Financial Literacy lesson 4

Unit 1

Financial Literacy

Lesson 4Debit Cards

Debit Cards

Watch the video "What is the difference between a debit card and a credit card?"

compare and contrast

What are two ways to put money into a bank account?

Payment Methods

Identify and describe the types of payment methods below

comparing payments

Cash—Money in the form of bills and coins.

Disadvantages:

Advantages:

• Cannot be replaced if lost or stolen;
• Spending not easily tracked.

• Easy to use;
• Accepted nearly everywhere;
• Fits nicely in a pocket;
• You can only spend what you have.

comparing payments

Cheques—A printed form on which you write an amount of money and who it is to be paid to. Your bank then pays the money to that person from your account.

Advantages:

Disadvantages:

• Time-consuming to write up;
• A lot to carry (a pen and chequebook);
• Money not always taken out of the bank right away;
• Not accepted everywhere.

• Easy to track spending;
• Mailed safely;
• Safer to carry than othet payment methods.

comparing payments

Debit card—A plastic card that provides electronic access to a personal bank account. It can be used at an ABM (Automated Banking Machine) to complete bank transactions.

Disadvantages:

Advantages:

• Quick and easy to use;
• Funds are immediately deducted;
• Money comes straight from your account;
• No bill in the future;
• No need to carry cash;
• It’s relatively safe because only you should know your PIN (Personal Identification Number.)

• Harder to keep track of spending;
• Easy to lose;
• Higher possibility of identity theft;
• Must remember the PIN number.

comparing payments

Credit card—A plastic card that provides electronic access to a loan from the bank. When the cardholder buys goods and services the bank pays for it and the cardholder pays back the bank later.

Disadvantages:

Advantages:

• Items can be purchased without having the money to pay for them immediately;
• Handy for emergency purchases;
• Convenient.

• Possible yearly fee;
• High interest charged on unpaid balances;
• Can lead to financial difficulties if misused.

comparing payments

Gift card—A card that is purchased in a specific monetary value and used like cash to purchase goods and services.

Advantages:

Disadvantages:

• You can only spend what you have.

• Must be purchased beforehand from the store, in order for money to be on it;
• If lost or stolen, cannot be replaced;
• Store-specific cards can only be used in one place.
• Once the amount is finished, it cannot be replenished.

comparing payments

Prepaid card—A card that allows you to spend only the amount you have pre-deposited into that account.

Disadvantages:

Advantages:

• You can only spend what you have;
• Can be used to pay bills online or by phone;
• Can be attached to a specific bank account and loaded automatically with direct deposit;
• Can be canceled if lost or stolen.

• Extra bank fees and charges;
• Not accepted everywhere.

Comparison chart

Complete this activity on page 21 of your Citizen Guide workbook or copy and complete the activity below. Think about the various types of payment methods discussed so far. Compare and contrast them by thinking about the criteria, or reason, for each payment method. Write “yes” or “no” or “usually” in each box, based on whether the payment type meets the criteria.

Comparision chart

List any additional advantages or disadvantages of each payment type that you can think of.

Advantages Disadvantages Cash ______________ ______________ Cheques ______________ ______________ Debit card ______________ ______________ Credit card ______________ ______________ Gift card ______________ ______________ Prepaid card ______________ ______________

Debit Transactions

Listen to the reading of the following story then follow along in your account register in the Citizen Guide, Page 22, Debit Transaction Exercise. After each debit purchase, you should “air slide” your debit card, enter a PIN of your choice, then record the amount in the register, and calculate the new balance.

Debit Transactions

Yanique received her first pay cheque from her new job. She took the bus to the bank to open an account. While at the bank, she learned that instead of giving her personal cheques as her mother used, the bank would give her a debit card. She could use the card like cash. She endorsed her pay cheque and deposited the $7500.00 into her account. The teller showed her how to write the deposit in her account register.

Debit Transactions

The next week, Yanique and her friend Kimberly decided to go shopping. Yanique wanted to buy some new clothes for her job and get a birthday present for her brother. She was also eager to use her new card. First, the two girls went to 5th Avenue, a clothing store, where Yanique bought a sweater for $1,600.00. She slid her card through the card reader and entered her PIN. Next, the girls went to Cherries's beauty supply store, where Yanique bought nail polish for $500.00.

Debit Transactions

As she was leaving the store, she remembered she needed to record the transactions in her account register, so the two stopped at T's coffee shop. Yanique recorded her transaction for the nail polish. Then each girl got a hot cocoa and a cinnamon roll, for a total of $500.00. Yanique remembered she had a gift card, so that money did not have to come out of her account.

Debit Transactions

Passing by her favorite shoe store, Yanique noticed a cute pair of shoes in the window. Kimberly agreed they were just the right shoes for that new sweater Yanique had bought, and the girls headed into the store to try them on. After Yanique slipped them on, she looked at the price tag. The shoes were perfect, but they were $3200.00. Does she have enough money?

Debit Transactions

Yanique did, but she didn’t want to spend so much. The girls then headed to Sam's Computer Store to look at games for Yanique’s brother. She found a classic Play Station on sale for $2,000.00. That would do just fine! She got out her wallet swiped her card, recorded the amount, calculate the balance, and headed out of the store with the present for her brother.

Debit Transactions

The girls had purchased the things they came for, but they still wanted to shop a while longer. Kimberly saw something in Flowers & More Gift Shop she really wanted, but she didn’t have enough money. Yanique agreed to loan Kimberly the money she needed, so Kimberly gave the cashier $1100.00 cash, and Yanique used her card to pay the remaining $1200.00. She knew Kimberly would pay her back soon.

Debit Transactions

After hours of shopping, the girls were getting tired and decided to head home. Kimberly's father picked her up and Yanique decided to take the JUTC bus. She did not have any cash to pay the bus driver, but the new JUTC buses accepted debit cards, so the bus ticket was purchased for $120 using her card. When Yanique arrived home and her dad asked her how much she had left from her pay cheque, all she had to do was look in her account register to tell him. She would have to make that money last until next payday. THE END!

Summary

Indicate thumbs up for "True" and thumbs down for "False" to the following statements:

1. Debit cards are a convenient way to pay because you don’t have to carry cash or take time to write a cheque.
2. You should tell everyone your PIN number.
3. Debit card purchases are “buy now, pay now” so you must have enough money in your account to cover your purchase.
4. The bank will record your purchases on your account register when you use a debit card.

Summary

Indicate thumbs up for "True" and thumbs down for "False" to the following statements:

5. When using a credit card, you will be charged interest if the balance is not paid on the due date. 6. When people use cash, the total amount of money they have is reduced. 7. When people write cheques or use debit cards, the amount of money in their bank account (the account balance) is reduced.

Application Activity

Below is an application activity students can use to reinforce concepts.

Application Activity 1 Venn diagram.

Application Activity 1

Venn Diagram

Create a Venn diagram that illustrates the similarities and differences of two payment methods.

Extension Activities

Below are two extension activities for students to expand on the idea concepts of the lesson.

Extension Activity 1 The Debit Card Transaction.

Extension Activity 2 Interest in your Favour.

Extension Activity 1

THE DEBIT CARD TRANSACTION

A debit card allows cardholders to buy goods and services with funds that are deducted immediately from their chequing or savings account. It allows the bank to know immediately if the customer has spent money, unlike a cheque which can take many days to “clear” the bank. Technology has allowed a merchant to swipe the card, verify funds, and give the card back to the owner.

Extension Activity 1

THE DEBIT CARD TRANSACTION

The cardholder’s payment is complete.

The cardholder begins a transaction in a store.

The merchant is notified that the transaction has taken place and there are sufficient funds for the purchase.

Once the customer’s bank is alerted, the money is subtracted from the cardholder’s account.

Once the card is swiped at the store, the transaction is sent to the cardholder’s bank for verification.

Extension Activity 2

Interest in Your Favour

Share some of the key differences between:

• Credit card vs Cash;
• Credit card vs Cheques;
• Credit card vs Debit Cards.

Extension Activity 2

Interest in Your Favour

You want a new mountain bike that costs $43,500. You need to decide if you want to buy the bike now on credit and pay more, or wait and save the money to buy the bike, meanwhile earning interest on your savings. You know that you can afford about $12,000.00 a month from your allowance and chores.

Extension Activity 2

Interest in Your Favour

Compound Interest Calculator

EARNING INTEREST You decide to save $2,000.00 a month to buy the bike. Every month you put $2,000.00 into a savings account, you earn 0.45 percent interest, compounded monthly. a. How many months will it take to save $43,500.00? __ b. How much money will you have saved after the first 13 months? ____ c. What will the balance be at the end of the savings period? _______ d. How much will you earn in interest? _____________

Congratulations! You've reached the end of Financial Literacy Lesson 4