A CREDIT CARD is a plastic card that allows consumers to purchase goods and services now, but pay for them later.
Credit cards have an account number on them and a special security code on the back.
Most credit cards have a credit limit. You usually have 30 days to pay back the balance on a credit card to avoid paying interest. Be careful that you don’t get into too much debt using a credit card! Avoid monthly payments that exceed your ability to pay them.
Credit cards are an everyday part of life, with many people using them to purchase goods and services. If handled properly, credit cards offer significant benefits that make life easier. They are very convenient and are useful in emergencies. They are safer than carrying large amounts of cash, are a “free” loan if balances are paid each month, and often have benefits (e.g. points, frequent flyer miles) that come with purchases.
However, credit cards can be abused, resulting in significant financial burdens. This frequently happens when people accumulate high-interest balances and pay them off in small amounts. This is a significant problem with credit cards since they frequently have high rates of interest, especially for people with poor credit ratings.
The key idea to get across to students is that a credit card is a loan that must be paid back. Failure to make timely credit card payments will cause a card’s interest rate to increase, which will significantly increase the amount a person must ultimately pay back. It will also hurt a person’s credit rating. Credit cards can be useful, but they must be used responsibly!
Emphasize these three important things to remember about using credit cards. (An overhead of these points is found in the Interest Posters Teacher’s Guide.)
It is usually best to pay off the credit card balance each month to avoid interest payments.
Cards with high interest rates will mean high interest payments on outstanding monthly balances.
Paying off a credit card balance with larger monthly payments will greatly lower interest payments and result in the balance being paid off much more quickly.
Order sets of the ABCs of Credit booklet (author Carol A. Carolan) for your class. It is currently available at no cost to you from the Center for Student Credit Card Education, www.cscce.com. The booklet provides a wealth of easy-to-understand information about credit cards.
Discuss identify theft with your students, emphasizing how serious a problem this is. The booklet, The ABCs of Credit (page 10), suggests the following steps if you are victim of identity theft:
a. Contact the three major credit-reporting agencies and put a “fraud alert” on your file.
b. Order a copy of your credit report from these agencies.
c. Review these reports and contact the fraud department for creditors who show a false or tampered account.
How Credit Cards Work, by Gillian Houghton, 24 pages
This book, designed for pre-teens, teaches the basics of credit cards.
The Motley Fool Investment Guide for Teens: 8 Steps to Having More Money Than Your Parents Ever Dreamed Of, by David Gardner and Tom Gardner, 256 pages
This book is filled with information about managing money, including information about using credit cards.
Cash and Credit Information for Teens: Tips for a Successful Financial Life, by Kathryn R. Deering, 407 pages
This comprehensive guide for teens offers advice about basic money management and personal finance.
