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 • Pay Your Balance in FULL! • 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 exactly 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