Topic 2: Credit and debt - Moneysmart Rookie - Educator guide - Financial literacy for young people
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Topic 2: Credit and debt Moneysmart Rookie - Educator guide Financial literacy for young people
Topic 2: Credit and debt Copyright information Lesson plan 1: Credit and debt Website: moneysmart.gov.au ISBN: 978 0 9805533 9 0. Creative Commons This Educator guide is available under the Creative Commons license (BY - NC - SA). Under this license, the material is available for free use and adaption so that educators can use, adapt and re-publish material from the resource without seeking the permission of ASIC. Copyright notice This work is based on materials that constitute copyright of the Australian Securities and Investments Commission and is licensed under a Creative Commons Attribution Non-Commercial Share Alike 2.5 Australia Licence. For an explanation of what this licence allows you to do please refer to the Creative Commons website at http://creativecommons.org.au. You must include this statement on any adaption of the Educator guide: This work is licensed under a Creative Commons Attribution Non-Commercial Share Alike 2.5 Australia Licence (see: http://creativecommons.org/licenses/by-nc-sa/2.5/au/legalcode). A Legal Notice applies to the use of these materials, see: Legal Notice: https://moneysmart.gov.au/about- us/copyright The material in this Educator guide is made available for the purpose of providing access to general information about consumer and financial literacy education and is not professional advice. If you intend to rely on the material, you should obtain advice relevant to your particular circumstances to evaluate its accuracy, currency and completeness. Some material may include or summarise views, standards or recommendations of third parties. ASIC does not endorse such material and its inclusion does not indicate that ASIC recommends any course of action. ASIC requests that if you re-publish this work that you notify ASIC by email moneysmartforteachers@asic.gov.au. We are interested in hearing how people are using and adapting the materials. CAL exemption This Educator guide is exempt from collection by copyright agencies and is a free resource for educational institutions. March 2021 Page 2 of 35 moneysmart.gov.au
Topic 2: Credit and debt
Table of contents
Lesson plan 1: Credit and debt
Introduction to ‘credit and debt’ ................................................................................................................ 4
Overview ........................................................................................................................................ 4
Rookie resources ........................................................................................................................... 4
Knowledge levels ........................................................................................................................... 5
Reflection questions....................................................................................................................... 5
Sub-topic: Understanding credit ................................................................................................................ 6
Key messages ............................................................................................................................... 6
Activity 2.1: Chloe’s trick to control her impulse ............................................................................ 6
Activity 2.2: Amy and Maria make different decisions ................................................................... 7
Check for understanding ................................................................................................................ 8
Sub-topic: Different types of credit ........................................................................................................... 8
Key messages ............................................................................................................................... 8
Activity 2.3: Tom uses different types of credit .............................................................................. 9
Activity 2.4: Tom ends up with repayment problems ................................................................... 10
Activity 2.5: Look for credit that is best for you ............................................................................ 10
Activity 2.6: Different types of credit for different purposes ......................................................... 11
Check for understanding .............................................................................................................. 12
Sub-topic: Credit contracts ...................................................................................................................... 13
Key messages ............................................................................................................................. 13
Activity 2.7: Red-flagging cost items in a credit card offer ........................................................... 14
Activity 2.8: Asking questions about the red flags ....................................................................... 15
Activity 2.9: Understanding a contract ......................................................................................... 15
Check for understanding .............................................................................................................. 17
Sub-topic: Problems with credit .............................................................................................................. 18
Key messages ............................................................................................................................. 18
Activity 2.10: Chloe makes a rookie error and gets help ............................................................. 18
Activity 2.11: How Chloe could have ended up with legal problems ........................................... 19
Check for understanding .............................................................................................................. 20
Worksheets: Credit and debt .................................................................................................................... 21
Worksheet 2.2: Amy and Maria make different decisions ........................................................... 21
Worksheet 2.3: Tom uses different types of credit ...................................................................... 23
Worksheet 2.4: Tom ends up with repayment problems ............................................................. 23
Worksheet 2.6: Different types of credit for different purposes ................................................... 24
Worksheet 2.7: Red-flagging cost items in a credit card offer ..................................................... 25
Worksheet 2.9: Understanding a contract ................................................................................... 26
Additional lesson 1: Credit — friend or foe? .......................................................................................... 27
Lesson description ....................................................................................................................... 27
Additional activity 1(a): Moneysmart Rookie - ‘Credit hangover’ video ....................................... 27
Additional activity 1(b): What do you know about credit? ............................................................ 28
Additional activity 1(c): Managing a credit card ........................................................................... 29
Additional activity 1(d): Reflective/summative activity ................................................................. 29
Additional worksheet 1(b): What do you know about credit? ...................................................... 30
Additional lesson 2: Credit and debt — the fine print ........................................................................... 32
Lesson description ....................................................................................................................... 32
Additional activity 2(a): Revision .................................................................................................. 32
Additional activity 2(b): How credit cards work ............................................................................ 33
Page 3 of 35 moneysmart.gov.auTopic 2: Credit and debt
Additional activity 2(c): Using the credit card calculator .............................................................. 34
Lesson plan 1: Credit
Additional and debt
worksheet 2(b): How credit cards work ....................................................................... 35
Introduction to ‘credit and debt’
Moneysmart’s Rookie series helps people aged 16-25 avoid expensive mistakes or ‘rookie errors’ when
they make their first financial decisions.
The topic is about how a person can control their use of credit and manage their debt. It will help young
people:
• understand the different types of credit available and the costs involved
• understand what their credit rating is
• understand how to manage their repayment of debt
• know where to go to get help if there is a problem.
Overview
• Year level: 9-12
• Duration: 4.5 hours (Educator guide - approx. 2.5 hours + Additional lessons - 2 hours)
• Learning areas: Economics and Business, Mathematics, English
• Audience: Youth and community workers, student advisers, mentors.
Topics
The Moneysmart Rookie education initiative covers six topics:
1. Car ownership
2. Credit and debt
3. Mobile phone ownership
4. Moving out of home
5. Online financial transactions
6. First job
Rookie resources
This Educator Guide for Topic 2: Credit and debt will be used in combination with the following
resources designed to suit the various levels of knowledge and understanding of students.
Required Moneysmart resources Optional Moneysmart resources
• Video: Credit hangover (6:17 mins) • Video: Using credit and debt seems so easy (0:25 sec)
• Video: Steve gets his first credit card • Calculators: Budget planner and Credit card
(1:02 mins) • Student life and money
• Managing debt
• Pay off your credit card
Page 4 of 35 moneysmart.gov.auTopic 2: Credit and debt
Knowledge levels
Lesson plan 1: Credit and debt
What content will suit your students? The level of information you use will depend on how much
understanding your students have of a topic. The following describes the content that best suits different
levels of understanding (1, 2, and 3):
Your audience has this
level of knowledge Description
Level 1: No or limited If your students cannot answer any of your questions or can only answer them a
understanding bit, they have no or a limited understanding.
You can help them to understand more by showing the Moneysmart Rookie
videos for the topic. You can also go through the Level 1 activities in the guide.
After watching the video, see if your students have developed some
understanding of the topic by asking them to answer the questions again.
Level 2: Some level of If your students answer one or more of your questions, they have some level of
understanding understanding.
You can show them the Moneysmart Rookie videos to review the topic.
You may wish to pause the video in sections and discuss key issues shown.
You can also go through the Level 2 activities and stories in the guide, as these
are for students with some level of understanding.
Level 3: Good level of If your students are able to answer all of your questions, they have a good level
understanding of understanding.
You can show them the Moneysmart Rookie videos to review the topic.
You can also go through the Level 2 and 3 activities in the guide, as these are
for students with a good level of understanding.
Note: Educators use these levels as progressions, starting points and extensions to suit students’ needs.
Reflection questions
At the end of each session, educators can use the following questions to reflect on the effectiveness of the
session:
• What worked well? What did not work well?
• Did the students understand the key messages?
• Did the activity engage the students? How could the activity have been more effective?
• What questions unexpectedly emerged and how did you handle them?
• What might you do differently next time?
Knowledge level check
Ask these types of questions to check the students’ existing level of knowledge about credit. Ask students
to explain the following:
• What types of credit are available to people?
• What kinds of costs do you have to pay when you get credit?
• What is meant by a person’s “credit rating”?
Decide what information students need based on their level of knowledge. Refer to the ‘Knowledge levels’
table in the topic overview.
Page 5 of 35 moneysmart.gov.auTopic 2: Credit and debt
Sub-topic: Understanding credit
Lesson plan 1: Credit and debt
Key messages
• Credit is borrowed money that you must pay back.
• Credit has costs.
• You pay interest, fees and charges to use credit.
• Too much credit can cause money problems.
Notes for the educator
Credit is money you borrow from a financial institution like a bank, credit union, building society or buy
now pay later (BNPL) services.
Credit has a cost; it isn’t your personal money tree growing in the backyard. Any credit you use becomes a
debt that must be repaid to the credit provider – usually with interest included.
Interest is an extra amount you have to pay as a cost for borrowing the credit provider’s money. This cost
is added to the original amount of money you borrowed.
Many retailers offer interest-free deals, but the purchase is only interest-free for a certain period of time
which is often 12 to 24 months. If the purchase balance is not paid in full within the interest-free period,
interest will be charged on the outstanding amount at a high interest rate.
Before you start looking for credit, do a budget – and make sure you only borrow what you can afford to
pay back, so you don’t end up with money problems.
The amount you can afford to borrow will depend on a number of factors such as:
• your income and your expenses
• estimated repayments.
You’ll see the expression ‘fees and charges’ used a lot. They’re really the same thing – amounts of money
you’ve got to pay in addition to interest (e.g. an amount you pay each year just to have your credit card,
whether you use it or not).
Activity 2.1: Chloe’s trick to control her impulse
Level Duration Resources needed
1 15 mins Video: Credit hangover (6:17 mins)
This activity is based on the Moneysmart Rookie: Credit hangover video. It will help to motivate the
students to consider how attitudes and behaviour affect a person’s use of credit.
Step one
Ask students to watch the video from start to finish and look out for any tips on controlling spending habits.
Step two
Ask students the following question:
What tip did future Chloe give to her present self to try and get her spending habits under control?
Page 6 of 35 moneysmart.gov.auTopic 2: Credit and debt
Suggested answer
Lesson plan 1: Credit and debt
Future Chloe suggests that, for every $100 Chloe wants to spend, she should wait a day before she goes
ahead and buys something.
Step three
Ask students the following question:
Can you think of any other tricks or methods people could try in order to keep a check on their spending?
Note: This requires more analytical thought by the students. Some students may come up with ideas of
their own. Other students may be able to remember tricks or methods used by family or friends.
Suggested answer
There could be many different ways but if the students cannot think of any, prompt them by suggesting:
• going to another shop to compare prices before you buy
• setting a budget for non-essential items
• setting aside money they can spend on certain items and not spending more than that amount.
Activity 2.2: Amy and Maria make different decisions
Level Duration Resources needed
2 10 mins This activity builds on Activity 2.1
Worksheet 2.2
Step one
Read Amy and Maria’s story from the workbook and ask students to respond to the following questions:
1. How would you describe Amy’s personality?
2. How would you describe Maria’s personality?
3. What are the pros and cons of Amy’s situation?
4. What are the pros and cons of Maria’s situation?
5. Who do you think is making the better financial decision? Why?
Suggested answers
1. Impatient, hasty, a bit reckless.
2. Slow, thoughtful, careful, cautious, pretty sensible.
3. Pros:
• Amy gets her laptop sooner.
• Amy doesn’t have to pay interest for 12 months.
4. Cons:
• Amy can’t afford to pay off the laptop within 12 months.
• Amy must pay high interest rates if she does not pay off the laptop in 12 months.
• Amy might have to pay a lot more for the laptop than if she bought it outright.
5. Pros:
• Maria does not have to pay high interest rates for her laptop.
• Maria got a better and newer model laptop than she originally planned.
6. Cons:
• Maria didn’t save up enough money in time for the model she wanted.
Page 7 of 35 moneysmart.gov.auTopic 2: Credit and debt
• Maria had to wait 12 months before she could get the laptop.
Lesson plan
7. Maria 1: is
Credit andthe
making debt
better financial decision, because she does not have to pay more than $599
for the laptop.
Check for understanding
After completing the activities, you can check the students’ level of understanding and knowledge by
asking questions such as:
• What is credit?
A: Credit is money you borrow from a financial institution like a bank, credit union, building
society or buy now pay later service.
• When you get something on credit, what extra money do you have to pay on top of
paying back the amount you borrowed?
A: Interest is an extra amount you have to pay as a cost for borrowing the credit provider’s
money. This cost is added to the original amount of money you borrowed.
Sub-topic: Different types of credit
Key messages
• There are many different types of credit
• Different types of credit are used for different purposes
• Some credit costs more than others
• Look for credit that is best for you
Note for the educator
There are many types of credit products. Each type gives you access to funds, but you have a legal
obligation to repay the money – generally with interest, and sometimes there are other fees and charges.
You should shop around to get the best deal and the best type of credit for you.
Different credit options have different costs; some cost more than others. It is important to remember that
credit may solve a short-term money problem, but too much credit can cause money problems in the
future.
Here is a list of the types of credit a young person may use and for what purpose.
Credit cards These allow you to borrow money up to a certain amount from a credit provider
like a bank. Credit cards are very convenient but people often get into financial
difficulties because they don’t understand how they use the cards and make
repayments can have a serious effect on their finances. Can also be for a cash
advance.
Store cards These are credit cards provided by department stores and other retailers.
These cards are usually more expensive to use than credit cards from major
credit providers such as banks.
Buy now pay later Buy now pay later services, like Afterpay, Humm or zipPay, let you pay for
something in instalments. You might pay every fortnight, instead of paying the
full amount upfront.
Page 8 of 35 moneysmart.gov.auTopic 2: Credit and debt
Youdebt
Lesson plan 1: Credit and don't pay interest on the purchase. Instead you’re charged fees. It’s easy
to overspend or lose track of how much you owe. So make sure you can afford
the repayments.
Personal loans Personal loans allow you pay for one-off big-ticket items like a car.
Interest- A retailer may offer interest-free deals but the purchase is interest-free only for
free deals a certain period of time.
Home loans These are generally used to buy a house or block of land.
Small amount A small amount loan may be used to meet expenses until your next pay. Loans
loans are for a small amount (less than $2,000) and must be repaid on a set date.
This is usually in less than a year.
Consumer lease This is an arrangement where you rent an item (e.g. a home computer or
television) over a period of time. You don’t have the right or option to purchase
the item. The total amount you pay will be more than if you paid for the item
with cash. You may also have to pay fees and charges.
Rent to buy A purchasing arrangement where you rent an item, such as an appliance of
piece of furniture, for a specific time. At the end of the rental period, you can
continue to rent the item or buy it outright.
Payday loans A payday loan is usually the most expensive way to borrow money. With a
payday loan, you can borrow up to $2,000 quickly but has a lot of high fees.
There are two different types of loans – secured loans and unsecured loans. The difference depends on
how much risk there is that the borrower might not pay the loan back to the lender.
With a secured loan the credit provider holds security over one or more of your assets to make sure they
get their money back. It protects the lender from losing their money.
With an unsecured loan the credit provider may decide that there is not a lot of risk and so they do not
need to hold an item as security. The interest rate for unsecured loans is usually higher than for a secured
loan.
Activity 2.3: Tom uses different types of credit
Level Duration Resources needed
1 10 mins Worksheet 2.3
This activity uses Tom’s story from the worksheet as an example for the students to think about the
different kinds of credit.
Step one
Read Tom’s story and ask students the following question:
What are the different types of credit or service plans Tom got to help him study?
Page 9 of 35 moneysmart.gov.auTopic 2: Credit and debt
Suggested answers
Lesson plan 1: Credit and debt
• Credit card
• Personal loan
• Internet contract.
Activity 2.4: Tom ends up with repayment problems
Level Duration Resources needed
2 10 mins This activity builds on Activity 2.3.
Worksheet 2.4
Continuing with Tom’s story, students to think about the importance of a person’s credit rating.
Description
Read out Tom’s story and ask students the following questions:
1. What would help Tom receive a good credit rating in this situation?
2. What are the benefits for Tom in the future by getting a good credit rating?
3. What would cause Tom to get a bad credit rating in this situation?
4. What kinds of problems will a bad credit rating cause Tom in the future?
Suggested answers
1. By paying his personal loan repayments on time
2. It shows future credit providers that he can be financially responsible, so it makes it easier for him
to get a loan or get a mortgage to buy a house in the future.
3. Not paying his credit card repayments and internet bills on time.
4. He may not be able to get a loan or a mortgage for a house in the future, because he may get a
record of not keeping up with loan repayments and being financially responsible.
Activity 2.5: Look for credit that is best for you
Level Duration Resources needed
2 10 mins This activity builds on Activity 2.4.
Discussion only.
It asks the students to think about what they’ve learned in this session and to apply it with what they
already know. By focussing on avoiding repayment problems, the students will be helped to realise that it’s
important to “Look for credit that is best for you”.
Description
Ask students the following question:
How can people avoid getting into repayment problems?
Suggested answers
• By not allowing their debt to get too big.
• By allowing for unexpected events (e.g. a drop-in income, sudden health expenses).
Page 10 of 35 moneysmart.gov.auTopic 2: Credit and debt
• By allowing for an unexpected increase in expenses.
Lesson plan 1: Credit and debt
• By choosing credit that is best for you in your situation.
Round off activity by pointing out that “Looking for credit that is best for you” is really important, because
different types of credit suit people in different situations. Sometimes no credit at all is the best option.
Activity 2.6: Different types of credit for different purposes
Level Duration Resources needed
2 15 mins Worksheet 2.6
This activity asks the students to compare different types of credit to conclude that:
• Some are more expensive than others
• Different types are suitable for different purposes
This activity is best done with a number of students but will also work for just one student.
Step one
Divide students into five groups. Give each group a description of one type of credit to review from the
worksheet. Ask which group has ‘Secured loan’ and ask for one person in that group to explain the type of
credit in their own words. They may need help with this, and you may need to make sure the people
listening understand what they hear.
Step two
Ask which group has an ‘Unsecured loan’ and ask for one person in that group to explain the type of credit
in their own words. They may need help with this, and you may need to make sure the people listening
understand what they hear.
Step three
Ask students the following question: What’s the difference between a ‘secured loan’ / ‘unsecured loan’?
Suggested answers
A ‘secured loan’ is a loan for which an asset of yours has been used as security. An ‘asset’ is something
you already own – such as your car or your home. The credit provider may sell the secured asset to get its
money back if you can’t repay the loan.
An ‘unsecured loan’ is a loan for which no asset has been used as security. An ‘asset’ is something you
already own – such as your car or your home. The interest rate is usually higher than for a secured loan
as there is a higher risk to the credit provider of not getting their money back.
Step four
Ask one person in each of the remaining groups to explain the type of credit in their own words. They may
need help with this, and you may need to make sure the people listening understand what they hear.
Step five
Ask students the following question: What’s one difference between a credit card and a store card?
Page 11 of 35 moneysmart.gov.auTopic 2: Credit and debt
Suggested answers
Lesson plan 1: Credit and debt
A store card can often only be used to buy things in the store you got the card from, and sometimes other
stores. The interest rate is usually higher. This means it’s more expensive.
Step six
Ask students the following question:
Which type of credit would be best for each of the following?
• Buying a pair of shoes
• Buying a car
Suggested answers
• Credit card, store card or BNPL
• Personal loan
Note: If store card is suggested, point out that the interest rate will probably be higher and that it would be
a good idea to check the fees and charges and compare them with credit cards.
Check for understanding
After completing the activities, you can check the students’ level of understanding and knowledge by
asking questions such as:
• What are some of the different types of credit?
A: Credit cards, store cards, BNPL services, personal loan, home loans, small amount loans.
• How are different types of credit used?
A: Different types of credit can be used for homes, cars or other purchases.
• How can having credit cause you financial problems?
A: Too much credit can cause financial problems if you can’t pay back your debts.
Page 12 of 35 moneysmart.gov.auTopic 2: Credit and debt
Lesson plan 1: Credit and debt
Sub-topic: Credit contracts
Key messages
• A contract is a legal agreement
• Do not sign anything you do not understand
• You may not be able to cancel a contract just because you change your mind
• Get help to understand the contract.
Notes for the educator
When you get credit, you will need to sign a credit contract. A contract is a legal agreement of what it says.
Before you sign up for credit you should read the contract and make sure you can afford the repayments.
It’s essential to know what you’re signing up for, whom you’re getting the credit from, and how they are
charging you. You do not want to end up with a poor credit rating.
When you sign up for credit, you are committing to a contract between you and the credit provider. A
contract is a legal agreement and you have to take it seriously. You may not be able to cancel it – it
depends on the detail of the contract and the circumstances.
If you don’t understand everything in a contract, or you’re not sure about how a contract suits your
situation, get advice from someone who can help.
Page 13 of 35 moneysmart.gov.auTopic 2: Credit and debt
Lesson plan 1: Credit and debt
Activity 2.7: Red-flagging cost items in a credit card offer
Level Duration Resources needed
2 20 mins • Video: Credit hangover (6:17 mins)
• Worksheet 2.7
This activity is based on the video Moneysmart Rookie: Credit hangover. It will help the students avoid
rookie errors when considering the use of credit.
It will also help people think through whether they should accept a particular credit option.
Step one
Before the students watches the video, Ask students the following question:
Suppose you buy something on credit for $2,000 and the interest rate is 18.5%, and you pay back $50
each month. Guess the total amount of interest you will pay while you’re paying back that $2,000?
Note: If students need some guidance, you could give them the following amounts to choose from:
1. a $300
b $600
c $900
d $1,200
Encourage the students to suggest an amount but don’t give them the correct answer – let them discover
it for themselves by watching the video.
Step two
After watching the video, ask students: What is the amount of interest you would pay back?
Answer
Approximately $1,200
Step three
Hand out the copies of the Credit card special offer advertisement in the worksheet.
Ask students the following questions:
1 What parts or words in the contract should Chloe have asked questions about before signing up for
the credit card?
2 Draw a red flag over words that you need to be careful of or do not understand (or call out if there
should be a red flag as you read out the content of the advertisement).
Suggested answers
1 Need to add the words in once we get the activity sheet
2 The following should be flagged:
• 0% interest on all purchases for the first 6 months*
• Low interest for purchases
• No annual fee for first year
• Reward points
• *Does not apply to cash advances
Page 14 of 35 moneysmart.gov.auTopic 2: Credit and debt
Activity 2.8: Asking questions about the red flags
Lesson plan 1: Credit and debt
Level Duration Resources needed
3 15 mins This activity builds on Activity 2.7.
Video: Credit hangover (6:17 mins)
Step one
Ask students the following question:
Once the ‘red flags’ for Chloe have been identified:
1 For each ‘red flag’, what question do you think Chloe should have asked the credit provider or done
further research on before signing up for the credit card?
Suggested answers
2 What do I have to pay interest on in the first 6 months?
What interest do I have to pay on purchases once the 6 months is over?
What are the annual fees after the first year?
What can I get with my reward points?
What interest do I have to pay for cash-advances on this credit card once the 6 months is over?
Activity 2.9: Understanding a contract
Level Duration Resources needed
3 20 mins Can build on Activity 2.8 (as necessary)
Worksheet 2.9
This activity can be used to build on Activity 2.8, or it can be used separately.
The aim of the activity is to help the students to realise that contracts can be hard to understand.
It’s important to get help to understand a contract before signing it.
Extract from credit card contract
“Annual Fee waived in the first year and in each subsequent year if you have spent at least $1,000
(purchases and cash advances only) on your credit card account in the previous year.”
Step one
Ask students to read the sentence and:
• Pick out any words they don’t understand
• Ask themselves if they understand what the whole sentence means.
Step two
Ask students the following question:
What are some of the meanings of the words that have been chosen?
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Suggested answers
Lesson plan 1: Credit and debt
Annual fee – the fee you pay each year for having the credit card (it’s the same amount each year)
Waive – to put something aside (in this case, it means the annual fee won’t be charged)
Subsequent – the one that comes next
Purchases – things you pay for using your card
Cash advances – cash that you get using your credit card (e.g. from an ATM)
Previous – the one that came before
The whole sentence – In the first year you have the credit card, you won’t have to pay the annual fee.
If you spend at least $1,000 in the first year using your credit card, you won’t have to pay the annual
fee in the second year. And so on. You can spend $1,000 by paying for things with your card or using
your card to get a cash advance.
Step three
Point out that each contract has a lot of sentences, which means that a contract can be difficult to
understand.
Point out that a contract is a legal agreement – which means you have legal obligations if you sign one.
An example of a legal obligation is meeting your repayments on time. Not meeting legal obligations can
create legal problems for you.
Ask students the following question:
What would you do if you didn’t understand a contract?
Suggested answers
• Never sign a contract if you don’t understand it.
• Always ask questions if you’re not sure about something. Don’t rely on the credit provider to
explain it.
Step four
Ask students the following question:
Who could you ask to help explain the contract to you?
Suggested answers
• Parent
• Other relative
• A free financial counsellor
• Teacher or youth group person (or similar)
• Friend
Emphasise the importance of asking more than one person if necessary until you understand.
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Check for understanding
Lesson plan 1: Credit and debt
After completing the activities, you can check the students’ level of understanding and knowledge by
asking questions such as:
• What are some of the things to check or ask about in an advertisement?
A: Interest rate for purchases
Interest rate for cash advances
Fees
Any periods that are ‘free’ of interest or fees
• What does an asterisk (*) mean in an advertisement?
A: It means there is more information about that point somewhere in the advertisement
(usually at the bottom).
Page 17 of 35 moneysmart.gov.auTopic 2: Credit and debt
Sub-topic: Problems with credit
Lesson plan 1: Credit and debt
Key messages
• Get help if you are experiencing financial difficulties
• You may have legal problems by not paying what you owe
• There may be long term effects if you do not pay what you owe
• You may affect your credit rating if you do not meet your financial obligations.
Notes for the educator
It’s important to get help if you are experiencing financial difficulties.
If you fail to repay your loans or credit card debts, your credit rating may be affected which may make it
difficult to borrow money in the future.
A credit reporting agency will have a credit report on a person if the person has:
• Applied for credit in the past 5 years
• Paid a bill (for utilities, a mobile phone or the internet) or made a repayment on credit at least
60 days late (that debt can be as little as $100)
Credit providers use credit reports to help them decide whether to provide a person with credit. If the credit
report reveals a poor history of repayment, they’ll consider you a credit risk and may not lend you the
money.
Failing to repay debts can have long term effects. A poor credit rating can take some time to fix. You may
also have legal problems by not repaying what you owe.
You have options available if you are having difficulty making repayments. Contact your credit provider
without delay to see how they can help you. For example, you could negotiate an agreed repayment plan
until your debt is paid off. A free financial counsellor can help you with this negotiation.
If your circumstances change, you may be able to ask your credit provider for a ‘hardship variation’. For
example, you may not be able to make your repayments due to temporary illness or unemployment. A
hardship variation means the credit provider can agree to change the way you make repayments to make
them more affordable for your situation.
You do not have to go it alone; there are free financial counselling and legal services available to help.
*Teacher tip: Be aware that discussion of credit and debt may be a sensitive issue for some families or
communities.
Activity 2.10: Chloe makes a rookie error and gets help
Level Duration Resources needed
2 20 mins Video: Credit hangover (6:17 mins)
This activity is based on the Moneysmart Rookie: Credit hangover video. It will help the students think
about ways credit can cause problems, and how they can get help.
Step one
Ask students to watch the video from start to finish and look out for Chloe’s rookie error. Then ask the
following questions:
Page 18 of 35 moneysmart.gov.auTopic 2: Credit and debt
1. What rookie error did Chloe make?
Lesson
2.plan 1: Credit
What and did
problems debtthat rookie error cause future Chloe?
3. Who did Chloe end up going to for help and how did they help her?
Suggested answers
1. Chloe signed up for a car loan and lots of different credit cards and spent too much money on
them. She ended up $20,000 in debt.
2. Chloe had trouble paying off all her credit cards and ended up with a bad credit rating, so it
made it hard for her to get a home loan in future. She is still paying off her credit cards so she
has less money to live on than before.
3. She went to a financial counsellor who helped her set up a budget and a repayment plan so she
can pay off her debts bit by bit.
Note: Most young people won’t know what a ‘financial counsellor’ is. It is suggested that you use the
following information to explain.
A financial counsellor is a person who “gives free, confidential and independent assistance to people
with financial problems. Financial counselling services are usually provided by community or welfare
organisations”.
The local council where a person lives may be able to suggest a local organisation that provides financial
counselling services. If the young person is confident enough, they can call the Financial Counselling
hotline on 1800 007 007 to speak to a financial counselling service in their area.
A financial counsellor can help a person make a budget or help them negotiate with a financial institution,
company or a debt collector for more time to pay or a repayment plan that the young person can afford.
Financial counsellors are free and young people can find their local service on the Moneysmart website.
If a company takes a young person to court for a debt, the young person should contact a lawyer from a
local community legal centre for free legal advice. To find their local community legal centre, young people
can contact the National Association of Community Legal Centres at www.naclc.org.au
Activity 2.11: How Chloe could have ended up with legal problems
Level Duration Resources needed
2 15 mins This activity builds on Activity 2.10.
Video: Credit hangover (6:17 mins)
The Moneysmart Rookie: Credit hangover video will help students understand that there can be legal
consequences if they do not pay what they owe.
Note: If time has passed since the students did Activity 2.11, you will need to remind them of the story in
the video or watch it again.
Step one
Ask students the following question:
What could have happened to Chloe if she had not contacted a financial counsellor to arrange a
repayment plan with the credit provider?
Suggested answer
If Chloe fell further and further behind with her repayments and she didn’t contact the credit provider about
it, the credit provider may organise a debt collector to contact Chloe about repaying the debt. She would
Page 19 of 35 moneysmart.gov.auTopic 2: Credit and debt
probably end up with a bad credit rating and the default on her loan would most likely be listed in her credit
Lesson
report. plan 1: Credit and debt
Step two
Ask students the following question:
What legal problems could Chloe then end up with?
Suggested answer
The credit provider could take legal action to try to get the money from Chloe and/or take back what she
had bought. Chloe’s bad credit rating could cause other credit providers to refuse her credit in future.
Check for understanding
After completing the activities, you can check the students’ level of understanding and knowledge by
asking questions such as:
• What sort of situation can lead to problems paying back credit?
A: Too much credit
A decrease in income
Unexpected expenses
• Where can you go for help?
A: Financial counsellor
Page 20 of 35 moneysmart.gov.auTopic 2: Credit and debt
Lesson plan 1: Credit and debt
Worksheets: Credit and debt
Worksheet 2.2: Amy and Maria make different decisions
NAME:
Amy Maria
Hi, I’m Amy. I hate waiting for things so when I Hi, I’m Maria. People tell me I take ages to do things
decide on something I want - I want it now! Like this but it’s because I like to really think before I act
laptop I bought last week for $599. I can use a when it comes to big decisions. Take this laptop I
computer at the library but it’s so much more bought last week for $599.
convenient having your own laptop.
I figured out how much I needed to save to buy the
I signed up for an interest free deal at the store and model I wanted about a year ago and I put away a
there’s 0% interest for 12 months. I probably won’t bit of money each week until I could afford to buy it.
be able to pay it off within 12 months, but I’ll just The laptop I wanted wasn’t on the market anymore,
worry about the high interest rates later, when the but I ended up getting a newer model for the same
12 months is up. price. It was a hassle not having my own laptop for
so long, but it was worth the wait.
Questions
1 How would you describe Amy’s personality?
2 How would you describe Maria’s personality?
3 What are the pros and cons of Amy’s situation?
Page 21 of 35 moneysmart.gov.auTopic 2: Credit and debt 4 What are the pros and cons of Maria’s situation? Lesson plan 1: Credit and debt 5 Who do you think is making the better financial decision? Why? Page 22 of 35 moneysmart.gov.au
Topic 2: Credit and debt
Lesson plan 1: Credit and debt
Worksheet 2.3: Tom uses different types of credit
NAME:
Tom’s story
Tom got into the course of his dreams, but he needed to buy a computer and arrange internet access to
be able to do the course. Also, he had to travel a long way to classes and there was no public transport
there from his house. So, he applied for a personal loan to buy a second-hand car.
He got a credit card to pay for the computer and he signed up for a 24-month internet contract. Now he’s
six months into his course and he has financial troubles. He is managing to keep up with his personal loan
repayments, but he doesn’t have much money left over for the credit card repayments and the internet
bills, which are both now three months overdue.
Questions
1 What are the different types of credit or service plans Tom got to help him study?
Worksheet 2.4: Tom ends up with repayment problems
Credit reports: A credit reporting agency will have a credit report on you if you have:
• Applied for a personal loan or credit card in the past 5 years
• Signed a mobile phone contract
• Paid a bill of as little as $100, at least 60 days late
Credit providers use credit reports to help them decide whether to provide a person with credit. If the credit
report reveals a poor history of repayment, they’ll consider you a higher credit risk. The credit provider
may not lend you any money if you are considered too high a credit risk.
Questions
1 What would help Tom receive a good credit rating in this situation?
2 What are the benefits for Tom in the future by getting a good credit rating?
3 What would cause Tom to get a bad credit rating in this situation?
4 What kinds of problems will a bad credit rating cause Tom in the future?
Page 23 of 35 moneysmart.gov.auTopic 2: Credit and debt
Lesson plan 1: Credit and debt
Worksheet 2.6: Different types of credit for different purposes
NAME:
Credit card A credit card is a plastic card that you use to buy things on credit or to get cash
advances.
If you buy something, you have to pay interest on the loan after a certain period.
A cash advance is cash withdrawn from a credit card account. It’s really a loan from
your credit card company. A transaction fee is usually charged for this, as well as
interest which is from the date the cash is withdrawn and at a higher rate.
This is an unsecured loan.
Store card A store card is a form of credit card offered by large stores for you to buy things from
their store (and sometimes from some other stores too). Store cards are used like
regular credit cards but usually charge much higher interest rates.
This is an unsecured loan.
Buy now pay later Buy now pay later services, like Afterpay, Humm or zipPay, let you pay for something
in instalments. You might pay every fortnight, instead of paying the full amount upfront.
You don't pay interest on the purchase. Instead you’re charged fees. It’s easy to
overspend or lose track of how much you owe. So, make sure you can afford the
repayments.
Personal loan Personal loans allow you pay for one-off big-ticket items like a car.
The contract says what the interest rate is and the period of the loan (usually 2 to 7
years). You pay the same amount each month so that, by the end of the loan period,
the total amount has been paid back (including interest).
A personal loan can be secured or unsecured.
Secured loan A loan for which an asset of yours has been used as security. An ‘asset’ is something
you already own – such as your car or your home. The credit provider may sell the
secured asset to get its money back if you can’t repay the loan.
Unsecured loan A loan for which no asset has been used as security. An ‘asset’ is something you
already own – such as your car or your home. The interest rate is usually higher than
for a secured loan as there is a higher risk to the credit provider of not getting their
money back.
Page 24 of 35 moneysmart.gov.auTopic 2: Credit and debt Lesson plan 1: Credit and debt Worksheet 2.7: Red-flagging cost items in a credit card offer NAME: Page 25 of 35 moneysmart.gov.au
Topic 2: Credit and debt Lesson plan 1: Credit and debt Worksheet 2.9: Understanding a contract NAME: This is a sentence taken from a real credit card contract. “Annual Fee waived in the first year and in each subsequent year if you have spent at least $1,000 (purchases and cash advances only) on your credit card account in the previous year.” Page 26 of 35 moneysmart.gov.au
Topic 2: Credit and debt
Additional lesson 1: Credit — friend or foe?
Lesson plan 1: Credit and debt
• Year level: Year 9 and 10
• Duration: 60 minutes
• Key learning area: English, Mathematics, Economics and business
Lesson description
Students explore and investigate the diversity of consumer rookie errors associated with using a credit
card to purchase goods and services. Learning begins with watching the Moneysmart Rookie: Credit
hangover video. Students then discuss and reflect on the pros and cons of credit cards, interest charges
and where to seek assistance with managing credit card debt and repayment issues.
In the second part of the lesson students complete an activity worksheet to investigate the necessary
precautions and knowledge to avoid making credit card rookie errors.
Long-term understanding/deep learnings:
• Making informed and responsible choices around using a credit card and other credit products to
purchase goods and services.
• You can save money and avoid common 'rookie errors' if you research credit card options,
services and interest rates.
• If credit and debt issues arise you can seek help from your credit provider. A free financial
counselor can also help.
Additional activity 1(a): Moneysmart Rookie - ‘Credit hangover’ video
Level Duration Resources needed
N/A 15 mins Video: Credit hangover (6:17 mins)
*Teacher tip: Be aware that discussion of credit and debt may be a sensitive issue for some families or
communities.
Task 1: Discussion
Watch the Moneysmart Rookie 'Credit hangover’’ video in class and ask students to pair up and identify at
least three key messages mentioned in the 'Credit hangover' video. Ask each pair for their main
message. Write these statements on the board. If there is a double-up, tick the statement. The expected
responses may include:
• Credit is borrowed money that you must pay back with extra costs such as interest, fees and
changes
• There are different types of credit products including credit cards, personal loans
• Credit can be useful, but if not managed properly you can run into trouble
• It is important to have a good credit report
• You need to pay bills on time
• Wait before you decide to spend money to avoid impulse buying
• Don’t just stick with the minimum repayments on your credit card.
• Increasing credit card or loan repayments will save money
• You can get help when you run into credit card debt and repayment issues.
Page 27 of 35 moneysmart.gov.auTopic 2: Credit and debt
*Teacher tip: Only give groups two or three minutes to discuss their key messages
Lesson plan 1: Credit and debt
Additional activity 1(b): What do you know about credit?
Level Duration Resources needed
N/A 25 mins • Video: Credit hangover (6:17 mins)
• Credit and debt page on Moneysmart
• Additional worksheet 1(b)
Task 1: What do you know about credit?
Students apply the information from the Moneysmart Rookie 'Credit hangover' video and the ‘Credit and
debt’ page on Moneysmart to help with these questions.
1. What is credit?
2. List different types of credit.
3. Why would anyone need a credit card?
4. Why is it the case, that if you paid $5,000 for a used car using your credit card and only made
the minimum repayment every month, that it might take more than 35 years to repay the
original loan and it would cost more than $18,000?
5. What is a credit report?
6. What might happen if you get a bad credit report?
7. What can you do if you experience credit card debt or loan repayment difficulties?
8. How do you work out how much credit you can afford?
9. Explain what happens if you pay the entire amount owed on a credit card by the due date.
10. Explain what happens if you only pay the minimum balance owed each month on a credit card.
Task 2: Discussion
Discuss answers with students. Suggested responses are:
• Credit is borrowed money that must be paid back after you use it along with any interest, fees and
charges that may apply.
• Different types of credit include credit cards, store cards, personal loans, interest – free deals and
home loans.
• The amount you can borrow will depend on your income, your expenses and what you can afford
to pay back
• Credit cards can be useful for making purchases online, overseas or when you don’t have cash
especially if you can pay them off by the due date which is an interest free period.
• It might take more than 35 years to repay an original loan of $5000 if you only made the minimum
repayment every month because of interest and it would cost you more than $18,000.
• A credit report details your credit history, including every time you have applied for credit,
defaulted on a repayment and missed a payment. It is held by a credit reporting agency.
• If you happen to get a bad credit report it may affect your chances of getting other loans in the
future, such as for a car or house.
• Contact your credit provider if you have a problem with repayments. Free financial counselling is
available if you run into problems with credit. A financial counsellor can help you work out a
repayment plan.
Page 28 of 35 moneysmart.gov.auTopic 2: Credit and debt
Additional activity 1(c): Managing a credit card
Lesson plan 1: Credit and debt
Level Duration Resources needed
N/A 15 mins Video: Steve gets his first credit card (1:02 mins)
Task 1: Case study: Steve gets his first credit card
Watch the video Steve gets his first credit card and ask students to identify the issues with Steve's
decision to put an expensive trip on his credit card. Then ask them what steps Steve took to help
manage his credit card debt and avoid a poor credit rating. Answers should include:
Where Steve went wrong:
• Paid for his trip using a credit card and then couldn't meet the repayments
• Would have paid more for the trip by putting it on a credit card
• Had only been working for six months so no savings behind him in case something happened
such as losing his job
• Had a credit card with a high interest rate
• Applied for the credit card online and didn't understand what he was signing up for
What Steve did to manage his debt:
• Talked to his credit provider to explain that his circumstances had changed and that he had lost
his job
• Saw a financial counsellor and worked out a repayment plan
• Avoided a poor credit rating
After discussion, ask students How can you make credit work for you? As outcomes of the discussion
emphasise:
• that credit cards can be useful if used wisely and paid off within the interest free period
• always do your homework and 'shop around' before you sign up for any credit product.
Additional activity 1(d): Reflective/summative activity
Level Duration Resources needed
N/A 5 mins N/A
• List three new things that you learned today about credit cards and/or debt?
• In your opinion, which of these components is the most important to you?
Page 29 of 35 moneysmart.gov.auTopic 2: Credit and debt Lesson plan 1: Credit and debt Additional worksheet 1(b): What do you know about credit? NAME: Using the ‘Credit hangover’ video, answer the following questions: 1. What is credit? 2. List different types of credit. 3. How do you work out how much credit you can afford? 4. Why would anyone need a credit card? 5. Explain what happens if you pay the entire amount owed on a credit card by the due date. 6. Explain what happens if you only pay the minimum balance owed each month on a credit card. 7. Why is it the case that if you paid $5,000 for a used car using your credit card and only made the minimum repayment every month, that it might take more than 35 years to repay the original loan and cost you more than $18,000? Page 30 of 35 moneysmart.gov.au
Topic 2: Credit and debt 8. What is a credit report? Lesson plan 1: Credit and debt 9. What might happen if you get a bad credit report? 10. What can you do if you experience credit card debt or repayment difficulties? Page 31 of 35 moneysmart.gov.au
Topic 2: Credit and debt
Additional lesson 2: Credit and debt — the
Lesson plan 1: Credit and debt
fine print
• Year level: Year 9 and 10
• Duration: 60 minutes
• Key learning area: English, Mathematics, Economics and business
Lesson description
Students will continue to explore and further investigate the previously identified range of rookie errors
associated with credit cards by revising their learnings from the previous ‘Credit and debt’ lesson.
In the second part of the lesson, students complete activity worksheets to delve more deeply into the
underlying complexities of the financial pitfalls of credit and debt. Students are shown where they can find
information to get help when credit card debt issues arise. They also review the credit card calculator on
Moneysmart, which may be a useful tool for anyone with credit card debt.
Long-term understanding/deep learnings:
• You can save money and avoid common 'rookie errors' if you research credit card options,
services and interest rates.
• If credit and debt issues arise you can seek help from your credit provider. A free financial
counsellor can also help.
Additional activity 2(a): Revision
Level Duration Resources needed
N/A 15 mins Whiteboard / projector
Task 1: Quick revision quiz
Ask students the following questions and write their responses on the board as you receive them.
*Teacher tip: Copy the following questions into a PowerPoint and display them on the projector or TV
screen.
1. What is credit?
2. List three different credit products.
3. Can you get help if you are experiencing difficulties with credit cards or with loan repayments?
4. Should you stick with the minimum payments on your credit card? If not, why?
5. What is a credit report?
Task 2: Discussion
Brief discussion centred on the responses from students, which should include:
• Credit is borrowed money that you must pay back.
Page 32 of 35 moneysmart.gov.auYou can also read
