching Tips1) Discuss with students that most people who use credit, pay interest to use it. There are afew cases in which interest is not paid:a. People who pay off their credit card bill every month pay no interest, though thereis usually an annual fee for the card.b. Layaway does not include payment of interest (and technically is not credit, sinceone does not have the use of the goods until they are paid off), but may involverestocking fees if the consumer changes his/her mind, and cash refunds may notbe available. (See Consumer Reports article on layaway below.)c. Merchants often offer, for example, “90 days same as cash”, and as long as onepays off the balance within the specified number of days, there is no cost to thecredit—however, there may be traps for the unwary in the form of additional fees.(Take a look at the MSNBC article below).2) Conclude with a discussion of the benefits of credit in addition to allowing one to have theimmediate use of the items purchased on credit. These can include rewards for using a creditcard, the ability to use the card in an emergency, dispute resolution procedures that can allowone to avoid payment for a defective product or service, and the building of a credit historytowards obtaining a loan for a car or a mortgage. In preparation for the next day’s lesson,leave students with the following question: “Can anyone get credit?”3) Continue with an explanation of the rest of the types of credit listed in the framework.Make a chart of advantages and disadvantages of each type. Come back to the original pointthat use of almost any form of credit costs more than paying in full up front. The first thing aconsumer needs to determine is whether to use credit at all. Is having the item at all, orVirginia Council on Economic Education

having it now rather than later, worth the cost of what you’ll pay in interest and fees? (Thelessons listed below contain scenarios that students use to decide whether the situation is anappropriate occasion for the use of credit.)4) The budget needs to be the touchstone used in deciding whether any nonemergency use ofcredit can be repaid within a reasonable amount of time as to avoid overpaying for the item.Ask: How long will it take to repay, given the amount one can afford to spend within theitem’s budget category? If one takes advantage of a sale by using a credit card, but is unableto pay off the credit card immediately, the interest cost needs to be added to the sale price tosee whether one is actually benefiting from the sale or in fact overpaying.Lessons and ResourcesFinancial Fitness for Life 9-12 Lesson 11: What is Credit?Econedlink Lesson. Credit for Beginnershttps://www.econedlink.org/resources/credit-for-beginners/Online readingConsumer Reports article. “Layaway Grows in Popularity, But There Are Risks.”https://www.consumerreports.org/cro/news/2011/11/layaway-grows-in-popularity-but-there-are-risks/index.htmMSNBC article. “P2P payments: How To Protect Yourself From Scammers.”https://www.nbcnews.com/better/lifestyle/use-payment-apps-venmo-zelle-cashapp-here-s-how-protect-ncna1015851Virginia Council on Economic Education

EPF.13 The student will demonstrate the knowledge of credit and loan functions bye) comparing terms and conditions of various sources of consumer creditDay 1 - Where is credit obtained?Content KnowledgeCredit is available from retailers, banks, credit unions, finance companies, payday loan and titleloan companies and pawnbrokers. Terms offered by the various sources need to be compared toevaluate whether obtaining credit there is desirable.Virginia Board of Education FrameworkConsumers of credit should compare● Percentage rates● Annual fees● Transaction fees● Finance charges● Risk of losing assets.Consumers should consider costs and benefits of various sources, including● Retailers● Banks● Credit unions● Finance companies● Risk-based lending companies (e.g., payday loan services, pawnbrokers, title loanservices).Teaching Tips1) Based on their study of credit card statements, students should be able to offer some ofthe characteristics that determine the cost of a loan, including interest rate, annual fees,and late fees and penalties. Once a chart is developed, students can research currentterms for loans from the various sources, either online or by obtaining information fromlocal businesses.2) Ask: Have you heard of “rent to own”? Is that a form of credit? (Yes, and an expensiveone: consumers may pay two or three times the retail price of an item. See FTC reportand Consumer Reports article on rent to own below.) What about pawn shops? (Manystudents may have seen television shows involving pawn shops.) Explain how pawnshops work.Virginia Council on Economic Education

2) Encourage your students to compare loans on the basis of the annual percentage rate(APR) and finance charge. Under the federal Truth in Lending Act, lenders must disclosethese figures. Many people compare loans on the basis of the monthly payment. Themonthly payment becomes lower if the repayment period is longer. Unfortunately, thisalso increases the finance charge. Avoid this confusion by determining the principal andrepayment period first and then shop for the lowest APR.Lessons and ResourcesPersonal Decision Making : Focus on Economics Lesson 10: Consumer Credit: Buy Now, PayLater, and More Also online at:https://www.unomaha.edu/college-of-business-administration/center-for-economic-education/teacher-resources/6-8/consumer-credit-buy-now-pay-later.pdfFederal Trade Commission report on rent to ownhttp://www.ftc.gov/reports/renttoown/rtosummary.shtmConsumer Reports article on rates of interest for rent-to-ownhttp://pressroom.consumerreports.org/pressroom/2011/06/rent-to-own-services-can-have-equivalent-interest-rates-as-high-as-311-percent-.htmlVirginia Council on Economic Education

EPF.13 The student will demonstrate the knowledge of credit and loan functions byc) identifying qualifications needed to obtain creditg) explaining the need for a good credit ratingDay 1 - Creditworthiness and credit ratingsContent KnowledgeStudents should understand that lenders’ decisions whether to grant credit are in some respectsjust an extension of decisions we make as individuals about whether to lend our money orproperty. The characteristics that make one a reliable bet as a borrower can be summed up infive Cs: Capacity, Capital, Character, Collateral and Conditions. Sometimes these fivecharacteristics are combined to create three – Capacity, Character and Collateral. Capital isusually part of Collateral and Conditions would be included under Capacity. If borrowers don’tmeet all these characteristics then they pose a greater risk to the lender, and will pay higher ratesof interest to obtain credit.VocabularyAnnual Fee – The yearly charge for having a credit card or credit account.Capacity – In the context of credit transactions, capacity is one of the Cs of Credit. It is anindicator of how creditworthy a prospective borrower is likely to be, as determined by theborrower's current and future earnings relative to current debt. High earnings and low debt, forexample, indicate a strong capacity to make payments on the loan in question.Capital – In the context of credit transactions, capital is one of the Cs of Credit. It is an indicatorof how creditworthy a prospective borrower is likely to be as determined by the borrower'scurrent financial assets and net worth.Character – In the context of credit transactions, character is one of the Cs of Credit. It is anindicator of how creditworthy a prospective borrower is likely to be, as determined by theborrower's handling of past debts and his or her stability in jobs and residences.Collateral – Something of value (often a house or a car) pledged by a borrower as security for aloan. If the borrower fails to make payments on the loan, the collateral may be sold; proceedsfrom the sale may then be used to pay down the unpaid debt.Conditions – The general state of the economy. In periods of slow economic activity, lendersmay be reluctant to lend out of fear that the borrower will be unable to pay.Finance Charges – The total cost of credit, including interest and transaction fees.Interest Rates – The price paid for using someone else's money, expressed as a percentage of theamount borrowed.Transaction Fees – A charge for making a transaction. Transaction fees may be a percentage ofthe total amount or a flat rate regardless of size.Virginia Board of Education Framework13c: Character, capacity, capital, conditions and collateral are factors that determinecreditworthiness.Virginia Council on Economic Education

Character refers to a borrower’s history of paying obligations.Capacity refers to one’s ability to repay and is usually measured by current income and level ofoutstanding debt.Capital refers to savings and other assets one can use to repay.Conditions refer to other circumstances that may impact the ability to obtain credit (e.g.,economic conditions).Collateral refers to assets the borrower has that could be taken by the lender if the borrower failsto repay.13g: Credit reporting agencies have established formulas to produce credit scores for eachborrower.Credit ratings are based on information in a person’s credit record, including income, paymenthistory, employment record, and other personal factors.Teaching Tips1) Begin by asking the class about lending and borrowing in their everyday lives. Havethey ever regretted lending money or something else to a friend or relative? Did it affecttheir willingness to lend again? If they had a bad experience, did they put morerestrictions on lending to the same person a second time? Are there any parallels to theinteractions between institutional lenders and their customers?2) Ask: Can anyone qualify for a loan? Why not? What do lenders consider when making adecision whether to extend credit? The teacher should spend a considerable amount oftime on the Cs of credit. Introduce the concept of credit ratings and credit score.3) Ask: Is it simply a matter of qualifying or not qualifying for credit? If one does notqualify for one type of credit, are there alternatives? (Often there are –more expensivealternatives, such as payday loans.) Remind students about what they learned about riskand reward in studying types of investments. If lenders view consumers as a greater risk,they will demand higher interest to compensate for the additional risk. When thecharacteristics are better, the risk of making the loan will be lower--which often results ina lower interest rate. The teacher may want to use the video on the 5 Cs of Credit belowas a summation.Lessons and ResourcesFinancial Fitness for Life Grades 6-8 Lesson 16: Establishing CreditVirginia Council on Economic Education

Financial Fitness for Life 9-12 Lesson 12: Making Credit ChoicesHands On Banking Topic 4 Lesson 2: What is Credit? (addresses the 5 Cs)http://www.handsonbanking.org/en/resources/Adults_4_WhatIsCredit.pdfVideo5 Cs of Credithttp://www.youtube.com/watch?v=Tw3wHYeASWUInteractiveDeveloping Good Credit Habitshttps://www.econedlink.org/resources/developing-good-credit-habits/Day 2 - Why credit ratings matter and what you can do to improvethemContent KnowledgeMany people don’t know how to access their credit rating, or why they should.VocabularyEquifax – One of three credit reporting agencies.Experian – One of three credit reporting agencies.TransUnion – One of three credit reporting agencies.Virginia Board of Education Framework13.g: Making payments (e.g., bills, rent) on time helps an individual establish and maintain goodcredit.Good credit scores may enhance one’s ability to borrow and the interest rate charged.Credit scores may also help decrease one’s insurance rates and improve employment options.Poor credit can adversely affect one’s ability to get a job, rent an apartment, obtain a car loan,obtain a security clearance—and may even bring an increase in car insurance.Individuals should access their own credit reports before applying for credit or when deniedcredit.To correct errors in one’s credit report, an individual should tell the consumer reportingcompany, in writing and with supporting documents, what information is inaccurate.The consumer reporting company then must investigate the issue and correct the error.Virginia Council on Economic Education

Teaching Tips1) Ask students if they have seen any commercials advertising “free credit reports.” Havethem go online to determine if the reports from these sites are actually free. Then havestudents access the web page on Credit Reporting Agencies listed in the Lessons andResources. Draw attention to the fact that everyone is entitled to one free credit reportfrom each agency each year. Students should note they don’t have to pay for a creditreport.2) Break students into three groups and have each group report back on one of the threeagencies. Be sure to have them also research how to report an error. Identity theft comesinto this topic in that when identity theft has occurred, information will appear abouttransactions that were not entered into by the identity theft victim. Review what theylearned in Unit 15 about how to avoid becoming a victim of identity theft.3) Discuss the fact that employers, landlords, insurers, and auto finance companies are allinterested in credit scores. Security clearances can also be affected.Lessons and ResourcesFinancial Fitness for Life, 9-12, Lesson 13 - Credit Reports and Credit Scores.Econedlink Lesson, Building Good Credit Habitshttps://www.econedlink.org/resources/building-good-credit-scores/OnlineAnnual Credit Report websitehttps://www.annualcreditreport.com/cra/index.jspDay 3 - Why credit ratings matter and what you can do to improvethem, continuedContent KnowledgeIf there’s an error, it can cost you. You can end up paying more for a loan or you may not evenreceive a loan based on erroneous information on your report.Teaching TipsVirginia Council on Economic Education

1) This is an extension of the previous day’s lesson. Have student groups continue theirreport, focusing on how errors need to be corrected.2) Students can also research and discuss credit protection businesses and explain whetherthey believe these can be valuable for consumers.Virginia Council on Economic Education

EPF.13 The student will demonstrate the knowledge of credit and loan functions byb) analyzing credit card features and their impact on personal financial planningDay 1 - Understanding your credit cardsContent KnowledgeThe information on a credit card is not just there to confuse. It is important information aboutwhich the cardholder needs to be aware.VocabularyAnnual Percentage Rate (APR) – The percentage of the principal of a loan to be paid asinterest in one year. Differs from an add-on rate in that an APR is calculated on the decliningbalance of the loan. The Truth in Lending Act requires lenders to disclose APRs to prospectiveborrowers.Compound Interest – Interest that is earned not only on the principal but also on the interestalready earned.Credit Line – The maximum amount of money that will be extended to a person by a financialinstitution or credit-card issuer. Also known as credit limit.Float – deferred payment.Minimum Payments – the minimum amount a credit cardholder is required to repay each billingperiod on an open balance.Penalty Charges – Additional charges to an account for late payment, missed payment orexceeding the credit limit.Promotional Incentives – Rates or payment options used to induce consumers to apply forcertain types of credit cards. Included are low or zero-interest rate cards (sometimes called teaserrates) that last only for a short period. Also used are “no interest” if paid within a certain timeperiod.Rewards – Points or cash-back offers that can be used to redeem for products. Airlines, hotelsand some retailers offer rewards. These rewards often raise the total cost of a card in terms ofannual fee or a higher interest rate.Virginia Board of Education FrameworkConsumers should consider the impact on personal financial planning of credit card features,such as● annual percentage rate (APR)● annual fees● compound interest● penalty charges● credit line● promotional incentives● account disclosure statement● minimum paymentsVirginia Council on Economic Education

To use a decision model in selecting a credit card, the consumer needs to decide what featuresare most important in order to establish criteria.The benefits of using credit cards include● float (deferred payment)● convenience● compatibility to conduct online transactions● rewards● purchase protection● fraud protection● payment over time● establishing creditThe costs of using credit cards include● interest● fees (e.g., late, annual, over-the-limit)● risk of identity theft● risk of borrowing beyond the ability to repay● length of time to pay off the balance when paying only the minimum payment.Teaching Tips1) The teacher should list the types of charges involved in using credit. Find sample creditcard statements and discuss annual fee, interest paid, and transaction fees and show howthe total compares to the rate of interest paid (and advertised). The teacher may want tolet students know about current efforts on the part of consumer protection advocates tosimplify credit card statements (see the Consumer Financial Protection Bureau homepagelisted below).2) One way to teach this lesson is to bring in “junk mail”. Compare rates, fees, charges, andrewards using a table or PACED grid. Ask students which card they think is the “bestdeal” and ask them to explain their reasoning. Students can also view the information athttp://www.creditorweb.com/ and do there own research to “fact check” the informationand see how reliable they find it to be.3) Remind students what they learned about compound interest in Unit 11. The samecompounding that benefits savers, hurts borrowers who make minimum payments. Usingthe Minimum Payment Calculator below, show students the true cost (and time to payoff) a purchase of a high-end computer (iPad) using minimum payments. Note thedifference in cost and ask students what else could be done with the difference (what isthe opportunity cost of the extra spending).Lessons and ResourcesVirginia Council on Economic Education

Financial Fitness for Life Grades 9-12 Lesson 15: Shopping for a credit cardLearning, Earning and Investing Lesson 14: Credit: Your Best Friend or Your Worst EnemyYour Credit Counts Challenge: Trainer’s Guide Section 3: Managing Credit (part 3.19 – 3.27)Econedlink Lesson, The Credit Card Mysteryhttps://www.econedlink.org/resources/the-credit-card-mystery/Video curriculumRisky Business: What Every Teenager Needs to Know About Living Smart part 3, Using CreditWisely. Activity 3.3 can be found online: Analyzing a credit card statement,http://riskybusiness.councilforeconed.org/resources/wlg/RiskyBusiness.3.3r.pdfOnlineConsumer Financial Protection Bureau homepage – efforts to simplify credit card statementshttp://www.consumerfinance.gov/Minimum Payment Calculatorhttp://www.bankrate.com/calculators/managing-debt/minimum-payment-calculator.aspxConsumer Financial Protection Bureau article on shopping for a credit card:http://www.consumerfinance.gov/how-do-i-shop-for-a-credit-card/Virginia Council on Economic Education

EPF.13 The student will demonstrate the knowledge of credit and loan functions byd) identifying basic provisions of credit and loan lawsDay 1 and Day 2 - Basic consumer loan lawsContent KnowledgeWhen lenders, landlords, merchants or collection agencies fail to treat consumers properly, thereare remedies for the consumer—but unless students are made aware, they can’t pursue thoseremedies. These laws provide significant consumer protection and outline responsibilities.VocabularyFair Credit Billing Act – A federal law that requires creditors to mail out bills at least 14 daysbefore payment is due and also establishes procedures for resolving billing errors on creditaccounts.Fair Credit Reporting Act – A federal law governing the activities of credit bureaus andcreditors. It requires creditors to furnish accurate and complete information to borrowers; it alsoestablishes a process consumers may use to correct inaccuracies in credit reports.Fair Debt Collection Practices Act – A federal law that bars collection agencies from usingthreats, harassment or abuse in their efforts to collect debts.Credit Card Accountability, Responsibility and Disclosure Act (CARD ) – An act ofCongress that establishes responsibilities of card issuers and protections for cardholdersregarding interest rates, grace periods, pay-off times and other information.Equal Credit Opportunity Act – an act of Congress that makes it unlawful for a credit grantorto discriminate on the basis of race, color, religion, national origin, sex, marital status, or age(provided the applicant is legally able to enter into a contract).Virginia Board of Education FrameworkSome laws that affect credit and loans● Fair Credit Reporting Act- regulates consumer reporting agencies and the use ofconsumer credit information● Fair Credit Billing Act- protects consumers against inaccurate and unfair creditbilling and credit card practices and provides consumers with a mechanism foraddressing billing errors● Equal Credit Opportunity Act- prohibits creditors from discriminating against a creditapplicant on the basis of race, color, religion, national origin, sex, marital status, orage or because the applicant receives public assistance● Fair Debt Collection Practices Act- prevents abusive and deceptive practices by debtcollectors● Credit Card Accountability, Responsibility, and Disclosure (CARD) Act- bans unfairrate increases and unfair fees, requires that credit card contract terms be presented toconsumers in clear language, and ensures accountability from credit card issuers andregulatorsVirginia Council on Economic Education

Teaching Tips1) Break the students into five groups and have each group research one of the consumerprotection laws listed above. Then have each group in turn report to the class.Lessons and ResourcesFinancial Fitness for Life Grades 9-12 Lesson 18: Consumer Credit ProtectionReadingWhat the Credit Card Act Means to Youhttp://bucks.blogs.nytimes.com/2010/02/22/what-the-credit-card-act-means-for-you/OnlineConsumers Guide to Credit Cardshttp://www.federalreserve.gov/creditcard/It’s Your Paycheck Curriculum - lessonshttp://www.stlouisfed.org/education_resources/paycheck.cfmFair Credit Billinghttp://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre16.shtmVirginia Council on Economic Education

EPF.13 The student will demonstrate the knowledge of credit and loan functions byf) identifying strategies for effective debt management, including sources of assistanceDay 1 - Managing Your DebtContent KnowledgeIncome and assets will determine how much debt a consumer can manage. When consumerstake on too much debt, there are sources of assistance.1Virginia Board of Education FrameworkSome strategies for effective debt management include● Maintaining accurate financial records● Making payments on time to avoid penalties and other debt problems (e.g., liens,foreclosures, garnishment, repossessions, evictions)● Using early payoffs, if advantageous● Ensuring against identity theftSigns that a consumer is getting into credit trouble include● Inability to pay bills● Making only the minimum payment● Using one credit card to pay other credit card balances● Receiving collection agency calls.When considering sources of assistance for debt management, individuals should● Distinguish between discrimination and legitimate credit denial● Ensure the right to appeal a credit denial● Apply knowledge of laws’ protection of consumers who have credit problems● Review the ramifications of bankruptcy● Check telephone directories and internet sites for credit counseling services andcommercial debt-adjustment firms that can help clients address credit problems,manage debt and rebuild credit● Evaluate sources for reliability and effectivenessTeaching Tips1) Have students answer the following questions based on their research: What steps arenecessary to successfully manage debt? How should current debt be prioritized? How doyou focus on multiple debts? The teacher can have students examine the two sourceslisted in the Lessons and Resources, or have them find their own sources by entering“debt repayment strategies” or “debt management strategies” in a search engine.Virginia Council on Economic Education

2) Have students look for “debt counseling” resources. Have students seek out informationon several organizations and compare the organizations using a PACED decision grid.Students should explain their alternatives, criteria, evaluation, and eventual choice.Lessons and ResourcesFinancial Fitness for Life Grades, 9-12, Lesson 13 - Credit Reports and Credit Scores.Capstone: Exemplary Lessons for High School Economics – Teacher’s Guide Unit 3 Lesson 18:Credit ManagementOnline9 Smart Debt Management Strategieshttp://www.bankrate.com/finance/personal-finance/9-smart-debt-strategies-in-2009-1.aspxPayment Pushhttp://www.bankrate.com/bm/news/cc/20020405b.aspKnee Deep in Debt?http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre19.shtm15 Signs of Serious Debt Troublehttp://www.bankrate.com/finance/debt/15-signs-of-serious-debt-trouble.aspxVirginia Council on Economic Education

EPF.13 The student will demonstrate the knowledge of credit and loan functions byh) comparing the costs and conditions of secured and unsecured loansDay 1 - What is a secured loan and what does it cost? What is anunsecured loan and what does it cost?Content KnowledgeSecured loans have different requirements than unsecured loans. Secured and unsecured loansshould be analyzed with regard to the costs and conditions of the loan. Secured loan amounts areoften larger, and the time to repay may be longer.Virginia Board of Education FrameworkA secured loan is one in which the borrower risks loss of an asset (e.g., automobile, house) ifunable to repay.An unsecured loan is made without the borrower offering any assets and is based on theborrower’s credit rating alone.Some costs and conditions to consider with secured and unsecured loans include● Annual percentage rates● Finance charges● Monthly payments● Annual rates● Transaction fees● Length of time to repay the loan● Total amount required to pay off the loan● Loss incurred should the loan not be repaid on time.Teaching Tips1) Draw a table with two columns where it can be seen by everyone. On one side, place securedloans. On the other side place unsecured loans. List the characteristics of a secured loan and anunsecured loan under the appropriate columns. Have students address size, time to repay, interestrate, and repossession at minimum. Have students suggest what types of loans might fit undereach category and explain why. Include auto loans, mortgage loans, student loans, home equityloans, business loans, credit cards, personal loans. Ask students to explain from the lender’sperspective why each of these loans might be secured or unsecured.2) Have students research the economic concept of micro-financing or micro-lending to helpthem understand the difference between a secured loan and an unsecured loan. Discuss how theprovision of unsecured loans to low-income, small-scale entrepreneurs in the developing worldVirginia Council on Economic Education

has improved the business prospects and quality of life for many desperately poor people aroundthe world.Lessons and ResourcesLesson and videoMicrofinance and Entrepreneurship – The Ascent of Moneyhttp://www.pbs.org/wnet/ascentofmoney/lessons/microfinance-and-entrepreneurship/lesson-overview/32/Virginia Council on Economic Education

EPF.13 The student will demonstrate the knowledge of credit and loan functions byi) comparing the types of voluntary and involuntary bankruptcy and the implications of eachDay 1 and Day 2 - Understanding bankruptcyContent KnowledgeBankruptcy is a very serious step with serious repercussions. People need to understand when itmay be appropriate and recognize that it should not be entered into lightly.VocabularyBankruptcy – A process whereby a debtor may liquidate or adjust their debts. Bankruptcy maybe considered when an individual’s debts exceed their assets.Virginia Board of Economic FrameworkThe two most common types of bankruptcy for individuals are Chapter 7 bankruptcy andChapter 13 bankruptcy.Chapter 7 is the chapter of the U.S. Bankruptcy Code providing for “liquidation” (i.e., the sale ofa debtor’s nonexempt property and the distribution of the proceeds to creditors.)Chapter 13 is the chapter of the U.S. Bankruptcy Code providing for adjustment of debts of anindividual with regular income. (Chapter 13 allows a debtor to keep property and pay debts overtime, usually three to five years.)In most cases, an individual files for bankruptcy voluntarily. However, creditors can forcedebtors into involuntary bankruptcy.The most common causes of bankruptcy are● illness or injury● failure to plan and budget● small business failure● job loss● impulse, emotional spending● economic downturnBankruptcy generally affects one’s ability to obtain credit for a period of time and may affectemployment.An attorney should be consulted for legal advice on when and how to file for bankruptcy.Virginia Council on Economic Education

Teaching Tips1) The Lessons and Resources for this lesson require online access. As an alternative, theteacher may wish to reproduce or summarize material for the students. Break the students intothree groups. Assign one group to the basics, one group to Chapter 7, and one group to Chapter13. Have each group research their topic and report back to the class.2) A local bankruptcy attorney or judge would make a great guest speaker.Lessons and ResourcesYour Credit Counts Challenge: Trainer’s Guide Section 3: Managing Credit (part 3.14 only)OnlineBefore You File for Personal Bankruptcyhttp://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre41.shtmBankruptcy Basicshttp://www.uscourts.gov/FederalCourts/Bankruptcy/BankruptcyBasics.aspxChapter 7http://www.uscourts.gov/FederalCourts/Bankruptcy/BankruptcyBasics/Chapter7.aspxChapter 13http://www.uscourts.gov/FederalCourts/Bankruptcy/BankruptcyBasics/Chapter13.aspxKhan Academy on chapter 7 bankruptcyhttp://www.youtube.com/user/khanacademy#p/c/CADCB4565CFACEBF/7/-oW4M3vpuRMKhan Academy on chapter 11 bankruptcyhttp://www.youtube.com/user/khanacademy#p/c/CADCB4565CFACEBF/7/-oW4M3vpuRMEVALUATION DAYVirginia Council on Economic Education