Moneysmart Rookie



Topic 2: Credit and debt Moneysmart Rookie - Educator guideFinancial literacy for young people Copyright informationWebsite: .au ISBN: 978 0 9805533 9 0.Creative CommonsThis Educator guide is available under the Creative Commons license (BY - NC - SA). Under this license, the material is available for free use and adaption so that educators can use, adapt and re-publish material from the resource without seeking the permission of ASIC. Copyright noticeThis work is based on materials that constitute copyright of the Australian Securities and Investments Commission and is licensed under a Creative Commons Attribution Non-Commercial Share Alike 2.5 Australia Licence. For an explanation of what this licence allows you to do please refer to the Creative Commons website at . You must include this statement on any adaption of the Educator guide:This work is licensed under a Creative Commons Attribution Non-Commercial Share Alike 2.5 Australia Licence (see: ). 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We are interested in hearing how people are using and adapting the materials.CAL exemptionThis Educator guide is exempt from collection by copyright agencies and is a free resource for educational institutions.March 2021Table of contents TOC \o "1-2" \h \z \u Introduction to ‘credit and debt’ PAGEREF _Toc65768536 \h 4Overview PAGEREF _Toc65768537 \h 4Rookie resources PAGEREF _Toc65768538 \h 4Knowledge levels PAGEREF _Toc65768539 \h 5Reflection questions PAGEREF _Toc65768540 \h 5Sub-topic: Understanding credit PAGEREF _Toc65768541 \h 6Key messages PAGEREF _Toc65768542 \h 6Activity 2.1: Chloe’s trick to control her impulse PAGEREF _Toc65768543 \h 6Activity 2.2: Amy and Maria make different decisions PAGEREF _Toc65768544 \h 7Check for understanding PAGEREF _Toc65768545 \h 8Sub-topic: Different types of credit PAGEREF _Toc65768546 \h 8Key messages PAGEREF _Toc65768547 \h 8Activity 2.3: Tom uses different types of credit PAGEREF _Toc65768548 \h 9Activity 2.4: Tom ends up with repayment problems PAGEREF _Toc65768549 \h 10Activity 2.5: Look for credit that is best for you PAGEREF _Toc65768550 \h 10Activity 2.6: Different types of credit for different purposes PAGEREF _Toc65768551 \h 11Check for understanding PAGEREF _Toc65768552 \h 12Sub-topic: Credit contracts PAGEREF _Toc65768553 \h 13Key messages PAGEREF _Toc65768554 \h 13Activity 2.7: Red-flagging cost items in a credit card offer PAGEREF _Toc65768555 \h 14Activity 2.8: Asking questions about the red flags PAGEREF _Toc65768556 \h 15Activity 2.9: Understanding a contract PAGEREF _Toc65768557 \h 15Check for understanding PAGEREF _Toc65768558 \h 17Sub-topic: Problems with credit PAGEREF _Toc65768559 \h 18Key messages PAGEREF _Toc65768560 \h 18Activity 2.10: Chloe makes a rookie error and gets help PAGEREF _Toc65768561 \h 18Activity 2.11: How Chloe could have ended up with legal problems PAGEREF _Toc65768562 \h 19Check for understanding PAGEREF _Toc65768563 \h 20Worksheets: Credit and debt PAGEREF _Toc65768564 \h 21Worksheet 2.2: Amy and Maria make different decisions PAGEREF _Toc65768565 \h 21Worksheet 2.3: Tom uses different types of credit PAGEREF _Toc65768566 \h 23Worksheet 2.4: Tom ends up with repayment problems PAGEREF _Toc65768567 \h 23Worksheet 2.6: Different types of credit for different purposes PAGEREF _Toc65768568 \h 24Worksheet 2.7: Red-flagging cost items in a credit card offer PAGEREF _Toc65768569 \h 25Worksheet 2.9: Understanding a contract PAGEREF _Toc65768570 \h 26Additional lesson 1: Credit — friend or foe? PAGEREF _Toc65768571 \h 27Lesson description PAGEREF _Toc65768572 \h 27Additional activity 1(a): Moneysmart Rookie - ‘Credit hangover’ video PAGEREF _Toc65768573 \h 27Additional activity 1(b): What do you know about credit? PAGEREF _Toc65768574 \h 28Additional activity 1(c): Managing a credit card PAGEREF _Toc65768575 \h 29Additional activity 1(d): Reflective/summative activity PAGEREF _Toc65768576 \h 29Additional worksheet 1(b): What do you know about credit? PAGEREF _Toc65768577 \h 30Additional lesson 2: Credit and debt — the fine print PAGEREF _Toc65768578 \h 32Lesson description PAGEREF _Toc65768579 \h 32Additional activity 2(a): Revision PAGEREF _Toc65768580 \h 32Additional activity 2(b): How credit cards work PAGEREF _Toc65768581 \h 33Additional activity 2(c): Using the credit card calculator PAGEREF _Toc65768582 \h 34Additional worksheet 2(b): How credit cards work PAGEREF _Toc65768583 \h 35Introduction to ‘credit and debt’Moneysmart’s Rookie series helps people aged 16-25?avoid expensive mistakes or ‘rookie errors’ when they make their first financial decisions. The topic is about how a person can control their use of credit and manage their debt. It will help young people:understand the different types of credit available and the costs involvedunderstand what their credit rating isunderstand how to manage their repayment of debtknow where to go to get help if there is a problem.OverviewYear level: 9-12Duration: 4.5 hours (Educator guide - approx. 2.5 hours + Additional lessons - 2 hours)Learning areas: Economics and Business, Mathematics, EnglishAudience: Youth and community workers, student advisers, icsThe Moneysmart Rookie education initiative covers six topics:Car ownership Credit and debt Mobile phone ownership Moving out of home Online financial transactions First job Rookie resourcesThis Educator Guide for Topic 2: Credit and debt will be used in combination with the following resources designed to suit the various levels of knowledge and understanding of students. Required Moneysmart resourcesOptional Moneysmart resourcesVideo:?Credit hangover?(6:17 mins) Video:?Steve gets his first credit card?(1:02 mins) Video:?Using credit and debt seems so easy?(0:25 sec)Calculators: Budget planner and Credit card Student life and money Managing debt Pay off your credit card Knowledge levelsWhat content will suit your students? The level of information you use will depend on how much understanding your students have of a topic. The following describes the content that best suits different levels of understanding (1, 2, and 3):Your audience has this level of knowledgeDescriptionLevel 1: No or limited understandingIf your students cannot answer any of your questions or can only answer them a bit, they have no or a limited understanding.You can help them to understand more by showing the Moneysmart Rookie videos for the topic. You can also go through the Level 1 activities in the guide.After watching the video, see if your students have developed some understanding of the topic by asking them to answer the questions again.Level 2: Some level of understandingIf your students answer one or more of your questions, they have some level of understanding.You can show them the Moneysmart Rookie videos to review the topic.You may wish to pause the video in sections and discuss key issues shown.You can also go through the Level 2 activities and stories in the guide, as these are for students with some level of understanding.Level 3: Good level of understandingIf your students are able to answer all of your questions, they have a good level of understanding.You can show them the Moneysmart Rookie videos to review the topic.You can also go through the Level 2 and 3 activities in the guide, as these are for students with a good level of understanding.Note: Educators use these levels as progressions, starting points and extensions to suit students’ needs.Reflection questionsAt the end of each session, educators can use the following questions to reflect on the effectiveness of the session:What worked well? What did not work well?Did the students understand the key messages?Did the activity engage the students? How could the activity have been more effective?What questions unexpectedly emerged and how did you handle them?What might you do differently next time?Knowledge level check Ask these types of questions to check the students’ existing level of knowledge about credit. Ask students to explain the following:What types of credit are available to people?What kinds of costs do you have to pay when you get credit?What is meant by a person’s “credit rating”?Decide what information students need based on their level of knowledge. Refer to the ‘Knowledge levels’ table in the topic overview.Sub-topic: Understanding creditKey messagesCredit is borrowed money that you must pay back.Credit has costs.You pay interest, fees and charges to use credit.Too much credit can cause money problems.Notes for the educatorCredit is money you borrow from a financial institution like a bank, credit union, building society or buy now pay later (BNPL) services.Credit has a cost; it isn’t your personal money tree growing in the backyard. Any credit you use becomes a debt that must be repaid to the credit provider – usually with interest included.Interest is an extra amount you have to pay as a cost for borrowing the credit provider’s money. This cost is added to the original amount of money you borrowed.Many retailers offer interest-free deals, but the purchase is only interest-free for a certain period of time which is often 12 to 24 months. If the purchase balance is not paid in full within the interest-free period, interest will be charged on the outstanding amount at a high interest rate.Before you start looking for credit, do a budget – and make sure you only borrow what you can afford to pay back, so you don’t end up with money problems.The amount you can afford to borrow will depend on a number of factors such as:your income and your expensesestimated repayments.You’ll see the expression ‘fees and charges’ used a lot. They’re really the same thing – amounts of money you’ve got to pay in addition to interest (e.g. an amount you pay each year just to have your credit card, whether you use it or not).Activity 2.1: Chloe’s trick to control her impulse LevelDurationResources needed115 minsVideo:?Credit hangover?(6:17 mins)This activity is based on the Moneysmart Rookie: Credit hangover video. It will help to motivate the students to consider how attitudes and behaviour affect a person’s use of credit.Step oneAsk students to watch the video from start to finish and look out for any tips on controlling spending habits.Step twoAsk students the following question:What tip did future Chloe give to her present self to try and get her spending habits under control?Suggested answerFuture Chloe suggests that, for every $100 Chloe wants to spend, she should wait a day before she goes ahead and buys something.Step threeAsk students the following question:Can you think of any other tricks or methods people could try in order to keep a check on their spending? Note: This requires more analytical thought by the students. Some students may come up with ideas of their own. Other students may be able to remember tricks or methods used by family or friends.Suggested answer There could be many different ways but if the students cannot think of any, prompt them by suggesting:going to another shop to compare prices before you buysetting a budget for non-essential itemssetting aside money they can spend on certain items and not spending more than that amount.Activity 2.2: Amy and Maria make different decisions LevelDurationResources needed210 minsThis activity builds on Activity 2.1Worksheet 2.2Step one Read Amy and Maria’s story from the workbook and ask students to respond to the following questions:How would you describe Amy’s personality?How would you describe Maria’s personality?What are the pros and cons of Amy’s situation?What are the pros and cons of Maria’s situation?Who do you think is making the better financial decision? Why?Suggested answersImpatient, hasty, a bit reckless.Slow, thoughtful, careful, cautious, pretty sensible.Pros:Amy gets her laptop sooner.Amy doesn’t have to pay interest for 12 months.Cons:Amy can’t afford to pay off the laptop within 12 months.Amy must pay high interest rates if she does not pay off the laptop in 12 months.Amy might have to pay a lot more for the laptop than if she bought it outright.Pros:Maria does not have to pay high interest rates for her laptop.Maria got a better and newer model laptop than she originally planned.Cons:Maria didn’t save up enough money in time for the model she wanted.Maria had to wait 12 months before she could get the laptop.Maria is making the better financial decision, because she does not have to pay more than $599 for the laptop.Check for understanding After completing the activities, you can check the students’ level of understanding and knowledge by asking questions such as:What is credit?A: Credit is money you borrow from a financial institution like a bank, credit union, building society or buy now pay later service.When you get something on credit, what extra money do you have to pay on top of paying back the amount you borrowed?A: Interest is an extra amount you have to pay as a cost for borrowing the credit provider’s money. This cost is added to the original amount of money you borrowed.Sub-topic: Different types of creditKey messagesThere are many different types of creditDifferent types of credit are used for different purposesSome credit costs more than othersLook for credit that is best for youNote for the educatorThere are many types of credit products. Each type gives you access to funds, but you have a legal obligation to repay the money – generally with interest, and sometimes there are other fees and charges.You should shop around to get the best deal and the best type of credit for you.Different credit options have different costs; some cost more than others. It is important to remember that credit may solve a short-term money problem, but too much credit can cause money problems in the future.Here is a list of the types of credit a young person may use and for what purpose.Credit cardsThese allow you to borrow money up to a certain amount from a credit provider like a bank. Credit cards are very convenient but people often get into financial difficulties because they don’t understand how they use the cards and make repayments can have a serious effect on their finances. Can also be for a cash advance.Store cardsThese are credit cards provided by department stores and other retailers. These cards are usually more expensive to use than credit cards from major credit providers such as banks.Buy now pay laterBuy now pay later services, like Afterpay, Humm or zipPay, let you pay for something in instalments. You might pay every fortnight, instead of paying the full amount upfront.You don't pay interest on the purchase. Instead you’re charged fees. It’s easy to overspend or lose track of how much you owe. So make sure you can afford the repayments.Personal loansPersonal loans allow you pay for one-off big-ticket items like a car.Interest-free dealsA retailer may offer interest-free deals but the purchase is interest-free only for a certain period of time.Home loansThese are generally used to buy a house or block of land.Small amount loansA small amount loan may be used to meet expenses until your next pay. Loans are for a small amount (less than $2,000) and must be repaid on a set date. This is usually in less than a year.Consumer leaseThis is an arrangement where you rent an item (e.g. a home computer or television) over a period of time. You don’t have the right or option to purchase the item. The total amount you pay will be more than if you paid for the item with cash. You may also have to pay fees and charges. Rent to buyA purchasing arrangement where you rent an item, such as an appliance of piece of furniture,?for a specific time. At the end of the rental period, you can continue to rent the item or buy it outright.?Payday loansA payday loan is usually the most expensive way to borrow money. With a payday loan, you can borrow up to $2,000 quickly but has a lot of high fees.There are two different types of loans – secured loans and unsecured loans. The difference depends on how much risk there is that the borrower might not pay the loan back to the lender.With a secured loan the credit provider holds security over one or more of your assets to make sure they get their money back. It protects the lender from losing their money.With an unsecured loan the credit provider may decide that there is not a lot of risk and so they do not need to hold an item as security. The interest rate for unsecured loans is usually higher than for a secured loan.Activity 2.3: Tom uses different types of credit LevelDurationResources needed110 minsWorksheet 2.3This activity uses Tom’s story from the worksheet as an example for the students to think about the different kinds of credit.Step oneRead Tom’s story and ask students the following question:What are the different types of credit or service plans Tom got to help him study?Suggested answersCredit cardPersonal loanInternet contract.Activity 2.4: Tom ends up with repayment problems LevelDurationResources needed210 minsThis activity builds on Activity 2.3.Worksheet 2.4Continuing with Tom’s story, students to think about the importance of a person’s credit rating.Description Read out Tom’s story and ask students the following questions:What would help Tom receive a good credit rating in this situation?What are the benefits for Tom in the future by getting a good credit rating?What would cause Tom to get a bad credit rating in this situation?What kinds of problems will a bad credit rating cause Tom in the future?Suggested answersBy paying his personal loan repayments on timeIt shows future credit providers that he can be financially responsible, so it makes it easier for him to get a loan or get a mortgage to buy a house in the future.Not paying his credit card repayments and internet bills on time.He may not be able to get a loan or a mortgage for a house in the future, because he may get a record of not keeping up with loan repayments and being financially responsible.Activity 2.5: Look for credit that is best for you LevelDurationResources needed210 minsThis activity builds on Activity 2.4.Discussion only.It asks the students to think about what they’ve learned in this session and to apply it with what they already know. By focussing on avoiding repayment problems, the students will be helped to realise that it’s important to “Look for credit that is best for you”.DescriptionAsk students the following question:How can people avoid getting into repayment problems?Suggested answersBy not allowing their debt to get too big.By allowing for unexpected events (e.g. a drop-in income, sudden health expenses).By allowing for an unexpected increase in expenses.By choosing credit that is best for you in your situation.Round off activity by pointing out that “Looking for credit that is best for you” is really important, because different types of credit suit people in different situations. Sometimes no credit at all is the best option.Activity 2.6: Different types of credit for different purposes LevelDurationResources needed215 minsWorksheet 2.6This activity asks the students to compare different types of credit to conclude that:Some are more expensive than othersDifferent types are suitable for different purposesThis activity is best done with a number of students but will also work for just one student.Step oneDivide students into five groups. Give each group a description of one type of credit to review from the worksheet. Ask which group has ‘Secured loan’ and ask for one person in that group to explain the type of credit in their own words. They may need help with this, and you may need to make sure the people listening understand what they hear.Step twoAsk which group has an ‘Unsecured loan’ and ask for one person in that group to explain the type of credit in their own words. They may need help with this, and you may need to make sure the people listening understand what they hear.Step threeAsk students the following question: What’s the difference between a ‘secured loan’ / ‘unsecured loan’?Suggested answersA ‘secured loan’ is a loan for which an asset of yours has been used as security. An ‘asset’ is something you already own – such as your car or your home. The credit provider may sell the secured asset to get its money back if you can’t repay the loan.An ‘unsecured loan’ is a loan for which no asset has been used as security. An ‘asset’ is something you already own – such as your car or your home. The interest rate is usually higher than for a secured loan as there is a higher risk to the credit provider of not getting their money back.Step fourAsk one person in each of the remaining groups to explain the type of credit in their own words. They may need help with this, and you may need to make sure the people listening understand what they hear.Step fiveAsk students the following question: What’s one difference between a credit card and a store card?Suggested answersA store card can often only be used to buy things in the store you got the card from, and sometimes other stores. The interest rate is usually higher. This means it’s more expensive.Step sixAsk students the following question:Which type of credit would be best for each of the following?Buying a pair of shoesBuying a carSuggested answersCredit card, store card or BNPLPersonal loanNote: If store card is suggested, point out that the interest rate will probably be higher and that it would be a good idea to check the fees and charges and compare them with credit cards.Check for understanding After completing the activities, you can check the students’ level of understanding and knowledge by asking questions such as: What are some of the different types of credit?A: Credit cards, store cards, BNPL services, personal loan, home loans, small amount loans.How are different types of credit used?A: Different types of credit can be used for homes, cars or other purchases.How can having credit cause you financial problems?A: Too much credit can cause financial problems if you can’t pay back your debts.Sub-topic: Credit contractsKey messagesA contract is a legal agreementDo not sign anything you do not understandYou may not be able to cancel a contract just because you change your mindGet help to understand the contract.Notes for the educatorWhen you get credit, you will need to sign a credit contract. A contract is a legal agreement of what it says. Before you sign up for credit you should read the contract and make sure you can afford the repayments. It’s essential to know what you’re signing up for, whom you’re getting the credit from, and how they are charging you. You do not want to end up with a poor credit rating.When you sign up for credit, you are committing to a contract between you and the credit provider. A contract is a legal agreement and you have to take it seriously. You may not be able to cancel it – it depends on the detail of the contract and the circumstances.If you don’t understand everything in a contract, or you’re not sure about how a contract suits your situation, get advice from someone who can help.Activity 2.7: Red-flagging cost items in a credit card offer LevelDurationResources needed220 minsVideo:?Credit hangover?(6:17 mins)Worksheet 2.7This activity is based on the video Moneysmart Rookie: Credit hangover. It will help the students avoid rookie errors when considering the use of credit.It will also help people think through whether they should accept a particular credit option.Step oneBefore the students watches the video, Ask students the following question:Suppose you buy something on credit for $2,000 and the interest rate is 18.5%, and you pay back $50 each month. Guess the total amount of interest you will pay while you’re paying back that $2,000? Note: If students need some guidance, you could give them the following amounts to choose from:a$300b$600c$900d$1,200Encourage the students to suggest an amount but don’t give them the correct answer – let them discover it for themselves by watching the video.Step twoAfter watching the video, ask students: What is the amount of interest you would pay back?AnswerApproximately $1,200 Step threeHand out the copies of the Credit card special offer advertisement in the worksheet.Ask students the following questions:What parts or words in the contract should Chloe have asked questions about before signing up for the credit card?Draw a red flag over words that you need to be careful of or do not understand (or call out if there should be a red flag as you read out the content of the advertisement).Suggested answersNeed to add the words in once we get the activity sheetThe following should be flagged:0% interest on all purchases for the first 6 months*Low interest for purchases No annual fee for first year Reward points *Does not apply to cash advances Activity 2.8: Asking questions about the red flags LevelDurationResources needed315 minsThis activity builds on Activity 2.7.Video:?Credit hangover?(6:17 mins)Step oneAsk students the following question:Once the ‘red flags’ for Chloe have been identified:For each ‘red flag’, what question do you think Chloe should have asked the credit provider or done further research on before signing up for the credit card?Suggested answersWhat do I have to pay interest on in the first 6 months?What interest do I have to pay on purchases once the 6 months is over?What are the annual fees after the first year?What can I get with my reward points?What interest do I have to pay for cash-advances on this credit card once the 6 months is over? Activity 2.9: Understanding a contract LevelDurationResources needed320 minsCan build on Activity 2.8 (as necessary)Worksheet 2.9This activity can be used to build on Activity 2.8, or it can be used separately.The aim of the activity is to help the students to realise that contracts can be hard to understand.It’s important to get help to understand a contract before signing it.Extract from credit card contract“Annual Fee waived in the first year and in each subsequent year if you have spent at least $1,000 (purchases and cash advances only) on your credit card account in the previous year.”Step oneAsk students to read the sentence and:Pick out any words they don’t understandAsk themselves if they understand what the whole sentence means.Step twoAsk students the following question:What are some of the meanings of the words that have been chosen?Suggested answersAnnual fee – the fee you pay each year for having the credit card (it’s the same amount each year)Waive – to put something aside (in this case, it means the annual fee won’t be charged)Subsequent – the one that comes nextPurchases – things you pay for using your cardCash advances – cash that you get using your credit card (e.g. from an ATM)Previous – the one that came beforeThe whole sentence – In the first year you have the credit card, you won’t have to pay the annual fee. If you spend at least $1,000 in the first year using your credit card, you won’t have to pay the annual fee in the second year. And so on. You can spend $1,000 by paying for things with your card or using your card to get a cash advance.Step threePoint out that each contract has a lot of sentences, which means that a contract can be difficult to understand.Point out that a contract is a legal agreement – which means you have legal obligations if you sign one. An example of a legal obligation is meeting your repayments on time. Not meeting legal obligations can create legal problems for you.Ask students the following question:What would you do if you didn’t understand a contract?Suggested answersNever sign a contract if you don’t understand it.Always ask questions if you’re not sure about something. Don’t rely on the credit provider to explain it.Step fourAsk students the following question:Who could you ask to help explain the contract to you?Suggested answersParentOther relativeA free financial counsellor Teacher or youth group person (or similar)FriendEmphasise the importance of asking more than one person if necessary until you understand.Check for understandingAfter completing the activities, you can check the students’ level of understanding and knowledge by asking questions such as:What are some of the things to check or ask about in an advertisement? A: Interest rate for purchasesInterest rate for cash advancesFeesAny periods that are ‘free’ of interest or feesWhat does an asterisk (*) mean in an advertisement? A: It means there is more information about that point somewhere in the advertisement (usually at the bottom).Sub-topic: Problems with creditKey messagesGet help if you are experiencing financial difficultiesYou may have legal problems by not paying what you oweThere may be long term effects if you do not pay what you oweYou may affect your credit rating if you do not meet your financial obligations.Notes for the educatorIt’s important to get help if you are experiencing financial difficulties.If you fail to repay your loans or credit card debts, your credit rating may be affected which may make it difficult to borrow money in the future.A credit reporting agency will have a credit report on a person if the person has:Applied for credit in the past 5 yearsPaid a bill (for utilities, a mobile phone or the internet) or made a repayment on credit at least 60 days late (that debt can be as little as $100)Credit providers use credit reports to help them decide whether to provide a person with credit. If the credit report reveals a poor history of repayment, they’ll consider you a credit risk and may not lend you the money.Failing to repay debts can have long term effects. A poor credit rating can take some time to fix. You may also have legal problems by not repaying what you owe.You have options available if you are having difficulty making repayments. Contact your credit provider without delay to see how they can help you. For example, you could negotiate an agreed repayment plan until your debt is paid off. A free financial counsellor can help you with this negotiation.If your circumstances change, you may be able to ask your credit provider for a ‘hardship variation’. For example, you may not be able to make your repayments due to temporary illness or unemployment. A hardship variation means the credit provider can agree to change the way you make repayments to make them more affordable for your situation.You do not have to go it alone; there are free financial counselling and legal services available to help.*Teacher tip: Be aware that discussion of credit and debt may be a sensitive issue for some families or communities. Activity 2.10: Chloe makes a rookie error and gets help LevelDurationResources needed220 minsVideo:?Credit hangover?(6:17 mins)This activity is based on the Moneysmart Rookie: Credit hangover video. It will help the students think about ways credit can cause problems, and how they can get help.Step oneAsk students to watch the video from start to finish and look out for Chloe’s rookie error. Then ask the following questions:What rookie error did Chloe make?What problems did that rookie error cause future Chloe?Who did Chloe end up going to for help and how did they help her? Suggested answersChloe signed up for a car loan and lots of different credit cards and spent too much money on them. She ended up $20,000 in debt.Chloe had trouble paying off all her credit cards and ended up with a bad credit rating, so it made it hard for her to get a home loan in future. She is still paying off her credit cards so she has less money to live on than before.She went to a financial counsellor who helped her set up a budget and a repayment plan so she can pay off her debts bit by bit.Note: Most young people won’t know what a ‘financial counsellor’ is. It is suggested that you use the following information to explain.A financial counsellor is a person who?“gives free, confidential and independent assistance to people with?financial problems. Financial counselling services are usually provided by community or welfare organisations”.The local council where a person lives may be able to suggest a local organisation that provides financial counselling services. If the young person is confident enough, they can call the Financial Counselling hotline on 1800 007 007 to speak to a financial counselling service in their area.A financial counsellor can help a person make a budget or help them negotiate with a financial institution, company or a debt collector for more time to pay or a repayment plan that the young person can afford. Financial counsellors are free and young people can find their local service on the Moneysmart website.If a company takes a young person to court for a debt, the young person should contact a lawyer from a local community legal centre for free legal advice. To find their local community legal centre, young people can contact the National Association of Community Legal Centres at .auActivity 2.11: How Chloe could have ended up with legal problems LevelDurationResources needed215 minsThis activity builds on Activity 2.10.Video:?Credit hangover?(6:17 mins)The Moneysmart Rookie: Credit hangover video will help students understand that there can be legal consequences if they do not pay what they owe.Note: If time has passed since the students did Activity 2.11, you will need to remind them of the story in the video or watch it again.Step oneAsk students the following question:What could have happened to Chloe if she had not contacted a financial counsellor to arrange a repayment plan with the credit provider?Suggested answerIf Chloe fell further and further behind with her repayments and she didn’t contact the credit provider about it, the credit provider may organise a debt collector to contact Chloe about repaying the debt. She would probably end up with a bad credit rating and the default on her loan would most likely be listed in her credit report.Step twoAsk students the following question:What legal problems could Chloe then end up with? Suggested answer The credit provider could take legal action to try to get the money from Chloe and/or take back what she had bought. Chloe’s bad credit rating could cause other credit providers to refuse her credit in future.Check for understandingAfter completing the activities, you can check the students’ level of understanding and knowledge by asking questions such as:What sort of situation can lead to problems paying back credit?A: Too much creditA decrease in income Unexpected expensesWhere can you go for help?A: Financial counsellorWorksheets: Credit and debtWorksheet 2.2: Amy and Maria make different decisionsNAME: AmyMariaHi, I’m Amy. I hate waiting for things so when I decide on something I want - I want it now! Like this laptop I bought last week for $599. I can use a computer at the library but it’s so much more convenient having your own laptop. I signed up for an interest free deal at the store and there’s 0% interest for 12 months. I probably won’t be able to pay it off within 12 months, but I’ll just worry about the high interest rates later, when the 12 months is up.Hi, I’m Maria. People tell me I take ages to do things but it’s because I like to really think before I act when it comes to big decisions. Take this laptop I bought last week for $599. I figured out how much I needed to save to buy the model I wanted about a year ago and I put away a bit of money each week until I could afford to buy it. The laptop I wanted wasn’t on the market anymore, but I ended up getting a newer model for the same price. It was a hassle not having my own laptop for so long, but it was worth the wait.QuestionsHow would you describe Amy’s personality?How would you describe Maria’s personality?What are the pros and cons of Amy’s situation?What are the pros and cons of Maria’s situation?Who do you think is making the better financial decision? Why?Worksheet 2.3: Tom uses different types of credit NAME: Tom’s storyTom got into the course of his dreams, but he needed to buy a computer and arrange internet access to be able to do the course. Also, he had to travel a long way to classes and there was no public transport there from his house. So, he applied for a personal loan to buy a second-hand car.He got a credit card to pay for the computer and he signed up for a 24-month internet contract. Now he’s six months into his course and he has financial troubles. He is managing to keep up with his personal loan repayments, but he doesn’t have much money left over for the credit card repayments and the internet bills, which are both now three months overdue.QuestionsWhat are the different types of credit or service plans Tom got to help him study?Worksheet 2.4: Tom ends up with repayment problems Credit reports: A credit reporting agency will have a credit report on you if you have:Applied for a personal loan or credit card in the past 5 yearsSigned a mobile phone contractPaid a bill of as little as $100, at least 60 days lateCredit providers use credit reports to help them decide whether to provide a person with credit. If the credit report reveals a poor history of repayment, they’ll consider you a higher credit risk. The credit provider may not lend you any money if you are considered too high a credit risk.QuestionsWhat would help Tom receive a good credit rating in this situation?What are the benefits for Tom in the future by getting a good credit rating?What would cause Tom to get a bad credit rating in this situation?What kinds of problems will a bad credit rating cause Tom in the future?Worksheet 2.6: Different types of credit for different purposes NAME: Credit cardA credit card is a plastic card that you use to buy things on credit or to get cash advances.If you buy something, you have to pay interest on the loan after a certain period.A cash advance is cash withdrawn from a credit card account. It’s really a loan from your credit card company. A transaction fee is usually charged for this, as well as interest which is from the date the cash is withdrawn and at a higher rate.This is an unsecured loan.Store card A store card is a form of credit card offered by large stores for you to buy things from their store (and sometimes from some other stores too). Store cards are used like regular credit cards but usually charge much higher interest rates.This is an unsecured loan.Buy now pay laterBuy now pay later services, like Afterpay, Humm or zipPay, let you pay for something in instalments. You might pay every fortnight, instead of paying the full amount upfront.You don't pay interest on the purchase. Instead you’re charged fees. It’s easy to overspend or lose track of how much you owe. So, make sure you can afford the repayments.Personal loan Personal loans allow you pay for one-off big-ticket items like a car.The contract says what the interest rate is and the period of the loan (usually 2 to 7 years). You pay the same amount each month so that, by the end of the loan period, the total amount has been paid back (including interest).A personal loan can be secured or unsecured.Secured loan A loan for which an asset of yours has been used as security. An ‘asset’ is something you already own – such as your car or your home. The credit provider may sell the secured asset to get its money back if you can’t repay the loan.Unsecured loan A loan for which no asset has been used as security. An ‘asset’ is something you already own – such as your car or your home. The interest rate is usually higher than for a secured loan as there is a higher risk to the credit provider of not getting their money back.Worksheet 2.7: Red-flagging cost items in a credit card offer NAME: Worksheet 2.9: Understanding a contract NAME: This is a sentence taken from a real credit card contract.“Annual Fee waived in the first year and in each subsequent year if you have spent at least $1,000 (purchases and cash advances only) on your credit card account in the previous year.”Additional lesson 1: Credit — friend or foe?Year level: Year 9 and 10Duration: 60 minutes Key learning area: English, Mathematics, Economics and businessLesson descriptionStudents explore and investigate the diversity of consumer rookie errors associated with using a credit card to purchase goods and services. Learning begins with watching the Moneysmart Rookie: Credit hangover video. Students then discuss and reflect on the pros and cons of credit cards, interest charges and where to seek assistance with managing credit card debt and repayment issues. In the second part of the lesson students complete an activity worksheet to investigate the necessary precautions and knowledge to avoid making credit card rookie errors. Long-term understanding/deep learnings: Making informed and responsible choices around using a credit card and other credit products to purchase goods and services.You can save money and avoid common 'rookie errors' if you research credit card options, services and interest rates. If credit and debt issues arise you can seek help from your credit provider. A free financial counselor can also help.Additional activity 1(a): Moneysmart Rookie - ‘Credit hangover’ video LevelDurationResources neededN/A15 minsVideo:?Credit hangover?(6:17 mins)*Teacher tip: Be aware that discussion of credit and debt may be a sensitive issue for some families or communities. Task 1: Discussion Watch the Moneysmart Rookie 'Credit hangover’’ video in class and ask students to pair up and identify at least three key messages mentioned in the 'Credit hangover' video. Ask each pair for their main message. Write these statements on the board. If there is a double-up, tick the statement. The expected responses may include:Credit is borrowed money that you must pay back with extra costs such as interest, fees and changesThere are different types of credit products including credit cards, personal loans Credit can be useful, but if not managed properly you can run into troubleIt is important to have a good credit reportYou need to pay bills on timeWait before you decide to spend money to avoid impulse buyingDon’t just stick with the minimum repayments on your credit card.Increasing credit card or loan repayments will save moneyYou can get help when you run into credit card debt and repayment issues.*Teacher tip: Only give groups two or three minutes to discuss their key messagesAdditional activity 1(b): What do you know about credit? LevelDurationResources neededN/A25 minsVideo:?Credit hangover?(6:17 mins)Credit and debt page on Moneysmart Additional worksheet 1(b)Task 1: What do you know about credit? Students apply the information from the Moneysmart Rookie 'Credit hangover' video and the ‘Credit and debt’ page on Moneysmart to help with these questions.What is credit? List different types of credit.Why would anyone need a credit card?Why is it the case, that if you paid $5,000 for a used car using your credit card and only made the minimum repayment every month, that it might take more than 35 years to repay the original loan and it would cost more than $18,000?What is a credit report? What might happen if you get a bad credit report?What can you do if you experience credit card debt or loan repayment difficulties?How do you work out how much credit you can afford?Explain what happens if you pay the entire amount owed on a credit card by the due date.Explain what happens if you only pay the minimum balance owed each month on a credit card.Task 2: DiscussionDiscuss answers with students. Suggested responses are: Credit is borrowed money that must be paid back after you use it along with any interest, fees and charges that may apply.Different types of credit include credit cards, store cards, personal loans, interest – free deals and home loans.The amount you can borrow will depend on your income, your expenses and what you can afford to pay backCredit cards can be useful for making purchases online, overseas or when you don’t have cash especially if you can pay them off by the due date which is an interest free period.It might take more than 35 years to repay an original loan of $5000 if you only made the minimum repayment every month because of interest and it would cost you more than $18,000.A credit report details your credit history, including every time you have applied for credit, defaulted on a repayment and missed a payment. It is held by a credit reporting agency.If you happen to get a bad credit report it may affect your chances of getting other loans in the future, such as for a car or house.Contact your credit provider if you have a problem with repayments. Free financial counselling is available if you run into problems with credit. A financial counsellor can help you work out a repayment plan. Additional activity 1(c): Managing a credit card LevelDurationResources neededN/A15 minsVideo:?Steve gets his first credit card?(1:02 mins)Task 1: Case study: Steve gets his first credit card Watch the video Steve gets his first credit card and ask students to identify the issues with Steve's decision to put an expensive trip on his credit card. Then ask them what steps Steve took to help manage his credit card debt and avoid a poor credit rating. Answers should include:Where Steve went wrong: Paid for his trip using a credit card and then couldn't meet the repaymentsWould have paid more for the trip by putting it on a credit cardHad only been working for six months so no savings behind him in case something happened such as losing his jobHad a credit card with a high interest rateApplied for the credit card online and didn't understand what he was signing up for What Steve did to manage his debt:Talked to his credit provider to explain that his circumstances had changed and that he had lost his job Saw a financial counsellor and worked out a repayment planAvoided a poor credit rating After discussion, ask students How can you make credit work for you? As outcomes of the discussion emphasise: that credit cards can be useful if used wisely and paid off within the interest free periodalways do your homework and 'shop around' before you sign up for any credit product. Additional activity 1(d): Reflective/summative activity LevelDurationResources neededN/A5 minsN/AList three new things that you learned today about credit cards and/or debt?In your opinion, which of these components is the most important to you?Additional worksheet 1(b): What do you know about credit? NAME: Using the ‘Credit hangover’ video, answer the following questions:What is credit? List different types of credit.How do you work out how much credit you can afford?Why would anyone need a credit card? Explain what happens if you pay the entire amount owed on a credit card by the due date.Explain what happens if you only pay the minimum balance owed each month on a credit card.Why is it the case that if you paid $5,000 for a used car using your credit card and only made the minimum repayment every month, that it might take more than 35 years to repay the original loan and cost you more than $18,000? What is a credit report? What might happen if you get a bad credit report? What can you do if you experience credit card debt or repayment difficulties? Additional lesson 2: Credit and debt — the fine printYear level: Year 9 and 10Duration: 60 minutes Key learning area: English, Mathematics, Economics and businessLesson descriptionStudents will continue to explore and further investigate the previously identified range of rookie errors associated with credit cards by revising their learnings from the previous ‘Credit and debt’ lesson. In the second part of the lesson, students complete activity worksheets to delve more deeply into the underlying complexities of the financial pitfalls of credit and debt. Students are shown where they can find information to get help when credit card debt issues arise. They also review the credit card calculator on Moneysmart, which may be a useful tool for anyone with credit card debt. Long-term understanding/deep learnings: You can save money and avoid common 'rookie errors' if you research credit card options, services and interest rates. If credit and debt issues arise you can seek help from your credit provider. A free financial counsellor can also help.Additional activity 2(a): Revision LevelDurationResources neededN/A15 minsWhiteboard / projectorTask 1: Quick revision quizAsk students the following questions and write their responses on the board as you receive them. *Teacher tip: Copy the following questions into a PowerPoint and display them on the projector or TV screen.What is credit?List three different credit products.Can you get help if you are experiencing difficulties with credit cards or with loan repayments?Should you stick with the minimum payments on your credit card? If not, why?What is a credit report?Task 2: Discussion Brief discussion centred on the responses from students, which should include:Credit is borrowed money that you must pay back.There are different types of credit including credit cards, store cards, personal loans, interest – free deals and home loans.You can get help if you are experiencing difficulties with credit cards or loan repayments.Sticking with the minimum repayments on your credit card might mean that you take years to pay off your debt and you will pay more money.A credit report details your credit history, including every time you have applied for credit, overdue payments of at least 60 days or where you have defaulted or missed payments. Inform students that the lesson today will concentrate on where you can get help if you are experiencing financial difficulties with credit and debt.Additional activity 2(b): How credit cards work LevelDurationResources neededN/A20 minsAdditional worksheet 2(b)‘Credit cards’ section on Moneysmart Task 1: How credit cards work worksheetAsk students if they would like a bag of debt. Probably not, but this is the consequence of making rookie errors with credit cards. Explain that the next activity will involve a deeper investigation into credit cards and credit card debt. Distribute worksheet - How credit cards work. Explain instructions to students. Students will be looking at the Moneysmart website section on ‘Credit cards’.Students complete the following questions on the worksheet.When are you charged interest on a credit card?Explain what is meant by the term ‘interest-free period’.What are the disadvantages of credit cards with an interest-free period?When might you consider getting a credit card with no interest-free days?Outline the fees and charges which might add to the cost of a credit card.Outline some of the credit offers that can become 'debt traps' which means they may make it easier for you to fall into debt. Which payment method is cheaper: credit card or cash?Task 2: Discussion Discuss student responses with the class. Possible responses include:You are charged interest on all outstanding transactions on a credit card if you don't pay your full balance before the end of the interest free periodThe interest-free period on credit cards refers to the days where you don’t have to pay interest on your credit card purchases. For example, it might be 45 days or 55 days. Interest-free periods usually start on the first day of your billing cycle, not when you make a purchase. If you pay off your debt within the interest-free period, you'll avoid paying interest altogether.Credit cards with an interest-free period may charge higher interest rates and annual fees.You might consider getting a credit card with no interest-free days if you know that you won't be paying your debt in full straight away. You would usually pay lower annual fees and less interest, either from the day of purchase or the day your monthly statement is issued.Credit card fees and charges may include annual account fees, reward programs fees, late payment fees and fees for exceeding your credit limit. Some credit cards attract a surcharge that 'merchants' such as retailers may pass on to you when you make a transaction.Some of the credit offers that can become 'debt traps' include: credit limit increase invitations, honeymoon rates, cash back offers, and balance transfers.Unless you use a card that is interest-free and fee-free and you pay off the card within the interest free period, buying items with a credit card will always cost you more than if you pay with cash.Additional activity 2(c): Using the credit card calculator LevelDurationResources neededN/A15 minsCredit card calculator on MoneysmartAsk students to use ‘Credit card’ calculator on Moneysmart to help Chloe. In the Moneysmart Rookie Credit hangover video Chloe has multiple credit cards. The credit card calculator helps to work out how long it takes to pay off a credit card making only minimum repayments, how much interest can be saved by paying the card off faster and how much extra money is needed to pay off the credit card in two years.Ask students to work in pairs and work out how she could reduce a $5,000 credit card debt using different variables such as different monthly payments, interest rates (make sure these are current rates) and minimum repayments of the outstanding balance. They will need to record the different options for Chloe so they can report back to the class.To debrief to this activity, ask the class how much money they think Chloe would need to earn a month to pay back $250 in credit card payments. Assume she pays rent and owns a car outright. Additional worksheet 2(b): How credit cards work NAME: Use the Moneysmart website to work through the following activities. Go to the website and search for ‘Credit cards’.1. When are you charged interest on a credit card?2. Explain what is meant by the term ‘interest-free period’.3. What are the disadvantages of credit cards with an interest-free period?4. When might you consider getting a credit card with no interest-free days?5. Outline the fees and charges which might add to the cost of a credit card.6. Outline some of the credit offers that can become debt traps.7. Which payment method is cheaper: credit card or cash? ................
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