I want a credit card--or do I?

SCORE Mathematics

Standards Connections

I want a credit card--or do I?

Introduction: Credit cards seem like a great way to pay for things. It only takes a small payment each month to buy whatever your heart desires. You can charge $1000.00 for the paltry sum of $25.00 per month. But, will you still be paying when the thrill is gone?

Prior Knowledge: Students must be able to work with percents and make pie charts. If students can work with formulas and exponents, they can do the extensions.

Grade Level: 6 and 8-12

Task: Students will pretend to borrow $1000.00 on a credit card. They will pretend to make the minimum payments for a year. When they're done, they will make a pie chart showing how much of their payments reduced their debt, and how much was interest.

Resources:
The Credit Card Advisor http://www.banx.com/creditcard.asp
GromCo Credit Card Advisor http://www.gromco.com/cca/list.html
ABC Guides--Credit Cards http://www.abcguides.com/creditcards/ccina.htm
The above resource gives rates and fees for a variety of credit cards.

Student Worksheet (html) / (pdf)

Process: Students need to come up with an annual interest rate and list of fees for their credit card. Assume a charge of $1000.00 and minimum repayment terms of 2.5% per month. Students need to convert the APR into a monthly rate. The student will work through 12 months of payments adding the interest and other charges and deducting the payment. Then they will find the total of their payments and how much of that amount was interest and how much was principal. Next the students should make a pie chart showing what percent of their payments went to principal and what portion went to interest and other charges. Discuss the pros and cons of credit.

Learning Advice: Introduce students to the language--principal, APR, etc. before the lesson. Advanced students could use amortization and interest formulas.

Evaluation: Students will be evaluated based on the accuracy of their computations and graph.

Extensions: Have the students try paying off their debt at the rate of 5% and 10% per month. Have the students figure out how long it would take to pay off their debt if they only make minimum payments, pay 5%/month or pay 10% per month. Does it take 4 times as long to pay off your debt at 2.5% as it does at 10%?

Conclusion: Depending on the level of the student, they will have had practice working with percents and decimals. They may have had practice working with exponential growth formulas. They will have had practice making pie charts. Hopefully, they will have gained some insight into credit management.

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California Mathematics Academic Standards:

Grade 6:
Algebra and Functions
1.0 Students write verbal expressions and sentences as algebraic expressions and equations; they evaluate algebraic expressions, solve simple linear equations, and graph and interpret their results.
1.1 write and solve one-step linear equations in one variable

Grade 8-12:
Probability and Statistics
8.0 Students organize and describe distributions of data by using a number of different methods, including frequency tables, histograms, standard line and bar graphs, stem-and-leaf displays, scatterplots, and box-and-whisker plots.

Mathematical Analysis
7.0 Students demonstrate an understanding of functions and equations defined parametrically and can graph them.

NCTM 9-12:

STANDARD 1: MATHEMATICS AS PROBLEM SOLVING
STANDARD 2: MATHEMATICS AS COMMUNICATION
STANDARD 3: MATHEMATICS AS REASONING
STANDARD 4: MATHEMATICAL CONNECTIONS
STANDARD 5: ALGEBRA