Description
What our Financial Literacy: Debit or Credit Cards lesson plan includes
Lesson Objectives and Overview: Financial Literacy: Debit or Credit Cards teaches students about the differences between debit and credit cards. At the end of the lesson, students will be able to differentiate between a debit and credit card account. Students will also gain a basic understanding of the role financial institutions play in managing personal funds. In addition, students will understand there is a cost to credit purchases, and waiting to pay in cash is an excellent strategy to avoid debt. This lesson is for students in 5th grade and 6th grade.
Classroom Procedure
Every lesson plan provides you with a classroom procedure page that outlines a step-by-step guide to follow. You do not have to follow the guide exactly. The guide helps you organize the lesson and details when to hand out worksheets. It also lists information in the blue box that you might find useful. You will find the lesson objectives, state standards, and number of class sessions the lesson should take to complete in this area. In addition, it describes the supplies you will need as well as what and how you need to prepare beforehand. The supplies you will need for this lesson include pencils, pens, and highlighters.
Options for Lesson
Included with this lesson is an “Options for Lesson” section that lists a number of suggestions for activities to add to the lesson or substitutions for the ones already in the lesson. An optional adjustment to the lesson activity is to engage students in a whole class discussion or have a few students from each side explain why they chose their respective answers. If you have limited space for the activity, consider doing it in the cafeteria, gym, or outside! One optional addition to the lesson is to invite a bank representative to come to your classroom and explain how debit cards work, their advantages, why banks created them, and how they can sign up to get a debit card with their parent; they can also discuss the differences between debit cards and credit cards. You could also start a discussion with your class about the best choice for students. Finally, you could have students can vote on their preference between the two cards or you could even set up a debate!
Teacher Notes
The teacher notes page includes a paragraph with additional guidelines and things to think about as you begin to plan your lesson. This page also includes lines that you can use to add your own notes as you’re preparing for this lesson.
FINANCIAL LITERACY: DEBIT OR CREDIT CARDS LESSON PLAN CONTENT PAGES
Debit or Credit Cards
The Financial Literacy: Debit or Credit Cards lesson plan includes five pages of content. According to a recent survey, Americans use credit cards more than they use cash. And now they are using debit cards even more often than they use credit cards. But what is the difference between a credit card and a debit card? You may be thinking, “I’m a kid! What do I need a credit or a debit card for?” Good question, and that’s where banks can help you. Almost everyone (even kids) gets paid for doing something. It might be helping around the house, babysitting, or cutting lawns for a neighbor. Maybe you get cash for birthdays or special holidays. Some kids earn money for having good grades. Regardless of how you make money, having a plan to save is just as important. So many banks, credit unions, or other financial institutions offer student savings accounts. By opening a student savings account and regularly depositing (putting money into) the account, you establish a financial history.
How well you manage the account is reported to a credit bureau. Credit bureaus are where financial institutions like banks obtain information about your financial affairs. For example, they look to see if you are adding money to your account or constantly taking it out. Your history helps build a credit record and is essential to financial institutions lending you money. Building credit is important to your future finances. For example, when you apply for a student loan for college, a car, or a house loan, financial institutions will not lend you the money if you don’t have a good report from the credit bureaus.
Gift Cards
What about gift cards? Are they the same as credit or debit cards? At some point, a relative may have given you a gift card, which is similar to a debit or credit card but not the same. They are sometimes called prepaid cards because the purchaser has prepaid an amount of money you can use when you go to purchase something. They look and work similarly to a credit or debit card when you use them in the store. The big difference is that you can’t purchase anything that costs more than the prepaid amount with the card. For example, if the prepaid amount is $50 and you buy an item for $75, the $50 is deducted from the card. You pay the remainder of $25 in cash or some other form of payment. Once the prepaid amount is spent, the card can only be used again if you add more money to the account. This is one way prepaid or gift cards differ from credit and debit cards.
Credit Cards
A credit card is a small, hard plastic card issued by a credit card company or other financial institution. It may look the same as a gift card or debit card, but there are differences. First, a credit card is a type of loan because you borrow money from the company when you use it. The credit card company loans you money, assuming you will eventually pay it back. Because they lend you money, charges on your credit card are reported to the credit bureaus. This helps you build your credit and increase your credit score, a number that indicates how well you use your credit.
The second difference between a credit card and a prepaid card or debit card is that it comes with a credit limit. A credit limit is a maximum amount you may charge on the card. For instance, most credit cards have a starting limit of $500 to $5,000. So you can only purchase things up to the that maximum limit. The third difference is that you can pay for an item over time with a credit card by making minimum monthly payments on the account. A minimum monthly payment is the least amount you can pay each month to the lender to reduce your debt and repay the money you borrowed. For example, suppose you charge a new game console on your credit card that costs $350. Then, the bank allows you to pay a minimum payment of $15 each month until the balance is paid down to zero. Fifteen dollars a month sounds reasonable.
The Catch
However, there is a catch. The bank charges interest on your account balance, or a fee to lend you the money. These fees are an additional cost on the item you bought. Most credit card interest rates range between 12% and 30%, but the average interest rate charged on a credit card is 16%. Be careful because some credit cards have a 0% introductory interest period. This means they will not charge you interest for a certain amount of time, but the interest rate will start after that. At 16% interest, paying the minimum payment of $15 will take 27 months to pay the account to zero. That’s not good, but worse is that you will pay about $70 more for the game console in interest charges!
Does that sound like a good deal to you? Furthermore, the amount does not include the annual fees that some institutions charge for giving you the card. Another point to remember is that your credit history determines your rate. You will get a higher interest rate if you have little or no credit history with the credit bureau. Interest rates can go as high as 26% in some states!
Debit Cards
Debit cards are different from credit cards. The word debit means deducting a purchase amount from a savings or checking account. These cards are often linked to a checking account rather than a savings account. Your bank will issue you a debit card that looks like a credit card—it is also a small, hard plastic card. But the difference is that the bank is not loaning you money. Instead, when you use your debit card, the money comes directly out of your account.
You can use a debit card just like a credit card for online and in-person purchases. Debit cards have a personal identification number (PIN) that you will need to remember since you’ll need it every time your use your card in person. You can also use a debit card and a credit card for cash withdrawals and advances. Remember that you may be charged a fee when you use either card in an ATM. (There are also ATM cards. While similar to debit cards, they can only be used at an ATM and cannot be used to make purchases.) The main difference between credit and debit cards is how the payment is handled.
A credit card involves a loan from a company you must repay, while debit card funds are immediately withdrawn from your account. You could think of using a debit card like making a loan to yourself, just without the interest charges!
Payments and Fees
There are two ways to make credit card payments. You can pay the entire balance monthly, called paying in full, or make the minimum payment due. The minimum amount is often a percentage of the total balance. For example, if you spent $500, you may have a minimum payment of $50. That is 10% of the total amount. You can choose to pay any amount you want, but to avoid getting charged a late fee, you must repay at least the minimum payment every month.
Credit card companies and financial institutions make money by charging fees and interest on loans. Most credit card companies will charge interest on the unpaid balance if you do not pay your credit card balance in full. Think of the interest as a charge for borrowing their money and not returning it immediately. You would not owe any interest if you spent $1,000 and paid $1,000 by the specified due date. Unfortunately, most people choose to make the minimum payment, not thinking about how the interest continues to grow and how much more they pay for their purchases.
Credit cards can also charge fees for cash advances, which means using your credit card like a debit card to take out cash from a regular ATM. You may need a special PIN to do this, depending on your card. But you should be aware that the owner of the ATM may charge a fee, and your card may also charge you a fee. That’s two fees associated with using it, not just one. Not all debit cards are fee-free, so it is important to ask your financial customer service representative when you get your card.
Fraud Protection
Another big difference between debit and credit cards is fraud protection. Credit cards have an extra defense against fraudulent charges. Fraudulent charges occur when someone steals your credit card number and uses it to purchase things you did not authorize. There is often a limit to what the company will reimburse for unauthorized charges. Therefore, you should immediately contact the company if you notice fraudulent charges on your card. They will close your card, which means they will shut off the credit card number so no one (including yourself) can use it.
Debit cards do not provide the same level of protection as credit cards. With a debit card, you are only responsible for up to $50 if you contact the bank within two days of a fraudulent charge. If you wait any longer, you could be required to pay up to $500 or more, depending on the situation. And in some cases, they will not refund any amount of the fraudulent charge. It depends on the policies of the card issuer. You have to ask your financial institution to make sure you learn precisely what will happen and how much you would owe in this situation.
Credit and debit cards are excellent consumer tools but come with many responsibilities. While they help you track and understand your spending habits, you must be careful to choose the one that is right for you. Also, keep your financial and personal information secure regardless of your choice so you won’t run into problems!
FINANCIAL LITERACY: DEBIT OR CREDIT CARDS LESSON PLAN WORKSHEETS
The Financial Literacy: Debit or Credit Cards lesson plan includes three worksheets: an activity worksheet, a practice worksheet, and a homework assignment. You can refer to the guide on the classroom procedure page to determine when to hand out each worksheet.
DO OR DON’T ACTIVITY WORKSHEET
Students will work in groups to play the lesson activity game. Students will stand in the center of the classroom and listen to different scenarios related to debit and credit cards. For each scenario, they will either move to one side of the room labeled “Do/Agree” or the other side of the room labeled “Don’t/Disagree”. They will also write down why they responded the way they did for each scenario. They will move back to the center of the room after each scenario.
COMPARISON PRACTICE WORKSHEET
For the practice worksheet, students will work with a group to complete a chart comparing debit and credit cards. They will then write down what they learned about debit and credit cards while filling out the worksheet.
FINANCIAL LITERACY: DEBIT OR CREDIT CARDS HOMEWORK ASSIGNMENT
The homework assignment asks students to look at an example credit card statement and answer several questions using the information on the statement.
Worksheet Answer Keys
This lesson plan includes answer keys for the practice worksheet and the homework assignment. If you choose to administer the lesson pages to your students via PDF, you will need to save a new file that omits these pages. Otherwise, you can simply print out the applicable pages and keep these as reference for yourself when grading assignments.
