Two suggestions for exercises you can do with the “wise use of credit cards and credit” section. I used these two examples with a Jr. Achievement class I taught to ages 13-14. They seemed to make a big impression.
1. Using a newspaper, find a sale ad for product such as an iPod or other rapidly changing consumer electronic technology. It should be a product advertised for something like “$299.00, buy it for only $10 per month!”…you know the type. Take the class through the fine print and the nasty interest rate, then work out the math with them to show 1) how long it will take them to pay off the item and 2) the total amount they will end up paying for that $299 item. Finally, assuming the time to pay off the item is 3-4 years, ask them how many “toys” they bought 3 years ago they would feel good about still making payments on today? Do they still have that toy, or is it outdated or broken?
2. Let the group buy themselves a new car. Using the auto ads out of the paper, ask them to pick a no-money-down offer for a car they would love to own and select one person’s choice to use as an example. Then take them through the math and show them a real world example:
You buy a new Zipmobile at a price of $24,500 (Note: all numbers are for illustration only. You would need to do the actual math once you selected an example.) Adding credit life insurance, undercoating, magic paint sealant, plus tax, title and license, it totals up to $27,000. You sign the papers and drive your new car off the lot, knowing you don’t have to make your first car payment to ZMAC finance for 30 days. Yeah, they are a little steep at $525 a month, but you’ll figure something out.
You drive your new ride for three months and one night you come out of the movie theater and can’t find it. You report your vehicle to the police as stolen and are very thankful to know your car is insured against theft. After a few days, the insurance company sends a check made out to you and ZMAC finance for $19,500. You say, “But it was a brand new car and I still owe $26,500 on it!” The insurance company pays for the depreciated value of the now used car, which they calculate to be $20,000, less your $500 deductible. Your new $24,500 car was actually a three month old used car when it was stolen. And the $2,500 you paid for credit life insurance, undercoating, magic paint sealant, plus tax, title and license…fugheddaboudit!
End results, after you sign over the $19,500 check to ZMAC, you still owe ZMAC $7,000! You will have to continue making those $525 per month payments for more than a year, until you’ve paid off the remaining $7,000 on a car you no longer have.
And by the way, you no longer have a car, so how are you going to get to work?
