Banking, Credit & Smart Financial Desicions

Managing your money: banking, credit & smart financial decisions

Lesson Objective

Students understand how banks, credit and financial tools work, before they’re handed a credit card.

Topics

Checking vs Savings Account

How Debit Cards Work

What Credit Is

Interest, Debt and Credit Scores

Checking Vs savings account

Checking Account

• Used for everyday spending.

• You can pay bills, use a debit card, write checks and withdraw money often.

• Usually earns little or no interest.

Main Difference:

• Checking = spending money

• Savings = storing money and earning interest

Savings Account

• Used for saving money over time.

• You don’t use it as often.

• Usually earns interest, so your money slowly grows.

How debit cards work

A debit card is a card connected to your checking account. When you use it to buy something or take out cash, the money is taken directly from your bank account. This means you can only spend the money you already have in the account.

what credit is

Credit is when you borrow money and promise to pay it back later, usually with a little extra called interest. It lets you buy something now even if you don’t have the money yet.

Interest, debt and credit scores

Interest is the extra money that is added when you borrow money or the extra money you earn when you keep money in a bank account. Debt is money that you owe to someone because you borrowed it and have not paid it back yet. A credit score is a number that shows how responsible you are with borrowing and paying back money. A higher credit score means banks and lenders are more likely to trust you to borrow money.

scenario

Tim is 19, works part-time at a coffee shop and lives at home. After taxes, Tim brings home $600 a month. Tim's phone screen is cracked and needs replacing. He has to figure out the best approach. Tim splits the $600 like this:

• Checking (spending money): $450 - 75%
• Savings (hands-off): $150 - 25%

scenario

His first choice is to save up:

• He'll set aside $50/month from the $100 buffer. The phone will be paid off in 4 months. Total cost: $200. No interest. No additional stress.

If he puts it on credit:

• He'll get the phone now, but at ~24% APR the phone ends up costing over $220. If he misses one payment, that late fee will cause damge to his credit score.

Activity