Financial Literacy

1. Financial Literacy 12th- Credit Card Smarts

2. Objectives for today • Discuss responsible use of credit including loans and credit cards • Become familiar with the basic concepts of credit: • How to establish credit • How to maintain good credit

3. What is Financial Literacy? • Understanding how to manage money effectively • Acquiring knowledge and skills to make informed decisions regarding money matters • Helping individuals fulfill personal, family, social and governmental responsibilities

4. Why do I need to be financially Savvy? • People who are financially literate are more likely to achieve a better quality of life and reach their lifetime goals. • Being financially savvy can: • Help you buy something you need or want (car, computer, etc.) • Save money for emergencies • Afford college tuition • Start a business • Live comfortably in retirement • Lead to financial independence

5. So, have you ever - • Borrowed money from someone? • What agreement did you make to pay it back? • Did you keep your promise? • Loaned money to someone? • What agreement did you make about getting paid back? • Why do people put such agreements in writing?

6. Cred· it [kred-it] Credit is a way to borrow money that you agree to pay back over time. The ability to borrow money is called having credit.

7. Examples of Credit • Credit cards • Car loans • Student loans • Home mortgages

8. Establishing Credit • Banks and other companies will lend you money, but only if they have trust and confidence that you’re able to pay it back. • Earning this trust is called establishing credit.

9. Why is credit important to me? • Want a new car? • Want new clothes? • How about a new computer? • Are planning on going to college or technical school?

10. Flexibility • When you are able to borrow money, you have the option of buying something today and paying the money back over time, rather than having to wait.

11. How do I establish credit? • Do you have your own cell phone account in your name? • Do you have a savings or checking account in your name? • Do you have a credit card that you pay in full each month or make monthly payments on time? If you do, you are already establishing credit.

12. Credit History • Every time you borrow money and keep your promise to pay it back on time, you’re proving to lenders that you are “credit worthy”. This is called having a good credit record or rating.

13. Credit Report • Your credit report lists details of any account you have (Bank accounts, department store accounts). • It also shows if you have any actions taken against you (i.e. late bill payment, car repossessed). • You can access your credit report directly through Transunion, Equifax, and/or Experian once a year at no charge.

14. Your Credit Score Counts! • Think of this rating as your SAT score – the higher the score the better! • Your score will range between 300 and 850.

15. Credit Cards • Having a credit card that you manage well builds: • your credit history • your credit score (Refer to handout for the following slides.)

16. Credit Cards • You will have a flood of choices for a credit card, so here are some questions to ask: • What is the Annual Percentage Rate? (APR) • Does your card have an annual fee? • What is the credit limit? • Do you want a card that gives you rewards? Cash back? Be careful, it isn’t a reward, if you are paying interest.

17. Credit Cards Basics • Annual Percentage Rate (APR) • This is what you’ll be charged each month if you do not pay your credit card bill in full. • Interest rates vary with every card and every company. • It is KEY for you to shop around for the best APR – not just an introductory rate but the full rate you will be charged for using the card.

18. Credit Cards Basics • Minimum Payment • When you use your credit card, you’ll get a monthly statement. • On the statement, it will specify what is the lowest amount you can pay by the due date to keep your account in good standing. • If you don’t make your payments on time, you’ll damage your credit record, incur late fees and have additional interest charged.

19. Credit Cards Basics • Credit Limit: • The maximum amount a credit card company will allow someone to owe on a single card. • Credit limits are usually determined by a person's credit rating or score.  • The better your credit score, the higher your credit limit.

20. Credit Cards Basics • Cash Advances • When you have a credit card, you have an option to take out cash to the limit that the card will allow. • Ex. Card limit $1000, Cash advance limit $500 • Cash advances come with a fee and a higher interest rate. • There is no grace period when you take a cash advance; the interest charges begin right away. • Avoid them unless it is an emergency!

21. Know Credit Costs – Paying the Minimum $1500 (must have) computer Card Balance $1,500 APR 14.7% Minimum payment: $40 51 months & $521 interest - $2,021 Double minimum payment: $80 22 months & $215 interest - $1,715 if you double the payment you will pay off your balance 2.5years earlier and save $306.

22. Know Credit Costs – Missing a Payment • $1500 (must have) computer • Card Balance $1,500 • Original APR 14.7% • Missing a payment • New APR 27.88% • 51 months & $1,052 interest - $2,552 • If you miss a payment it could cost you an extra $521

23. Credit Card Advice • Before you use your card to make a payment, ask yourself if you can pay it back! • You don’t want to overuse or abuse this credit privilege or you could hurt your credit record. • Beware of giveaways/gifts as incentive to sign up for another credit card you may not need. • If your card is lost, stolen, or compromised contact your credit card company or bank immediately.

24. 4 Steps to Good Credit • Create your own budget and plan your spending. • Pay all your bills on time. • Keep your credit card balances below 30% of your credit limit at all times. • Plan how you’ll pay back any loans or credit card payments before you sign on the dotted line or make that purchase.

25. Tips for using Credit Abroad • Alert your credit card issuer before leaving. • Always carry your passport. • Find out about foreign transaction fees. • Order some foreign currency from your bank to take with you. • Save all your credit card purchase receipts.

26. What can I do now to become financially literate? • 1. Get a good education. • 2. Work smart. • 3. Learn money management skills. • 4. Live below your means. • 5. Save early and often. • 6. Gather information before making decisions. • 7. Ask questions and attend financial seminars.

27. What can I do now to become financially literate? • For more information go to: • www.360financialliteracy.org • www.macpa.org • www.mdfinancialskills.org • www.mymoney.gov • This information brought to you by the Severna Park High School Business Advisory Board www.sphsbab.org