The Good, The Bad, The Credit

What is credit? Why would, or should, we borrow money? What does it cost? Is credit good or bad?

Antique three-column full-keyboard cash register, from


What is the nature of credit and borrowing?

We are exploring these topics because they are important to developing a healthy understanding of how our personal financing and savings plans work. This may be a complex topic with many big words. Consult a dictionary to find definitions for any difficult words.

Imagine that you want to have $1000 to purchase gifts for the next holiday season.

How would you go about accumulating the cash?


The US Government reported "The use of general purpose credit cards jumped from 56 percent of all families in 1989 to about 66 percent in 1995. About 52 percent always paid off their balances, 20 percent paid off sometimes, while 28 percent hardly ever paid them off."

The action committee Demo's reports that "Average credit card debt among indebted young adults increased by 55 percent between 1992 and 2001, to $4,088 (2001 dollars)."

Additionally, they report, "The average credit card indebted young adult household now spends nearly 24 percent of its income on debt payments, four percentage points more, on average, than young adults did in 1992."

In this lesson you will create a holiday budget of $1000 dollars. You will make the decision to save for, or finance, your holiday gifts.

In the end there may be at least three ways to decide how to best pay for the purchases.

  • Save it?
  • Borrow it?
  • Get the money from your mom, dad, guardian, or friend?


Download the CreditSavings model for the lesson.

Pay with Savings

Use the following formula to calculate the monthly amount of the monthly amount of savings it would take to save $1000 in 11 months. The annual saving rate is 3%.

A = Principle * rate * time

Assume that savings is calculated on 30 days per month.

The rate will be calculated on a 360-day basis.

Use the savings model to check you answer. Experiment with different rates and savings payment plans.

Pay with credit

You purchased $1000 dollars in gifts on your credit card.

What is the monthly payment required to payoff the credit card within 11 months?

Using the simple interest formula calculate the annual rate.

Try calculating interest using the simple interest:

A = Principle * (1 + rate)time

Amex Card Image

The credit card model should be used for this part of the lesson.

The Interview

Come up with a definition of the following terms. Put the answer in your own words.

  1. Revolving Agreement
  2. Charge Agreement
  3. Installment Agreement

We use credit to purchase an education, a house, a car, or gifts for our loved ones and friends. Is there good or bad credit?

What do you think?

Type a 1 page paper (12 point Arial font -- double spaced)address the following statements/questions:

  1. List examples of purchases that you would consider putting on credit. Label them "Good" or "Bad".
  2. Would you choose to save the money starting at the beginning of the year, or would you to put your purchases on a credit card and pay the balance of over the following year? Why?
  3. Explain your current view of credit.

This lesson is worth 10 project points.

Done Early?

Take a look at how credit cards work Ready, Set, Credit.

Discuss the article with an adult or friend. Complete the read along inquiry .

Bottom Border

[Home] [Search] [About Us]

Send mail to with questions or comments about this web site.
Copyright © 2012
Last modified: 5/30/2012