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Lesson 2: Young People & Credit Cards

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Hyɛ no nsow a efi ɔkyerɛwfo no hɔ:

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1.

Do you think it’s a good idea for high school students to have a credit card? What about college students? Adults? Explain why you feel this way.

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Learning Objectives

Students will be able to:

Enumerate the differences between debit, prepaid debit, and credit cards
Identify at least 3 ways a young adult can gain access to a credit card, even before they are 21
Read a Schumer Box

National Standards for Personal Financial Education

Managing Credit

1a: Explain how credit card grace periods, methods of interest calculation and fees affect borrowing costs
8b: Explain how a borrower’s credit score can impact their cost of credit and their ability to get credit

Learning Objectives

Students will be able to:

Enumerate the differences between debit, prepaid debit, and credit cards
Identify at least 3 ways a young adult can gain access to a credit card, even before they are 21
Read a Schumer Box

National Standards for Personal Financial Education

Managing Credit

1a: Explain how credit card grace periods, methods of interest calculation and fees affect borrowing costs
8b: Explain how a borrower’s credit score can impact their cost of credit and their ability to get credit

Question 2

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2.

After watching the video and comparing the cards, which one of the three would be the best option for you as your day-to-day payment method? Explain why.

There’s a ton of good information on this infographic, but let’s focus on two sections which will explain Why Credit Is Useful and, farther down the page, How Young People Get Credit.

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3.

Why might young adults, in particular, value credit in case of emergency?

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4.

If you’re trying to gain access to a credit card before you turn 21, which of the suggestions rely on the support of a parent or guardian? (choose 2)

Get a co-signer

Chip away at student loans

Get a secured credit card

Tag onto another credit card

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Let’s assume you’re going to open a credit card – and you have a plan for how you’ll qualify for one. There are hundreds (or more) cards available to choose from. How should you decide which one is best for you? This video will highlight four important factors – Annual fee, APR, Penalty fees and rates, and Grace period. Watch the video to learn more. Then, answer the questions.

Questions 6-9

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6.

Which of the four factors directly impact your total cost of using the credit card?

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7.

Miles is planning to open a credit card, charge only his monthly streaming service subscriptions (less than $50 per month), and pay his entire bill in full each month so that he never has to pay interest. Which of these factors do you think is most important for Miles to consider when selecting a card? Why?

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Each of the factors you saw in the video are provided in something called a Schumer Box, which is meant as a written summary of the most important terms and conditions of a specific credit card.

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21.

Which statement is true of both debit AND credit cards?

Both can trap you in an endless cycle of debt if you’re not careful

Both allow you to make purchases in a store or online

Both typically have interest rates between 10-30%

Both require you to pay a minimum monthly payment when your bill arrives

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22.

Felix opens a credit card with no annual fee, so he assumes that using the credit card regularly will be absolutely free for the next two years while he finishes grad school. Why is his assumption incorrect?

Unless he pays the whole bill every month, he will pay interest according to his APR

He will automatically pay penalty fees if he uses his credit card for more than 3 consecutive months

If his grace period is any longer than 10 days, he will have to pay fees

He will need to pay a separate student fee because he is still in grad school

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23.

Which statement best describes a Schumer box?

The final calculation of how much you owe on your credit card bill each month

A standardized way of presenting the key terms of your credit card agreement

A legal document stating that you’re behind on your credit card payments

The outstanding balance on your credit card once you’ve made your recent payment

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5.

Which of the suggestions do NOT rely on the support of a parent or guardian? (choose two)

Get a co-signer

Chip away at student loans

Get a secured credit card

Tag onto another credit card

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8.

Delara is opening a credit card because her budget is really tight right now and she’s struggling to pay all of her expenses based on her income.
a) Why might a card with a long grace period be in her best interest?

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9.

Delara is opening a credit card because her budget is really tight right now and she’s struggling to pay all of her expenses based on her income.
b) She knows she’ll be making only the minimum monthly payments each month until she can find a job where she’ll earn more income. This means some of her payment every month will go toward paying interest rather than paying down her principal. What other factor(s) might be most important to Delara? Why?

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10.

What is the introductory APR (interest rate) on this card?

0%

15.24%

23.24%

25.24%

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11.

Josephine says, “This is a great credit card, because the APR is always 0%!” Which of the following statements is actually TRUE?

The 0% APR will change after six months

She will not pay interest on purchases made on the card for the first year

All of Josephine’s purchases are free for the first six months

All of Josephine’s purchases are free - period.

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12.

After the introductory period, everyone who has this Platinum Card will...

Pay the same APR

Qualify for an APR based on their creditworthiness

Pay the Penalty APR of 30.24%

Be charged an Annual Fee

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13.

Jordan accidentally uses his credit card to get $40 in cash from an ATM instead of using his debit card. What happens?

There is no impact

A $10 cash advance fee will be charged ONLY

An APR of 25.24% will be applied on the $40 until it is paid back ONLY

A $10 cash advance fee will be charged AND an APR of 25.24% will be applied on the $40 until it is paid back

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14.

Which transaction type has the highest APR?

Late payment

Purchases made during the Introductory Period

Balance Transfer

Cash Advance

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15.

What might cause someone to lose their introductory APR and trigger the Penalty APR?

Making only the minimum payment

Using the full credit limit

Missing a payment by more than 60 days

Applying for another credit card

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16.

Louisa’s APR was 19.99%, with an average balance of $1,000. About how much interest did she pay over the year?

$0

$20

$200

$2,000

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17.

Devon forgets to pay his credit card bill for three months. Which of the following statements is TRUE?

He will be charged a Balance Transfer fee of $5

He will have to pay a Cash Advance fee of $10

His APR will rise to 30.24% until he pays back the amount he owes

His APR will rise to 30.24% and stay there until he makes six consecutive minimum payments

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18.

Tamara goes to Italy and purchases $200 of souvenirs using her credit card. How much will she pay in foreign transaction fees?

$0

$3.00

$6.00

$35.00

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19.

All of the following actions lead to paying a credit card fee EXCEPT...

Using your credit card to get cash from an ATM

Paying your credit card bill in full and on time every month

Using your credit card to purchase items in a foreign country

Paying your credit card bill ten days after the Due Date

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20.

List three pieces of information listed in a Schumer Box that someone should review before signing up for a credit card. Explain why you chose these three.