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Background Knowledge Terms Attention Getters

Background Knowledge: 

Strand 4 is jam packed with essential, potentially life changing information. It encompasses topics such as credit, banking, identity theft, money management, and consumerism. As a teacher, you will spend more time teaching Strand 4 than any of the other standards.

Planning and maintaining a balanced personal budget could eliminate a lot of turmoil in one’s life, if sound money management habits are formed and adhered to. Before making a personal budget, students should track their spending for 3-4 weeks to get an idea of their habits. A personal budget serves as a road map, a guide for spending and saving. Sometimes people, and maybe your students, feel uncomfortable when they hear the word budget. Minds can be changed! Having a way to track spending and saving guides those who are consistent to financial freedom.

Budgets include two main categories fixed expenses (amounts owed that do not fluctuate from month to month such as a mortgage or rent payment) and variable expenses (amounts owed that vary from month to month such as a utilities bill). A key to a successful budget is "Pay Yourself First" or "PYF." This principle teaches that whenever a person receives any money from a job, a gift, a windfall, or any other source, they need to put a portion of that money into savings. This is a habit that should be developed early in life. Payroll deductions for savings are a simple way to grow a savings account. The decision to save only has to be made once. Many people also use a change jar where they place their loose change at the end of each day. It is amazing how quickly that change accumulates giving the savers some extra money to use as they desire.

PYF encourages saving at least 10% of each check. Typically other percentage of income guidelines are as follows: Housing and utilities 30%, food and household 20%, clothing and personal items 10%, transportation 10%, saving and investing 10%, miscellaneous expenses 20%. When dealing with budgeting issues in class, please remember to use a third person scenario and never ask for personal information or specific personal income numbers.

Many tools are helpful in the world of budgeting. Computer programs, such as Quickbooks and Quicken shorten the time and paperwork. Keeping receipts and recording every transaction where money is spent, also proves effective. The envelope system is helpful for cash transactions and can be very helpful to high school students who may not have a checking account. The envelope system requires that the money involved is in cash, small bills help.

The consumer labels envelopes with different categories of expenses, such as gas, entertainment, etc. The allotted money for the month is then put into each envelope. When money is taken out of the envelope for a purchase, the transaction is recorded on the outside of the envelope. When the money is gone, either spending stops, or cash can be transferred from another envelope. This simulates how to use a checking account: recording transactions, transfers, deposits and money management. It is critical that students understand how to reconcile a bank statement. Guide them STEP BY STEP, through the reconciliation process.

There are different institutions that lend money. Among them are banks, credit unions, savings and loans and consumer finance companies. There are several types of loans available. Asingle paymentloan is a lump sum loan to be repaid at the end of a certain period of time. Theinstallmentloan is repaid with interest in series of payment. A secured loan is backed by something of value pledged to insure payment of the loan or collateral. Credit cards give you a lot of freedom but can also give you a lot of problems if you do not take it seriously and manage it properly. Allowing credit accounts to become delinquent or even worse, turning to bankruptcy as a way out of a dilemma dangerously damages your financial future. Emphasize to your students that if they do not have the money to pay for an item, it should not be purchased on a credit card.

Key to understand credit is learning about the various costs of using it-interest rates, fees, penalties, and even opportunity costs. These costs are critical factors in making good decisions about whether using credit is an appropriate option or not. Paying off the full balance on a credit card each month reduces the cost of using credit. Even paying a little more than the minimum amount can speed the repayment process and decrease overall interest charges. Co-signing on a credit contract is making a promise to that creditor or lending institution that you will repay the debt should the other signer default on the account. Co-signing for a debt carries serious obligations and can be disastrous if you sign for the wrong person.

Before credit is granted, consumers must prove to be credit worthy. Credit worthiness is determined before people are given the option to buy on credit. The guidelines used to determine your credit worthiness are contained within the elements of Creditworthiness: Character- refers to a person's conduct and living habits, including where they have lived and how long they have worked for an employer, Capacity- the ability the person has to earn enough income to repay a loan, and Capital -what is owned by the person who wants credit, such as savings, investment, and property. Collateral (Security pledged for the payment of a loan) and Conditions are also considered elements.

Spenders cannot simply buy on credit whenever they want. They have to establish a good credit standing or credit rating. A good credit rating is established over a period of time. Every time money owed is paid back on time, a credit standing is strengthened. Each time money is not paid on time, a credit rating is weakened. Businesses check a credit history every time a person applies for credit, insurance, employment, and sometimes apartment leases. Based on a credit history, credit bureaus develop a credit report on an individual. Upon checking a credit report, banks or businesses can either grant or deny credit. Everyone who hasever applied for credit, a charge account, a loan, or insurance, or even a job, will have acredit record on file at a credit bureau. A credit report contains information about the individual's income, debts, and credit payment history. If a consumer is having a hard time getting their bills paid, he can call the lender to try to work out a modified payment plan. This may reduce the payments to a more manageable level. If students volunteer details about personal or family credit problems, recommend that they contact a credit counseling service.

Students should know and understand their rights and responsibilities to become smart consumers.  Most of our rights are protected by federal and state laws. Unfortunately, many people are uninformed about consumer protection laws. In President John F. Kennedy State of the Union Address of 1962, a Consumer Bill of Rights was proposed including:The right to safety, The right to choose, The right to be informed,andThe right to be heard.

During the early years of the twentieth century, Congress passed laws intended to assure consumers that products were safe and marketed honestly. Some of these agencies are the Food and Drug Administration (FDA), Federal Trade commission (FTC), and Consumer Product Safety Commission (CPSC).

In more recent years, millions of Americans have suffered financial problems because someone else fraudulently used their identity to obtain credit or to access their financial accounts. This crime is known asidentity theft. The best way to protect ourselves from identity theft is to avoid letting other people see your financial information. Although taking steps can reduce the chances of you becoming a victim of identity theft, there is no way to avoid this possibility entirely. For this reason it is important to always check financial statements carefully to be sure they are legitimate. Encourage students to store their Social Security cards, and all documents containing personal information, in a fire safe location at home. Never carry a Social Security card in a purse or wallet.

Terms: 

• Budget
• Credit
• Installment loans
• Revolving credit
• Late fee
• Finance charge
• Interest
• Closing costs
• Bank
• Credit union
• Investment or Brokerage Firms
• Loan Agencies
• Creditworthiness
• Consumer protection laws
• Identity theft
• Grace period
• Ponzi scheme
• Insurance
• Insurance Types - Whole/Term Life

Attention Getters/Hooks: 

Group Juggle:

Objective: Demonstrate to students how they can handle and make sense of multiple tasks occurring at the same time.

Instructor Reference Material: From a cash management perspective, adults juggle incoming paychecks with outgoing bills. These bills arrive at different times of the month or year, sometimes expected and sometimes not! This activity draws a physical analogy between juggling balls and juggling money to make ends meet. The instructor will need a container holding up to 12 small balls to conduct this activity.

Instructor: Form a circle of 6 to 12 students with the instructor. Instructor calls out a student’s name and tosses him/her a ball. The student catches the ball, calls out another student’s name and tosses the ball to him/her.

Students repeat the pattern for all students in the circle until the ball is eventually tossed back to the instructor. 

Once the cycle is complete, check for understanding.  Students are really only responsible for remembering who tossed them the ball, and to whom they are to toss the ball. Repeat the exercise at a faster pace.

Once the pattern is set, repeat the exercise a third time, but the instructor introduces additional balls, up to a dozen. Students call out the person’s name, toss the ball, and wait to receive another one. The  instructor starts the exercise and when a ball is tossed back to the instructor, remove it from the circle.

Students: Hear their name called out, catch a ball, call out another person’s name, and toss the ball to him/her. Students always receive the ball from the same person and always toss the ball to the same person.

Instructor: Ask the following questions.

• How were you able to keep the pattern going?
• How is this like the rest of your life (all the activities)?
• How do you manage your money when you have all kinds of opportunities to spend it (at the mall, eating out, online)?

• Develop a budget.
• Identify and prioritize fixed, variable, and periodic budget categories.
• Emphasize the importance of proactive budget priorities, such as pay yourself first, emergency/opportunity fund, insurance, and charitable or other voluntary contributions.
• Discuss the pros and cons of charitable giving.
• List ways and examples of charitable giving.
• Compare tools for tracking of a budget and expenditures, such as the envelope system, paper tracking, and online or software options.
• Emphasize the importance of comparison shopping, buying strategies, negotiation, and sales and marketing strategies in purchasing.
• Identify the process, rights, and responsibilities relating to renting, leasing, and purchasing a home.
• Identify the process, rights, and responsibilities relating to renting, leasing, and purchasing a vehicle.
• Understand the similarities and differences between "principal" and "interest" on an amortization schedule.
• Explain the purpose of co-signers and collateral when applying for a loan.

TEACHING SUGGESTIONS: (Note: The following are simply suggestions or ideas to help you in teaching the General Financial Literacy class.  You WILL need to supplement these suggestions with additional resources based on your teaching style and your students’ learning styles).

• Discuss the purpose and role of credit and explain the value of building and maintaining a healthy credit rating, including elements of creditworthiness: character, capacity, capital, collateral, and conditions.
• Explore and discuss the pros and cons of basic types of credit, such as unsecured vs. secured credit, credit cards, installment loans, revolving credit, student loans, and predatory lenders.
• Describe the risks and responsibilities associated with using credit, such as APR, grace period, late fees, finance charges, default rates, interest, and closing costs.
• Understand principal and interest calculations.
• Calculate how long it takes to repay debt by making minimum payments on installment loans and revolving accounts.
• Locate and use online calculators to determine principal and interest aggregate monthly for long-term debt such as mortgages, vehicles, personal loans, and credit cards.
• Evaluate the costs and risks of payday and predatory lending.
• Describe the personal and societal effects of bankruptcy and identify circumstances that lead to bankruptcy, such as uninsured medical costs, family break-up, or loss of job.

TEACHING SUGGESTIONS: (Note:  The following are simply suggestions or ideas to help you in teaching the General Financial Literacy class.  You WILL need to supplement these suggestions with additional resources based on your teaching style and your students’ learning styles).

• Identify the three major credit bureaus.
• Understand the legal right to a free annual credit report (AnnualCreditReport.com).
• Evaluate and identify components of a credit report, including derogatory remarks, and the warning signs of credit abuse, such as late fees, missed payments, collection notices, and bounced checks.
• Explain the potential consequences of checking account mismanagement, such as non-sufficient funds (NSF) handling, overdraft processing, and the role of ChexSystems.

TEACHING SUGGESTIONS: (Note:  The following are simply suggestions or ideas to help you in teaching the General Financial Literacy class.  You WILL need to supplement these suggestions with additional resources based on your teaching style and your students’ learning styles).

• Understand financial contracts tied to consumer purchases, such as cell phone, cable or satellite plans and membership fees.
• Discuss the negative impacts of predatory and payday lending practices.
• Identify ways to avoid "identity theft" and fraud, such as securing sensitive financial data, using care when participating in online commerce, avoiding phishing and pharming, and properly disposing of sensitive documents.
• Understand how to recover from fraud and identity theft.
• Discuss ways to avoid financial schemes such ponzi schemes and other questionable and illegal practices.
• Describe the negative consequences of gambling and playing the lottery.
• Identify the pros and cons of online commerce, including how to conduct transactions safely.

TEACHING SUGGESTIONS: (Note: The following are simply suggestions or ideas to help you in teaching the General Financial Literacy class.  You WILL need to supplement these suggestions with additional resources based on your teaching style and your students’ learning styles).

• Explain the purposes and features of consumer protection laws.
• Identify federal and state entities that exist to protect consumers from forms of fraud and abuse.

TEACHING SUGGESTIONS: (Note: The following are simply suggestions or ideas to help you in teaching the General Financial Literacy class.  You WILL need to supplement these suggestions with additional resources based on your teaching style and your students’ learning styles).