Standard 3 students will understand principles of money management
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Standard 3 Students will understand principles of money management. Objective 2 Understand credit uses and costs. Objective 3 Describe the impact of credit on money management. Credit. A legal agreement to receive cash, goods, or services now and pay for them in the future.

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Standard 3 students will understand principles of money management
Standard 3Students will understand principles of money management.

  • Objective 2

    • Understand credit uses and costs.

  • Objective 3

    • Describe the impact of credit on money management.


Credit
Credit

  • A legal agreement to receive cash, goods, or services now and pay for them in the future.

  • Interest: the cost you pay for using credit. (On credit card statements it’s called Finance Charge.)


Common types of credit
Common Types of Credit

  • Installment Loan: A loan in which the amount of payment and the number of payments are predetermined—monthly payments.

    • (Typically used for autos, appliances, furniture…)

    • (Usually has a lower interest rate than a credit card.)


Common types of credit1
Common Types of Credit

  • Student Loan: Used for tuition and college expenses.

    • Usually has a lower interest rate than an installment loan.

    • Federal government through college institution.


Common types of credit2
Common Types of Credit

  • Credit Card: A plastic card that you can use to make purchases or obtain cash by using a line of credit. (Store cards generally have a higher interest rate than bank cards.)

    • Grace Period: Time allowed in which you can pay off new purchases without being charged interest, usually 20 – 30 days.

    • APR: Yearly interest rate for using credit.

    • Credit Limit: Maximum amount you can charge.


Common types of credit3
Common Types of Credit

  • Mortgage Loan: Used specifically for home purchase.

    • (Usually has a lower interest rate than an installment loan

    • May provide an income tax break on interest paid.

    • Usually repaid over 15 – 30 years.)


Did you know 61% of adults said their knowledge of credit reports is fair to poor?Did you know only 3% of adults can name the three main credit reporting agencies? Can YOU?

Source: Consumer Federation of America


Credit reporting agencies
Credit Reporting Agencies reports is fair to poor?

  • EquiFax

  • Experian

  • TransUnion

  • www.annualcreditreport.com


Credit reports and scores
Credit Reports and Scores reports is fair to poor?

  • Credit Report: A detailed record of how you have repaid your credit obligations.

  • Credit Score: A number that reflects your creditworthiness, based on your credit report

    • Ranges from 300 to 850, the higher the better.

    • A score of 700 or above is considered good. A score ranging between 730 and 850 qualifies for the best interest rate.

    • A low score can result in a higher interest rate or denied credit approval.


Building positive credit students
Building Positive Credit--Students reports is fair to poor?

  • (Start with a checking account--Manage your checking account/debit card wisely)

  • Qualify for overdraft protection (line of credit)

  • Co-sign on a loan with parent (car loan, student loan…)

  • Make a purchase using installment payments (tires…)

  • Get one credit card or have your parents add you as an authorize user on their card.


Ways to improve your credit score
Ways to Improve Your Credit Score reports is fair to poor?

  • ***Pay your bills on time. (Accounts for 35% of score.)

  • Watch your balances. (When you exceed 50% of your credit limit, your FICO will suffer—30%.)

  • Old and long are good. (Longer credit history is an asset—15%)

  • Resist opening new accounts. (Too many inquiries—10%)

  • Diversify. (Variety and type of loans—10%)


Concerning interest on debt
Concerning interest on debt… reports is fair to poor?

Interest never sleeps nor sickens nor dies;

It never goes to the hospital;

It works on Sundays and holidays;

It never takes a vacation;

It never visits or travels;

It takes no pleasure;

It is never laid off work nor discharged from employment;

It never works on reduced hours


The cost of using credit
The Cost of Using Credit reports is fair to poor?

SCENARIO:

  • Interest Rate 17%

  • Minimum Payment 2.5% or $10.00


Cost of credit
Cost of Credit reports is fair to poor?

ARFL


Ways to lower credit cost
Ways to Lower Credit Cost reports is fair to poor?

  • Pay off loan early.

  • Pay extra or higher than minimum payment due.

  • Look for the lowest interest rate.

  • Set up loan for shortest time period possible.


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