TITLE: Consumer Borrowing and Saving
AUTHOR: Mary Jane McReynolds, NM
GRADE LEVEL/SUBJECT: 11-12, economics
OVERVIEW: The use of credit has long been a part of the
American economy; it fuels the nation's economic growth.
Using credit to buy consumer goods benefits the economy by
stimulating production. Increased production creates more
jobs and lenders profit by charging interest.
The overuse of credit, however, hurts the individual and
the national economy. Savings are necessary if the economy
is to grow. Too much consumer credit puts a drain on
personal savings. Banks use these savings to finance loans
to business and agriculture.
Many economists, business people, and private citizens
believe that Americans are using too much credit. Total
personal debt in the U.S. has doubled since 1975. In 1982,
the amount of debt per person was calculated at more than
$7,000. At the same time, many people who once considered
themselves well off were filing for bankruptcy. Personal
bankruptcies rose from 224,354 in 1975 to 449,389 in 1982 to
bankruptcies rose from 224,354 in 1975 to 449,389 in 1982 to
over 850,000 in 1990.
PURPOSE: To give students the needed background in the
positive and negative aspects of credit, its impact upon
individuals and the nation, and practical knowledge and
understanding of the wise use of credit.
OBJECTIVES: This unit emphasizes:
1. The opportunity cost of using credit is a reduction of
future spending power.
2. The opportunity cost of saving is the reductio of
current spending power which means the loss of the
"best" alternative for which you could use the money.
RESOURCES/MATERIALS: economics book - will have a section
explaining the introductory concepts; magazines - Consumer
Lifestyles often has articles and activities related to the
use/misuse of credit and is geared towards high school
student, Money magazine, Fortune; newspaper - often has
stories relating consumer rights and credit reports; credit
card applications - have several kinds available for
students to fill out; a credit report - to discuss what' on
one; loan applications - student loans, car loans, home
loans; calculators; guest speaker - banks will usually
provide someone to come in and talk about credit with
students. How to apply, what loan officers look for before
giving credit, what are some alternative ways of
establishing credit.
ACTIVITIES AND PROCEDURES: Students should read about the
use of credit and the many types of credit available,
reasons for borrowing, when to pay cash, when to use credit,
the costs associated with credit, and sources of
loans./credit.
1. Compare making a credit purchase and taking out a
loan.
2. Contrast the advantages and disadvantages of repaying
a loan over a longer period of time.
3. Identify two reasons people use credit.
4. Explain how borrowing or using credit is basically a
question of comparing costs and benefits.
5. Contrast the major sources of loans (student loans for
college should also be included).
6. Compare and contrast the different kinds of charge
accounts.
7. Describe the costs of using credit cards.
8. Be able to fill out credit application and know by
what criteria they are judged as to whether they will
receive a credit card.
9. Explain the importance of knowing annual percentage
rates and the various methods used to calculate
finance charges.
10. Determine the purposes of regulations governing the
credit industry. (What happens when you are denies
credit due to felonious credit history.)
Typical exercises include a group working on a specific
topic and presenting it to the class - no lectures allowed!;
students participating in role-playing various aspects of
the credit process; asking for first-hand information from
students who have used credit; having students interview
other teachers, parents, older friends/family who have
credit; have students bring in articles from the newspaper
about credit and its effect on the economy.
TYING IT ALL TOGETHER: Students will have been exposed to
current economic conditions relating to credit and how it
affects the individual, the family, the city in which they
live, the section of the country where they live, the
nation, and the world.
A culminating activity that I have used is to break
students into groups of three or four. They must use their
understanding of credit to state how they view credit, how
this unit has changed their view of credit, if it has and
why it has not changed anything, it that is the case.
Either I have given them a card with a possible scenario on
it or the other students are then to come up with possible
scenarios where the credit choice they have made might not
be the best answer and how they would handle the given
situation.
Example:
Student A: "After hearing how bad the credit situation is
in this country, I don't think I want to use credit. I'll
just save my money until I can buy whatever it is that I
want."
Student X: "So you are saying that you won't ever get a
credit card? How are you ever going to establish a credit
history to buy a house or a new car?"
Student A: "I'll save up for the car and can always rent
a place to live."
Student X: "Oh right. You're gonna' get married, have
three kids and be able to save enough to buy a nice car for
your family or a nice house."
Student Y: "So, what are your alternative A? Is credit
always bad?"
Other possible situation:
1. They have their own business and know that if they
expand, they will make more money. First they need to
have capitol.
2. They are away at school and their car breaks down in
some small town. All they have is the $50 in their
pocket and another $125 in the bank.
3. They need to buy books at school and their student
loan has not come in yet.
I also like to bring up the idea of the 900 phone numbers
which guarantee people a "gold" card. What are the
different scams associated with these types of gimmicks?
How can one be sure that the card offered is a legitimate
credit card? What are the real costs involved?
HOW CREDIT PROMOTES ECONOMIC GROWTH
1. Credit increases private sector demand.
2. Businesses increase production to meet new demand.
3. Businesses increase R&D to improve competitiveness.
4. Businesses expand.
5. New businesses form to compete for expanded markets.
6. Businesses hire workers for new plants, which creates
new demand.
7. Return to number 1.
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John Kurilecjmk@ofcn.org