Winning Futures – Inspiring and preparing youth to succeed through mentoring.

Credit cards may seem like an easy solution to not having money for what you want.  Teaching students the reality of credit cards can help them be financially successful in years to come.  Below is a lesson used in the Winning Futures classroom to bring reality to getting into debt!

Scenario: Imagine that you love video games. No, imagine that you live for video games.  Imagine next, that a new version of the X-Box just went on sale this week at Wal-Mart for $199 and a couple of games for $49.99 to go with it, bringing the total to $300.00.

You have friends coming over this weekend and you would love to have the system at home for everyone to play.

The only… little bitty problem: You don’t have the cash/money.

The simple and Oh!  So… easy solution: Your new credit card, and a salesperson telling you, “you don’t have to wait until you earn the money; why not enjoy your X-Box tonight, while you’re paying it off in “easy payments“.

Scenario- Discussion Questions:

1. If the average person had a credit card and really wanted this X-Box, what do you think he would do?

2. What would you do?   What are the consequences of waiting until you earned the money to purchase it with cash? (You might not have as much fun for a few weeks.)

3. What could the consequences be, if you purchased it with the credit card? (If you can’t pay it off by the end of the month, you start paying interest. You pay much more for it in the long run. You begin to charge other things. You don’t have the money to invest).

Buying on credit and making monthly payments puts multiplication working against you. Saving the money to buy it outright and investing the money you would have spent in interest puts multiplication working for you.

Beating the System: Credit Cards and “Easy” Payments: 

Let’s look more closely at that X-Box and the accompanying games, which sold for a total of $300.00.  Let’s imagine that you have the average credit card interest rate from (2005) of 13%.

(You will find that the rate is in small, almost unreadable type, at the bottom of your application).

Average Minimum payment is 3%.  Ask yourself, “3%” of what?  Answer is “3% of the amount of your purchase. Therefore, your minimum payment is $9.00 per month.  If you just make the minimum payment, you will still be paying for it over four years and at least one newer version of the X-Box will have been made.  During the 48 months that you are making payments, you will pay $324.00 in interest. That’s money over and above the $300.  It’s the multiplication of that 13% working against you. Over time, you paid $624 for that X-Box and the two games.