Analyzing a Credit Card Statement

Lesson Content

• Lesson Plan Template:

  CTE Lesson Plan

• CTE Course Info and Benchmark Notes

  
  

  Program Title (as applicable): n/a

  Course Title: Fundamentals of Finance

  Course Number: 8540400

  Career Cluster: Finance

  CIP Number: 148540400M

  Course Type: Orientation/Exploratory

  Standard(s) or benchmarks

  Focus

  14.01 Describe the importance of credit to consumers in the American marketplace.

  SS.8.FL.4.2 Identify a credit card purchase as a loan from the financial institution that issued the card. Explain that credit card interest rates tend to be higher than rates for other loans. In addition, financial institutions may charge significant fees related to a credit card and its use.

  Remarks and Examples: Examine a credit card statement and identify the interest rate and fees charged.

  Supporting

  SS.8.FL.4.1 Explain that people who apply for loans are told what the interest rate on the loan will be. An interest rate is the price of using someone else’s money expressed as an annual percentage of the loan principal.

  Remarks and Examples: Explain that repayment of a loan includes repayment of the principal plus the interest charged. Compute the interest rate when given a principal and the amount of interest. Compute the amount of interest when given the loan principal and the interest rate.

  SS.8.FL.4.3 Examine the fact that borrowers who use credit card purchases and who do not pay the full balance when it is due pay much higher costs for their purchases because interest is charged monthly. Explain how a credit card user can avoid interest charges by paying the entire balance within the grace period specified by the financial institution.

  Remarks and Examples: For an expensive good purchased using credit, find the total interest paid and the amount still owed after one year when only the minimum payment is made each month. Give advice to a friend explaining what happens to the total cost of borrowing on a credit card when only the minimum payment is made each month.

  13.03 State the reasons consumer credit exists.

• Unit Outline

  
  

  This lesson could be taught within a unit focused on using credit. The unit can begin with an overview of loans and interest then students build on and make connections to this lesson by exploring simple interest and compound interest, credit card statements, and how to calculate credit card payments. The unit can conclude with a scenario-based activity where students provide recommendations on how to use, or preserve, credit lines based on given information.

• Career Connection

  
  

  Students will use prior knowledge and observation skills to identify parts of a credit card statement. Knowing how to read a credit card statement, including identifying and understanding the associated fees, will help students develop their financial literacy and their understanding of the cost of credit as a consumer.

• Learning Objectives

  
  

  Students will be able to:

  • Identify and explain fees related to credit cards.
  • Identify and explain interest charges related to credit cards.
  • Distinguish between common types of charges on a credit card statement.
  • Discuss why consumer credit exists and why it is important to consumers.

• Prior Knowledge

  
  

  Students should be familiar with:

  • Identifying credit cards as a type of loan.
  • Common fees associated with credit cards.
  • Distinguishing between principal and interest amounts.

• Guiding Questions

  
  
  • Why is credit important to consumers and why does it exist?
  • Why is it important to understand a credit card statement?
  • How does interest affect the cost of credit?

• Procedure

  
  
  1. To introduce the lesson, ask students to consider the following “Would You Rather” question: Would you rather purchase a $1,000 item with a credit card today or save $50 a month until you have enough money saved to purchase the item?
     • Allow students time to choose 1 of the scenarios and think about their reasoning.
     • Have students share their choice and reasoning. Encourage students to think about the trade-offs in each situation. The following questions can be used to facilitate discussion:
       • How did you decide which choice is most advantageous for you?
       • What are the trade-offs you make when choosing 1 scenario over the other?
       • Is there any other information you need before making a decision? Explain.
       • How does the concept of interest affect your choice?
       • How long would it take you to save up the money?
       • Do you think the item would still be $1,000 by the time you save the money? Why or why not?
  2. Explain to students that they will be analyzing a credit card statement to better understand the purpose of consumer credit and how it may be used. Place students into small groups of 2-3 and pass out a Credit Card Statement to each student.
     • Allow students time to initially look over the credit card statement.
     • Encourage students to mark up the handout, as needed, to point out terms they are familiar with, questions they have, and anything else they feel is worth making a note of. Also remind students that they can use their research conducted in previous lessons to help them make sense of the credit card statement.
  3. Explain to students that they will share their observations with each other. Regroup students into new groups of 2-3 students. Allow students time to share and compare their initial observations with each other.
     • Encourage students to make new notes and/or modify their initial observations based on what they learn from their peers in their new groups.
     • Direct students to create a list of at least 3 questions they still have about the credit card statement that their group was unable to answer. The questions could be about the vocabulary they are unfamiliar with, calculations, or anything else that may help them better understand the credit card statement (see Teacher Notes for questions if students need examples).
     • Once students create their questions, have groups share with the class and allow other groups to offer answers in a Q&A style session led by the students.
  4. To conclude the lesson, have students provide a written response to the guiding question "Why is credit important and why does it exist?.

• Teacher Notes

  
  
  • Be sure the following questions have been answered after/during student-led discussion:
    • What are the main features of a credit card statement?
    • What is a payment credit? Other credit? Purchase? Promotional balance? Cash advance? Balance transfer? Fees charged? Interest charged? Credit line? Cash access line?
    • How do you read a credit card statement?
    • Why are there different sections of a credit card statement?
    • How is a credit card balance calculated?
    • How is the interest rate used in a credit card statement?
    • Why are there different interest rates listed?
    • Why might a lender include a late payment warning on a credit card statement?
    • Why might a lender include a minimum payment warning on a credit card statement?
    • What incentives does a consumer have to pay more than the minimum payment?
    • How does carrying a balance month to month affect the overall cost of using a credit card?
    • Why do you think this person is using a credit card?
    • What are the benefits and drawbacks to buying on credit?
    • How does having a credit line affect buying decisions?
    • Why is credit important in the marketplace?
  • The Credit Card Calculations spreadsheet attachment and the Credit Card Statements presentation attachment can be edited by the teacher to modify the credit card statement to meet the needs of their class.
  • Students should know how to read and perform basic addition and subtraction calculations included on a credit card statement at the conclusion of this lesson. If needed, the teacher can create and use a labeled credit card statement to conclude the lesson that points out important features such as the summary of charges, credit line, available credit, detailed transaction list, and interest rate percentages.
  • If implementing this lesson as part of a unit, the Exploring Credit Cards Lesson can be taught prior to this lesson so that students have some knowledge of and familiarity with credit cards.

• Optional

  
  

  Accommodation Suggestions:

  • The Credit Card Statement V2 attachment can be used if students are ready to explore how new purchases are calculated when the credit card carries a monthly balance.

  Extension Ideas:

  • Students can be challenged to figure out the calculations used to produce the credit card statement.
  • Students can create a reference sheet that explains terms commonly found on a credit card statement.