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Module 12 Getting and Managing Credit

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If you want or need to borrow money, you will have to make sure the possible lender is confident that you are able to pay back the loan.

The lender will be interested in your “credit worthiness” – (your ability to take on, carry, and pay back debt) and consider the “3 Cs” – your capital, character, and capacity as well as your “credit rating.”

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Teacher's Guide

This lesson can be used as a companion for Module 12 of Money and Youth – Getting and Managing Credit.

Relevant Subjects and Topics:

Money, Personal Finance, Debt and Credit, Economics, Consumer Studies, Budgeting

Background Information:

In many stores today it is common to see racks of pre-paid gift and credit cards. This has evolved in recent years as a new form of payment for purchases. A person, either for themselves or as a gift for another, buys value on a card that can then be used by the owner of the card to make purchases up to that value – minus any fees charged. Purchases may be limited to a single retailer if the card acquired was at a specific store, such as Best Buy or HMV, or the card may be used almost anywhere if it is a more general use card, such as a pre-paid MasterCard.

Some argue that this is a good opportunity for youth to learn more about managing spending and the use of a card, although, in this case, it is not a credit card. No debt is being incurred when one uses it. Rather than payment being made after a purchase, as with a credit card, the money has already been spent. That is why some argue that such cards are not a good thing since the money can only be spent, not saved. These cards encourage people to go out and spend. So, is the upward trend in the use of such cards a good thing or a bad thing? Like credit cards, and using debt, there are pros and cons.

First of all, this module provides an opportunity to take a look at both credit cards and pre-paid cards. Credit cards tend to get a lot of criticism these days but there are advantages and disadvantages to using debt and credit cards too. The following is a summary of some of the advantages and disadvantages of using debt and, in some cases, using credit cards to incur debt.


  • You can enjoy/use something now (for example, a car, a house, a vacation, education, new clothes) because you are paying for it out of future income.
  • Credit enables you to handle emergencies and unexpected costs due to illness, accident, loss of work, breakdown of a car and so forth.
  • Credit can enable you to pay more to buy goods of higher quality that will last longer and that may be a wiser consumer choice.
  • Credit provides a record of your expenses. Credit card issuers provide a monthly statement, which itemizes all of your expenditures.
  • You can take advantage of sales. (just make sure that the amount you save through the sale is more than it costs you in interest.)
  • Credit can simplify the payment of many bills by enabling you to borrow one amount to pay them all off and then carry a single debt with a single payment.


  • Credit can encourage you to live beyond your means and get you into financial difficulty.
  • Credit can mean that your future income will be tied up in paying past debts and that you will be unable to undertake new expenditures.
  • Credit can be expensive since the interest must be added to the price.
  • Credit can enable impulse buying, which may lead to unwise consumer choices.
  • Credit cards for a particular store may lead you to do less comparison shopping since you shop where you have the card rather than where the best deal is.
  • Using credit will mean that you will have less reserve for unforeseen emergencies.

Few choices are ever black and white; it all comes down to making good decisions and trying to maximize the pros and minimize the cons. Consider some of the pros and cons of the pre-paid gift and credit cards.


  • Can help young people learn about handling money, in the form of a card for payment, and making good buying decisions.
  • Can help introduce youth to fees and how using cards is usually not free; there are often costs and fees that have to be considered and managed well.
  • Can be used for online purchases – another thing that is increasingly popular with youth today
  • Can be handy to use as a gift for someone to give the recipient the ability to choose something they like.
  • Can help youth avoid using debt for purchases.


  • It is not a credit card and may encourage use of a card – without future debt obligations – that is not the same as managing a credit card.
  • There can be fees and costs that are not obvious or well understood and can result in unanticipated financial costs.
  • There is no opportunity to do anything with the card except spend – there is no saving option.
  • To date, such cards are not well regulated.
  • If you lose the card, you lose your money since it is all pre-paid.

Young people, who now have access to such cards and credit cards at younger ages, should receive some guidance on how to use such cards effectively. This lesson provides the students with an opportunity to explore in detail the advantages and disadvantages of credit cards and pre-paid gift cards.


At the end of this lesson, students will be able to:

  • describe the advantages and disadvantages of using debt and credit
  • describe the advantages and disadvantages of using pre-paid gift cards and credit cards
  • explain a variety of factors that should be considered in using such cards wisely.

Time for Implementation:

One class period

Teaching and Learning Strategies:

  • Ask students to describe their experience, if they have had any, with a pre-paid gift card, pre-paid phone card or credit card. If they have not had any experience with them, ask whether they think such cards are, overall, positive and beneficial for young people or, negative.
  • Explain the difference between credit cards and pre-paid gift and credit cards. You may wish to utilize the information on page 164 of Money and Youth to enable you to review the advantages and disadvantages of using debt and credit cards.
  • Discuss ways in which credit cards can pose problems for young people and how, if not used well, they can cause problems with their credit rating, making it more difficult for them to borrow money later if they wish to.
  • Next, ask for a show of hands of students who have had experience with pre-paid gift and credit cards. Ask those who wrote negatively about such cards or have had no experience with the cards, to put their hands down. Of those left, if any, ask a couple of students to explain their experience. Keep a listing of points on the board of the advantages of such cards cited by the students.
  • Then, ask students who have not had experience with such cards, if they have any fresh positive points to share. Discuss any new points and add them to the list of advantages.
  • Then, repeat the exercise with those who have had a negative experience. Make a similar list of the disadvantages on the board. Once again, ask those with no experience if they have any new points to add.
  • When discussions of both the positive and negative sides have been completed, review the two lists on the board. Engage in any further discussion you wish to elaborate on the advantages and disadvantages.
  • For homework, ask each student to write out, and be prepared to hand in, a list of “Ten things to keep in mind in order to use credit and pre-paid cards wisely.”


  • Students can be assessed on the assignment they complete and hand in for homework.

Additional Related Links:

Additional Possible Activities:

  • The students could complete a writing assignment indicating whether or not they would ever give gift cards as presents explaining the reasons for their answer.
  • The students could research family members to determine how many credit cards each has and what those individuals do to control their debt levels.
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Parent Resources

Why is this important?

Credit and debt are two things that adolescents need to clearly understand if they are to become financially responsible adults. As they enter adulthood, young people are going to be exposed to all kinds of opportunities to get credit cards and, to sales pitches that try to create needs that must be fulfilled. As parents and guardians, it is important for us to alert our children to these things and give them the knowledge and skills to deal effectively with them.

Ways to engage your child and fun things to do.

We need to provide perspective on good and bad debts and the advantages and disadvantages of credit.
  1. Sit down with your child and ask them to identify two of their friends – one whom they respect and trust and one who is less reliable. With these two identified, ask your child this: if each friend asked your child to lend them $200, would he or she lend either of them the money? Ask your child to explain their answer. If they would lend the money to only one, ask them to explain what it is about that person that would make them feel comfortable about the loan. Follow this up with a discussion about creditworthiness and how it affects whether or not your child would be able to borrow money and how it would affect the rate they would be charged. Talk about the Three Cs – Capital, Character and Capacity. (See websites below for additional information.)
  2. Ask your son or daughter if they think borrowing and then repaying that loan has a good side to it. Get their answer and then explain that a good credit rating is an important thing to have as it affects a person’s ability to borrow money when needed and affects the rate they will be charged. Explain that one way to get a good credit rating is to pay bills on time and keep debts to a minimum. Ask them now to consider the negative side of credit and get their list of factors. Compare that to the explanation found in Money and Youth Module 12.
  3. Ask the question, “Do you think it is too easy for a young person to get a credit card?” Discuss their answer, including such things as it encourages a person to live beyond their means if not careful and it can lead to such things as impulse buying because all you have to do is use your card.
  4. Ask them to give examples of good debt and bad debt and explain the differences.
  5. Talk about getting a credit card and compare different ones. Then follow that up with a discussion about how they would control their use of the card they chose.
  6. Watch and discuss the following YouTube video on youth and credit cards -

Additional Background and Related Websites and Resources

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