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© 2010 South-Western, Cengage Learning SLIDE 1 Chapter 16 Do Now 10/21 & 10/22 Study Chapters 8, 9, 10, & 20 for Unit 2 Test
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© 2010 South-Western, Cengage Learning SLIDE 1
Chapter 16
Do Now 10/21 & 10/22
Study Chapters 8, 9, 10, & 20 for Unit 2 Test
© 2010 South-Western, Cengage Learning SLIDE 2
Chapter 16
Agenda 10/21 & 10/22
• Do Now: Study for Unit 2 Test
• Unit 2 Test
• Hand Back Step 1 of PFM Project
• Discuss Resumes
• Go Over Step 2 of PFM Project
• Closure: Watch and Discuss Wealth Inequality in America
© 2010 South-Western, Cengage Learning SLIDE 3
Chapter 16
Do Now 10/24 & 10/25Answer the following in your notebook:
In the early part of our nation’s history, we had no credit. People used coins or paper money to make purchases. Today, we are moving toward a paperless and cashless society. Would it be possible to live without ever using coins, paper money, or even checks? Explain how people might live on credit alone.
© 2010 South-Western, Cengage Learning SLIDE 4
Chapter 16
Agenda 10/21 & 10/22
• Do Now: Paperless and Cashless World Discussion
• Homework and Project Discussions
• Chapter 16 – Credit: What and Why
• Activity: Credit Scenarios
• Closure: Why is it important to make credit card payments on or before the due date?
© 2010 South-Western, Cengage Learning SLIDE 5
Chapter 16
Homework 10/24 & 10/25
Find a credit card offer online, in your mail, at a bank, or at a retail store. Read the fine print and make a list of all the potential traps you find.
Print or write your answers on paper and hand in next class.
© 2010 South-Western, Cengage Learning SLIDE 6
Chapter 16
PFM Project 10/24 & 10/25
Any questions on what to do for Step 2 of the PFM Project?
Chapter
© 2010 South-Western, Cengage Learning
Credit in America
16.116.1 Credit: What and Why
16.216.2 Types and Sources of Credit
16
© 2010 South-Western, Cengage Learning SLIDE 8
Chapter 16
The Need for Credit
Credit is the use of someone else’s money, borrowed now with the agreement to pay it back later.
Early forms of creditCredit today
© 2010 South-Western, Cengage Learning SLIDE 9
Chapter 16
The Use of Credit
A debtor is a person who borrows money from others.
This money, called debt, must be repaid. A creditor is a person or business that loans
money to others. Creditors charge money for this service in the
form of interest and fees. A debtor must be qualified to receive credit.
© 2010 South-Western, Cengage Learning SLIDE 10
Chapter 16
Qualifying for Credit
To qualify for credit, you must have the ability to repay the loan.
Qualification is based on three things: IncomeFinancial positionCollateral
© 2010 South-Western, Cengage Learning SLIDE 11
Chapter 16
Income
Sources of income include: Job Interest Dividends Alimony Royalties
Income represents cash inflow. When your earnings exceed your expenses,
you have the capacity to take on debt.
© 2010 South-Western, Cengage Learning SLIDE 12
Chapter 16
Financial Position
Capital is the value of property you possess (such as bank accounts, investments, real estate, and other assets) after deducting your debts.
Having capital tells the creditor that you have accumulated assets, which indicates responsibility.
Your debt represents cash outflow and will be compared to your cash inflow (income).
© 2010 South-Western, Cengage Learning SLIDE 13
Chapter 16
Collateral
To borrow large amounts of money, creditors often want more than just your promise to repay; they want collateral.
Collateral is property pledged to assure repayment of a loan.
If you do not make your loan payments, the creditor can seize the pledged property.
© 2010 South-Western, Cengage Learning SLIDE 14
Chapter 16
Making Payments
Once you have completed a credit purchase, you owe money to the creditor.
The principal (amount borrowed) plus interest for the time you have the loan is called the balance due.
The finance charge is the total dollar amount of all interest and fees you pay for the use of credit.
© 2010 South-Western, Cengage Learning SLIDE 15
Chapter 16
Advantages andDisadvantages of Credit
Advantages Purchasing power Emergency funds Convenience Deferred billing Proof of purchase Safety
Disadvantages Higher costs Finance charges Tie up income Overspending
© 2010 South-Western, Cengage Learning SLIDE 16
Chapter 16
Activity 10/24 & 10/25
Break up in groups of four. You will be given credit scenarios. Your group
must discuss how you would handle the scenario.
Record your response on a sheet of paper. Make sure write all the names of the members of your group.
You will then read aloud your scenario and present your response.
© 2010 South-Western, Cengage Learning SLIDE 17
Chapter 16
Closure 10/21 & 10/22
Why is it important to make credit card payments on or before the due date?
© 2010 South-Western, Cengage Learning SLIDE 18
Chapter 16
Do Now 10/25 & 10/26
Respond to the following in your notebook:
Credit can be very beneficial or it can lead to financial ruin. Describe the advantages of credit in terms of purchasing power. Describe how credit can become a trap and lead to overspending and other problems.
© 2010 South-Western, Cengage Learning SLIDE 19
Chapter 16
Agenda 10/25 & 10/26
Do Now: Pros and Cons of Credit Discussion
Continue Chapter 16 – Types and Sources of Credit
Classwork: Vocabulary
Closure: Accepting Credit Cards Discussion
© 2010 South-Western, Cengage Learning SLIDE 20
Chapter 16
Homework 10/25 & 10/26
Read and take notes on Chapter 17.
Quiz on Chapters 16 and 17 will be on• Friday for A-day class• Monday for B-day class
© 2010 South-Western, Cengage Learning SLIDE 21
Chapter 16
PFM Project 10/25 & 10/26
Any questions regarding Step 2 of the PFM project?
© 2010 South-Western, Cengage Learning SLIDE 22
Chapter 16
Lesson 16.2
Types and Sources of Credit
GOALSList and describe the types of credit
available to consumers.Describe and compare sources of credit.
© 2010 South-Western, Cengage Learning SLIDE 23
Chapter 16
Types of Credit
Open-end creditClosed-end creditService credit
© 2010 South-Western, Cengage Learning SLIDE 24
Chapter 16
Open-End Credit
Open-end credit is where a borrower can use credit up to a stated limit.
Charge cardsRevolving accounts
© 2010 South-Western, Cengage Learning SLIDE 25
Chapter 16
Credit Card Agreements
A credit card is a form of borrowing and usually involves interest and other charges.
The terms of the credit card agreement affect the overall cost of the credit you will be using.
© 2010 South-Western, Cengage Learning SLIDE 26
Chapter 16
Credit Card Agreements
Credit card agreement terms to consider: Annual percentage rate (APR)
The annual percentage rate (APR) is the cost of credit expressed as a yearly percentage.
Grace periodThe grace period is a timeframe within which you may pay
your current balance in full and incur no interest charges.
FeesAnnual fees, transaction fees, and penalty fees
Method of calculating the finance charge
(continued)
© 2010 South-Western, Cengage Learning SLIDE 27
Chapter 16
Closed-End Credit
Closed-end credit is a loan for a specific amount that must be repaid in full, including all finance charges, by a stated due date.
Also called installment credit Does not allow continuous borrowing or
varying payment amounts Often used to pay for very expensive items,
such as cars, furniture, or major appliances
© 2010 South-Western, Cengage Learning SLIDE 28
Chapter 16
Service Credit
Service credit involves providing a service for which you will pay later.
For example, your utility services are provided for a month in advance; then you are billed.
Many businesses extend service credit. Terms are set by individual businesses.
© 2010 South-Western, Cengage Learning SLIDE 29
Chapter 16
Sources of Credit
Retail storesCredit card companiesBanks and credit unionsFinance companiesPawnbrokersPrivate lendersOther sources of credit
© 2010 South-Western, Cengage Learning SLIDE 30
Chapter 16
Retail Stores
Examples of retail stores include department stores, discount stores, and specialty stores.
Many retail stores offer their own credit cards. These cards are accepted only at the issuing store. Store credit customers often receive discounts,
advance notice of sales, and other privilegesnot offered to cash customers or to customers using bank credit cards.
Most retail stores also accept credit cards issued by major credit card companies.
© 2010 South-Western, Cengage Learning SLIDE 31
Chapter 16
Credit Card Companies
Credit card issuersFinancial institutionsOther organizations
© 2010 South-Western, Cengage Learning SLIDE 32
Chapter 16
Banks and Credit Unions
Credit cardsClosed-end loans
© 2010 South-Western, Cengage Learning SLIDE 33
Chapter 16
Finance Companies
A finance company is an organization that makes high-risk consumer loans.
There are two types of finance companies: Consumer finance companies Sales finance companies
Loan sharks are unlicensed lenders who charge illegally high interest rates.
A usury law is a state law that sets a maximum interest rate that may be charged for consumer loans.
© 2010 South-Western, Cengage Learning SLIDE 34
Chapter 16
Pawnbrokers
A pawnbroker (or pawnshop) is a legal business that makes high-interest loans based on the value of personal possessions pledged as collateral.
Possessions that are readily salable (such as guns, cameras, jewelry, radios, TVs, and collector’s coins) are usually acceptable collateral.
© 2010 South-Western, Cengage Learning SLIDE 35
Chapter 16
Private Lenders
One of the most common sources of cash loans is the private lender.
Private lenders might include parents, other relatives, friends, and so on.
Private lenders may or may not charge interest or require collateral.
© 2010 South-Western, Cengage Learning SLIDE 36
Chapter 16
Other Sources of Credit
Life insurance policiesBorrowing against a depositBorrowing against an asset
© 2010 South-Western, Cengage Learning SLIDE 37
Chapter 16
Classwork 10/25 & 10/26
Activity: Student Activity Guide, p. 155
Complete vocabulary worksheet
© 2010 South-Western, Cengage Learning SLIDE 38
Chapter 16
Closure 10/25 & 10/26
If you were going into business for yourself, you would have to decide whether or not to accept credit cards from customers. Explain the points in favor of both positions.
© 2010 South-Western, Cengage Learning SLIDE 39
Chapter 16
Homework 10/24 & 10/25
Find a credit card offer online, in your mail, at a bank, or at a retail store. Read the fine print and make a list of all the potential traps you find.
Print or write your answers on paper and hand in next class.
