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.

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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.)


Standard 3 students will understand principles of money management

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

  • EquiFax

  • Experian

  • TransUnion

  • www.annualcreditreport.com


Credit reports and scores

Credit Reports and Scores

  • 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

  • (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

  • ***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…

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

SCENARIO:

  • Interest Rate 17%

  • Minimum Payment 2.5% or $10.00


Cost of credit

Cost of Credit

ARFL


Ways to lower credit cost

Ways to Lower Credit Cost

  • 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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