CreditUnit 7 Lesson 1Introduction to Personal Finance

Goal & Relevance • The goal of the lesson is to compare the benefits and

challenges that come with borrowing money. • The is relevant to you now because you are making credit and

debt choices now, or will be in the near future. These choices include borrowing money to buy a car, get a post-secondary education, or signing up for a credit card.

Warm-up• THINK about each of these statements. What do these

statements mean to you? Prepare to CONTRIBUTE to a classroom discussion.• “Credit is a privilege, not a right”• “Credit is not free money”• “I use credit, I do not let credit use me”

Advantages• Can greatly expand your purchasing potential• Raises your standard of living• Emergency fund tool (ie. Roadside emergency)• Convenient• Safer

Can greatly expand your purchasing potential

Raises your standard of living

Emergency fund tool (not emergency savings!)

Convenient

Safer (kind of) – only liable for first $50 if credit card is lost/stolen

Disadvantages• It MAY cost more than cash purchases• Finance charges (total dollar amount of all interest and fees)• You tie up future income (debt/income ratio)• Can lead to overspending• Tie up future freedom!

It MAY cost more than cash purchases

Finance charges (total dollars amount of interest and fees)

You tie up future income

Can lead to overspending

Tie up future freedom

5 C’s of Credit• Character – a person’s honest and reliability determined by

their history of repaying bills on time.• Capital – is an evaluation of a person’s net worth.• Capacity – is the income a person has available to repay the

loan determined by job longevity and having few other other loans.

• Collateral – is property, which can be seized if a person does not repay the loan.

• Conditions – refer to the general state of the economy.

Character – a person’s honest and reliability determined by their history of repaying bills on time

Capital – is an evaluation of a person’s net worth.

Capacity - is the income a person has available to repay the loan determined by job longevity and having few other other loans.

Collateral - is property, which can be seized if a person does not repay the loan.

Conditions – refer to the general state of the economy.

Activity• EXPLAIN in an email to me how someone could make a lot of

money but be refused for a loan. Incorporate each of the 5 C’s of credit. • Hints….

• Character – could they have a low credit score?• Capital – could they be in a lot of debt?• Capacity – we have already established they make a lot of money.• Collateral – do they not have collateral? • Conditions – could the economy be in bad shape?

Maxed Out• WATCH the movie Maxed Out. You will be assessed over the

movie.• Prompt: How would you feel if your life was ruined because of

your credit choices or predatory lending? How would you feel if your life was better because you used credit responsibly? Your assessment is to ILLUSTRATE how you feel about credit by either writing a four-paragraph essay or drawing a picture. You may feel strongly one way or the other, or you may have mixed emotions.• You can choose how you are assessed from your choices below:

• Choice A – DRAW a poster ILLUSTRATING how you feel about credit, consistent with the rubric.

• Choice B – WRITE a family member, friend, or teach a four paragraph essay EXPLAINING how you feel about credit consistent with the rubric in the online classroom.