Practical Money Skills

Workbook
Smart Tips for Better Money Management
Getting Started Table of Contents

Whether you are just starting out on your own or you’ve been managing
Budgeting Basics 2
your own money for years, basic budgeting, saving and credit skills Mastering Your Money 2
can help you gain control over your financial future. This workbook is Making a Plan 5
designed to help you learn basic budgeting skills and understand how Monthly Expense Tracker 6
financial services and products work so you can manage your money Balancing Your Budget 8
with confidence.
Online and Mobile Banking 10
The earlier you start using good money management practices, the easier Your Money and Online Banking 10
it will be to stick with them and the more positive impact you’ll have on Cashless Payments 12
your financial future. This workbook provides an opportunity to become
better at managing your money starting today, so you can enjoy life, free Checking Account 14
of undue financial stress. Getting Started: Banking Options 14
Good Record-Keeping 17
That's why Visa has put together this program. We want you to understand
the basics of managing money wisely. Our hope is that after you complete Debit Cards 18
this workbook, you'll have a better understanding of living within a budget, Debit Versus Credit: What’s the Difference? 18
the nuances of banking and how to handle credit responsibly — skills Things to Remember 19
that can help you create a more secure financial future.
Savings Account 20
Saving for a Rainy Day 20
Savings Worksheet 21

Understanding Credit 22
What is a Credit Score? 22
How to Improve Your Score 24
Credit Cards – Know Your Limit 25
Take Care with Credit 28

Test Yourself 32
Glossary of Terms 34
Online Resources Back Cover

Practical Money Skills Workbook 1

Budgeting Basics

Mastering Your Money Six Saving Ideas

If you find you are spending more than you make, now is the time to start spending less
In order to manage your money, you need to have a plan. That is why creating a budget,
and setting aside more. Here are a few of the many ways you can save.
and sticking to it, is a critical foundation for financial order and stability. By tracking
your income and expenses, you will be better able to distinguish between needs and > Pay yourself first: Determine a set amount of money to put away every month and
wants and ensure that you’re living within your means. treat it like any other bill. Put away part of every paycheck — ideally at least 10-15%
— and watch your savings grow.
Know Your Income
The first step in this process is to know how much you make, including your salary, > Save on food: Plan out the week's meals with your budget in mind. Try making dishes
wages and tips. Figure out how much you have coming in each month and use the that rely on the same staples to save on your grocery bill. Just make sure to mix things
chart below to track your monthly income. Make sure to include only income you can up so you won’t get bored; this could make you more likely to splurge on eating out.
count on — no gifts or bonuses.
> Reconsider coffee: That daily coffee run could be costing you over $850 per year,
Income Estimated Amount Actual Amount not including tip. Cutting back on these small daily expenses or purchasing an
Income #1 inexpensive coffee maker could help you save in the long run.
Income #2 > Save your windfalls: Did you receive an unexpected bonus at work, an inheritance
Other Income or a tax refund? Instead of depositing the money into your checking account where
Total you may be likely to spend it, put some or all of it into your savings account for safe
keeping.
Total Income
> Visit your local library: Save money by borrowing books from your library instead of
buying them. Most libraries have e-books and movies you can stream online so you
Tip: You can track your expenses using personal finance don’t even have to leave home to enjoy them.
budgeting apps, which make budgeting more convenient > Weatherproof your home: Visit your local hardware store to buy supplies to fix
than ever. drafty windows that may be letting warm air out in the winter and cool air out in the
summer, a factor that could be impacting your utilities bill.

> Share living expenses. Living with a roommate is a great way to cut monthly costs
Tracking Your Expenses in half.
Tracking your expenses is another key step toward financial responsibility. To begin,
get receipts or take note of everything you spend over the month and record it weekly > Get the best rates. Compare costs from different insurance companies to ensure
in the Budgeting Worksheet on page 9. Many people are surprised how unplanned you’re getting the best rate.
purchases can add up. By making a habit of tracking your expenses, you can see where > Plan for big expenses. Try to put money aside when you know big expenses, like
your money is going, curb unnecessary spending and increase your savings. holiday gifts, a car repair or a family trip, are coming up.

> Use credit wisely. Carefully consider how quickly you can pay off purchases before
using credit, as high monthly payments can take a toll on your budget.
2 Practical Money Skills Workbook Practical Money Skills Workbook 3
Budgeting Basics

Consider sharing living

Making a Plan
expenses with a roommate. Make a list before Track your expenses for a month with the worksheet on pages 6 and 7. Look at all
It’s a great way to cut shopping for groceries. of your expenses by category, estimate your monthly income, see what you’ve spent
monthly costs in half. Compare costs from It will help you avoid and make a spending plan for the coming month. Tracking your expenses will allow
different insurance pricey impulse buys.
companies. you to compare your discretionary purchases (items you want) to non-discretionary
purchases (items you need) so you can cut back on unnecessary spending and
increase your savings. (See example on the opposite page.)

Make sure to balance your budget every month to ensure you’re not spending more
than you’re making. If you find you’re spending too much on discretionary purchases
like entertainment or clothes, you can cut back the next month. Keep in mind that
non-discretionary expenses, like housing and utility bills, will take a little more planning
to reduce. If you find the process difficult at first, don’t worry. A personal budget is a
work in progress, and spending within your budget will soon become second nature.

Budgeting to Meet Your Goals

> Prioritize your savings goals. Consider what you would like to achieve financially,
whether it’s making a down payment on a house, going on a summer vacation or
paying off your credit card debt.

> Set short-term, medium-term and long-term goals. Short-term goals, like setting up
an emergency fund, require less than six months to achieve; medium-term goals, like
buying a car, take six months to a year; and long-term goals, like saving for retirement,
take longer than a year.

> Consider what you need to do in order to accomplish these goals within your
projected time frame. You can set monthly savings goals to help you work towards
your end goal over time.

Budgeting Apps
Consider looking into free budgeting apps, which allow you to link your bank account
and separate your expenses into different categories like rent, loans, groceries and
entertainment costs. You can set a budget for each category to keep your expenses
Use credit cards with care. organized and controlled.
High monthly payments can
impact your budget.

4 Practical Money Skills Workbook Practical Money Skills Workbook 5

 Budgeting Basics

Monthly Expense Tracker

Expenses Week 1 Week 2 Week 3 Week 4 Expenses Week 1 Week 2 Week 3 Week 4
Rent Doctor
Utilities Dentist

Medical
Cable Eyes
Living

Cell Phone Insurance

Internet Prescriptions Monthly
Furnishings Misc. Total
Monthly
Misc. Total Total
Total Entertainment
Car Payment Clothing

Personal
Insurance Laundry
Transportation

Fuel Toiletries Monthly

Parking Misc. Total
Repairs Total
Public Transportation Groceries
Monthly
Misc. Total Dining Out

Food
Total Snacks Monthly
Childcare Misc. Total
New Parents

Clothing Total
Food Loans
Healthcare Other Credit Cards
Monthly
529 Plans Total Savings Monthly
Total Misc. Total
Total

6 Practical Money Skills Workbook Practical Money Skills Workbook 7

Budgeting Basics

Balancing Your Budget Income Estimated Amount Actual Amount

Once you get in the habit of tracking your expenses, you’re ready to start balancing Income #1
your budget. Take a look at how much you’re spending every month in each category. Income #2
This will give you a clear picture of where your money is going, so you can see whether Other Income
you’re making more than you’re spending. Balancing your budget can also help you
Total
reduce your spending in one category to cover upcoming needs or wants in another.
For example, if you anticipate needing a repair made to your car, you can cook at home Total Income
a few more nights a week instead of eating out in order to pay for the repair without
exceeding your budget. You can also consider getting an extra source of funds, like
taking on a side gig in your spare time, to supplement your income so you can cover Expenses Estimated Amount Actual Amount
extra expenses without compromising your budget. Living
Transportation
Budgeting Worksheet
This budget worksheet will help you set up your personal budgeting system. Enter your New Parents
estimated income and expenses in the first column. After a month, compare the totals Medical
to your actual expenses and income. How far off were you? If you’re spending beyond Personal
your means, make adjustments and track your spending again the next month. Food
Other
Total
Tip: Set aside 15 minutes each week to make sure that Total Expenses
your expenses are matching up with your online bank
statement and that your budget is on track.
Total Income Total Expenses Net Income

– =
To use our online Budget Planner,
visit practicalmoneyskills.com/reworkbudget

8 Practical Money Skills Workbook Practical Money Skills Workbook 9

Online and Mobile Banking

Your Money and Online Banking Funds Transfer

One of the best qualities of online banking is that it allows you to transfer funds
Online and mobile banking are convenient and valuable because they can help keep
electronically, which eliminates the risk of someone stealing your checks from the
you aware of your spending with just a few clicks. Just remember that it’s important to
mail. You can transfer money between your personal accounts and outside accounts,
keep track of debits and deposits that may not have cleared yet on your online banking
such as car loans, credit cards and sometimes other contacts’ accounts — like your
statement. You can also use peer-to-peer payment service apps, which allow you to
landlord’s. It may also allow family members and others to send you money instantly.
make fast, easy, cashless transactions with friends and others. For example, you can
While there are many apps and payment services on the market, utilizing your bank’s
pay back a friend for lunch or pay for a babysitter — all without a trip to the ATM or
services is convenient and safe.
waiting for a check to clear. All of these tools help you keep a closer eye on your money,
which is great for both budgeting and security. Although today’s financial institutions
You can also use automatic funds transfers to help you save more. This service allows
have sophisticated fraud protection services; the more you stay on top of your daily
you to automatically transfer a portion of your paycheck or checking account balance
transactions, the faster you can identify any suspicious activity.
into a savings account or investment fund each pay period or month. You can typically
set this up online, at your local branch or by using an investment savings app.
Bill Pay
With online banking, it’s easier to schedule and pay bills on time, and to track your
expenses quickly and efficiently. You can easily list payees such as your landlord, phone
provider or insurance company. By identifying your payee name, address and account
number (if applicable), you can send payments from your account almost instantaneously.
If you choose to, you can set up your account so bills are paid automatically at a
predetermined date or so a reminder will be sent to you when a payment is due. Many
banks will have your bills sent to you online depending on whether or not the payee
offers electronic billing.

Bill tracking apps allow you to link your bank account to pending bills so that you can
pay your landlord or utility vendors with ease. You can pay your bills directly from the
app to avoid late fees and stay organized.

Statements
Another useful feature is the ability to view your statements online, including past
statements. It’s convenient, paperless and it deters mail fraud and identity theft.

10 Practical Money Skills Workbook Practical Money Skills Workbook 11

Online and Mobile Banking

Cashless Payments
Cashless transactions offer a convenient, safe and fast way to pay. Common ways to
make electronic payments include digital wallets, wearables like smart watches and
online payments systems for digital money transfers and other transactions; these serve
as an electronic alternative to paper methods like cash and checks. A digital wallet, for
Online Banking B
example, allows you to make cashless payments from your card through your phone. enefits
More and more stores are beginning to accept payments like these.
Available 24/7
Cashless payments are often made via mobile transaction. For example, you can place Email and mobile
a mobile order before ever reaching a store or send gifts to friends and family from account alerts
your smartphone. With contactless credit and debit cards, you can tap your card at Access from any
device
a store’s checkout terminal, your card is scanned and you get confirmation that the
transaction is complete via a beep, checkmark or green light. There is no fumbling with Budgeting tools an
d
cash or waiting for change. You can also choose the way you pay, whether it’s with a automated spread
sh eets
contactless card, payment-enabled phone, smart watch or other device.
View, download an
d print online
statements

Easy fund transfe

rs
View images of ch
ecks
Anywhere access
to accounts on
smartphones and
mobile devices
Environmentally fri
endly, with
electronic, paperle
ss transactions
Bill pay feature ca
n ensure that
bills are paid on tim
e

12 Practical Money Skills Workbook Practical Money Skills Workbook 13

Checking Account

Getting Started: Banking Options About Checking and Savings Accounts

The building blocks of budgeting and online banking are your checking and savings
To open a checking or savings account, you can apply online or visit a bank or credit
accounts. Before you open accounts, it’s important to understand why they exist and
union's branch. Once your account is opened, you’ll be able to enroll in online banking
how they work. Your checking account is the central hub for your money and allows
via the bank or credit union’s website and use your login information to download and
you to access funds in several different ways: with checks, ATMs, your debit card, at
start using the mobile banking app. It’s a good idea to comparison shop across financial
banks and via online banking. Your savings account, which can also be accessed with
institutions and look for minimal fees and the best interest rates on savings, as well as
your debit card or at your banking center, is a great place to save for a rainy day or
all the tools and technology that suit your needs.
future expenses, like a car or house.

ONLINE & MOBILE DEBIT CARD

CHECKING ACCOUNT

CHECKS BANK ATM

klist
Accou nt Chec
ng
Checki Check Safety and Security
hly
ou nt mont
our acc If you are going outside of your bank or credit union to get checks printed, make sure
B alance y ansactio
ns
r au to matic tr you do your homework on a third-party check provider. A reputable check printer
ed ule fo offers security features built into the check. Items to look for are a padlock icon on the
our sch
Know y printer’s website to the left of the web address, micro printing, a security screen and
k of fee
s warning boxes that appear on the front and back of the check. Do not put private
ac
Keep tr information on checks like your Social Security Number, your driver’s license number
ures
r se c u rity feat or any unnecessary personal data.
Look out fo
e diately
activity imm
o r t su s picious
Rep

14 Practical Money Skills Workbook Practical Money Skills Workbook 15

Checking Account

Writing a Check Good Record-Keeping

While you may not need to use checks often, knowing how to write one is an important
Part of responsible financial management is good record-keeping, and with automated
skill. When you write a check, funds won’t be debited from your account until the
bill payments, this is fast and easy. Your online account is a great organizational tool,
payee cashes or deposits the check. For this reason, it’s important to keep track of any
but it can be just as important for you to keep a hard or digital copy of your finances
checks you write so that you don’t accidentally overdraw your account. Most mobile
for your own day-to-day records and budgeting purposes. Once you get in the habit
banking apps will allow you to photograph and upload the check for deposit.
of tracking expenses, it should be easier to monitor any outstanding checks you may
have written, in addition to monthly automatic payments or other pending payments.

Write out the A problem many people experience at some point in their lives is overdrawing their
amount of the account. Every time you overdraw, you incur an insufficient funds fee. One way to avoid
Write the name of the check in words. this is to stay on top of your account balance and keep good records. You can also link
person or company you’re your checking account to other accounts, such as a savings or credit account, for
paying. Never leave this overdraft protection. With this in place, money will be automatically transferred from
Put the date here.
line blank. your savings or credit account if you don’t have enough money in your checking account
to cover a check or withdrawal.

Consider including a Sign here.

note to remind you what
the payment is for.
Write the amount of
Zero cents. the check in numbers.

16 Practical Money Skills Workbook Practical Money Skills Workbook 17

Debit Cards

Debit Versus Credit: What's the Difference? Things to Remember

A debit card looks similar to a credit card whether you are presenting it for payment or How to use your debit card wisely:
using mobile banking services. It offers a lot of the same features as a credit card, but
it’s different in a few important ways. One difference is where the money is withdrawn > Look for the symbol of a processing network that indicates your card will be accepted.
from when you purchase something. A debit card is tied directly to a checking account,
so when you make a purchase with that card, money is withdrawn from your account. > Create a Personal Identification Number (PIN) that won’t be easy for others to
When you use most credit cards to purchase goods or services, the charge is made to guess. Avoid basing your PIN on the obvious — your name, address, phone number
a line of credit by the company that issued the card. One exception is secured or or birth date.
prepaid credit cards, which require you to make an initial deposit and allow you to
spend only up to 100% of the deposit amount. > Keep your PIN private and memorize it. Don’t write it down (especially on the card)
and don’t tell it to anyone.
While most credit cards allow you to purchase now and pay later, debit card transactions
are paid instantly, not in the future. When you get your monthly credit card bill, you pay > Know your current account balance. With overdraft protection, available funds will
back a portion or all of it. While credit cards have a limit on how much you can borrow, be automatically transferred from the linked account to cover purchases in the event
debit cards generally only let you access the amount of funds available in your account. you don’t have enough funds in your checking account. This can help you prevent
returned checks, declined purchases and related fees. Just note that even if you
Many of the same features and protections offered by credit cards are also offered have overdraft coverage, bouncing a check will cost you in the form of overdraft fees.
by debit cards. One example is zero liability, which means you are generally not liable
for unauthorized purchases on your debit card if you notify your financial institution > Some debit cards have transaction fees — check your cardholder agreement.
right away.
> When you get receipts, keep them somewhere secure or dispose of them carefully,
Note that different types of debit card transactions may be processed differently. Some as they contain information a thief could use to make fraudulent purchases using
debit your account within 24 hours, while others may take two to three days. your account. When it comes to financial documents such as property records, keep
them indefinitely. As for ATM receipts, deposit slips and bank statements, these can
Using your debit card, cash, check or a secured credit card for most purchases can be shredded monthly or annually.
be a good way to stay financially responsible as it can keep you from making impulse
buys. Credit cards are a convenient way to pay and can be a useful way to build credit, > Keep track of your transactions online or on mobile devices. Remember to track any
but it is best to use them for budgeted purchases you can pay off immediately. debit card fees that may apply (like when you use another bank’s ATM).

> Report lost or stolen cards to your bank immediately.

To learn more about debit cards,
visit practicalmoneyskills.com/debitcards

18 Practical Money Skills Workbook Practical Money Skills Workbook 19

Savings Account

Saving for a Rainy Day Savings Worksheet

Another key element of your financial plan is a savings account. Think of this account 1. If you put $200 in a savings account that paid 2% simple interest each year, how
as a place where you’ll keep your money long term and give it a chance to grow. While much interest would you earn in five years?
your checking account is continually fluctuating in size, your savings account should
be stable, if not growing at a steady rate. Earlier in the workbook, we mentioned
budgeting or planning to set aside 10 to 15% of your income for savings every time
you get paid. If you’re not able to save this much, consider setting aside funds that are
realistic for your budget, or adjust your spending to free up more for savings. Remem- 2. If you put $150 in a savings account that paid 1.5% compounded yearly, how much
ber that the more you set aside, the more interest you earn, and the more your money interest would you earn in five years?
grows. In addition to your overall savings, it’s a good idea to set aside money for emer-
gencies. This is called an emergency fund, and it’s meant to cover unplanned expenses
related to illness, a layoff or another unplanned event. Experts say it’s smart to build
and maintain an emergency fund with three to six months’ worth of living
expenses, so begin building yours with that amount in mind. 3. If you put $25 each month into a savings account that paid a simple interest
rate of 1.8% each year, how much would you have in your account at the end of
Compound Interest two years?
Savings accounts typically earn compound interest. Compounding means that whenever
interest is calculated, it is based not only on the original amount in the account but also
on any interest that has accumulated. The more frequently interest is compounded, the
faster the balance grows. The yearly rate at which interest is compounded is referred to
as the Annual Percentage Yield (APY). The APY measures the total amount of interest 4. If you put $10 each week into a savings account that paid 2.2% interest compounded
paid on an account based on the interest rate and the frequency of compounding. Banks yearly, how much money would you have in your account after three years? (Hint:
must provide account disclosures for new accounts that reflect the APY. Use the How Will My Savings Grow? calculator on practicalmoneyskills.com).

Simple Interest
Simple interest is based only on the original amount. If you have an account with $100
in it and it earns 2% simple interest per year, it earns $2 interest. Multiply the dollar
amount by the interest rate to get the annual return. By the end of three years, you will
have earned $6 in interest for a total of $106. Although it’s extremely rare, you may come
across accounts with simple interest as you grow older and your investments diversify. $1,594.57 (1+.022/1)^3 = $1,629.65 (after 3 years)
$1,074.57 + $520 = $1,594.57 $159.20 (1+.015/1)^5 = $161.59 (after 5 years)
$1,051.44 (1+.022/1)^3= $1,074.57 (after 2 years) $156.85 (1+.015/1)^4 = $159.20 (after 4 years)
Rule of 72 $531.44 + $520 = $1,051.44 $154.53 (1+.015/1)^3 = $156.85 (after 3 years)

The Rule of 72 can give you an approximation of how long it will take to double your
$520 (1+.022/1)^1= $531.44 (after 1 year) $152.25 (1+.015/1)^2 = $154.53 (after 2 years)
$10 x 52 = $520 $150 (1+.015/1)^1 = $152.25 (after 1 year)

money at a specified interest rate. If you’re earning 2% compound interest, divide 72 by

4. $1,629.65 2. $11.59

2. That means it will take about 36 years for your original investment to double in value $305.40 + $300.00 = $605.40 (after 2 years) $4 x 5 = $20

at a 2% interest rate.
$300.00 (1 + .018) = $305.40 (after 1 year) $200 x 0.02 = $4
3. $605.40 1. $20
Answers for the savings account worksheet:

20 Practical Money Skills Workbook Practical Money Skills Workbook 21

Understanding Credit

What is a Credit Score? When Does Your Credit Score Matter?

If you haven’t started to build your credit already, now is a good time. You can do this
> Buying a car or home: Lenders may look at your credit score before deciding
by taking out a loan or credit card in your name. The loan can be for a car, a home, a
whether you are a good risk for a car loan or home mortgage — or how much interest
credit card or a personal loan. Your performance in paying back these loans, and your
to charge if they give you the loan.
other bills in your name, will determine how your credit is graded — this grade is called
your credit score.
> Opening phone or utility accounts: Utility companies may check your credit score
before deciding whether you have to pay a deposit.
Credit reporting companies calculate scores in different ways, but all use a complex
mathematical model to take certain factors into account. Your score changes over time
>R
 enting an apartment: Landlords may check your credit report before deciding
to accurately reflect your current financial behavior. Credit reports contain your credit
whether to rent to you.
history, including things like debts, bankruptcies, unpaid bills and credit card use.
> Applying for a job: Employers typically run a credit check before making a decision
These Things Affect Your Credit Score and Report:
about whether to hire you — a good credit report demonstrates responsibility.
> Your repayment track record > How often you’ve applied for new credit
> The amount of debt you have > The types of credit you currently use How is Your Score Determined?
> How long you’ve used credit > New credit
> 35% Payment history
What’s a Good Credit Score and Why Is It Important? Whether you pay bills on time and have recently missed any payments.
In simplest terms, a credit score is a number that helps lenders determine how likely
you are to repay your debt. The higher the number, the better the score. Credit scores > 30% How much you owe
are based solely on credit history and don’t take into account things like race, religion, This includes your debt balance and the ratio of your debt to your credit limit.
national origin, gender, age, education or marital status — just numbers.
> 15% Types of credit
Your credit score is fluid. Every time you apply for, use, make or miss a payment on a Which credit cards you use and types of loans you carry are important factors in
loan or credit card, you build another entry on your credit report, which in turn raises or determining your credit score.
lowers your credit score. The best way to have an excellent credit score is to start out
paying every bill on time, every time. After you open your account and use it regularly, > 10% New accounts
only borrow as much as you can pay back. Here are the three ranges for credit scores, If you open too many new accounts in a short period of time, it can have a negative
to help you know where you stand and where you want to be. impact on your score.
In this range you need to work hard to improve your In this range, you’re low to moderate risk
score. Getting a credit card or a loan may be challenging. and should get competitive interest rates. > 10% Length of credit history
The amount of time you’ve had credit will play a part in your score.

300 400 500 600 700 800 850

You’re a fair to good risk if you fall into this range, but interest rates will be a bit higher.
Pay your bills on time and reduce credit balances and your score will go up.

22 Practical Money Skills Workbook Practical Money Skills Workbook 23

Understanding Credit

How to Improve Your Score Credit Cards ­– Know Your Limit

All the factors contributing to good credit make it seem like a complex math equation. When you are entrusted with a credit line, you can spend money you may not have
Here are some common-sense guidelines to establishing and maintaining a good earned yet. Using your card responsibly shows that you know how to manage money
credit score. and puts you on the road to building a solid credit history.

> Establish a good credit record. Consider a Secured Credit Card Account
Open a credit account in your name and use it wisely. Limit the number of credit If you’re opening your first credit card account or you’re trying to rebuild a damaged
card accounts and loans that you take out. If you find yourself in financial trouble, credit score, a secured credit card account could be a good option. The main advantage
consider contacting a debt counseling agency; just verify that it is a member of the of a secured credit card is that you cannot use it to spend outside your means. You are
National Foundation of Credit Counselors, the nation’s largest national nonprofit required to make an initial deposit to open a secured card, and after that you will only
credit counseling network. be able to spend up to 100% of that deposit amount.

> Be sure to make monthly payments on time. What will your loan really cost?
If you miss the due date on a payment, send it as soon as possible. You’ll incur Loan Amount $50,000.00 $50,000.00
penalties after the interest-free period has expired, and the longer your payment is
Annual Percentage Rate 7.5% 8.5% +1%
overdue, the more your credit score will be affected.
Monthly Payment $600 $600
> Avoid running up the balance on your credit card. # of Months to Pay Off 119 127 = +8 months
Use your credit sparingly, and keep well within the credit limit on the account. Total Finance Charge
$20,848.34 $20,848.38 = +5,000.04
Most financial experts recommend not using more than 30% of your available credit, (amount of interest you'll pay)
if possible. Total Payment Amount
$70,848.34 $75,848.38 = +5,000.04
(total of loan plus interest)
> Pay off card balances instead of moving debt to other cards. To learn more about loans, visit practicalmoneyskills.com/resources/financial_calculators/loans/loan_cost
Opening new accounts you don’t need can lead to more debt, and too many open
accounts may lower your credit score.

> Finally, check your credit report regularly to make sure it is error-free.
You can get one free credit report each year from each of the three major credit
bureaus (Equifax, Experian and TransUnion). Visit annualcreditreport.com to get
yours today.

Tip: It's important to remember that your credit score is

going to determine what kind of interest rates you'll be
offered when you apply for loans or credit cards.

24 Practical Money Skills Workbook Practical Money Skills Workbook 25

Understanding Credit

Take Care with Credit Keep Your Eyes on the Fees

Before you open a new credit card account, ask the lender to spell out any possible
> A credit card is basically a loan from a financial institution. They assign you a fees or finance charges, including:
predetermined credit limit, and you can pay back whatever you charge either in full
or in monthly installments. > Annual fee – Charged for using the card. Many cards have no annual fee, so shop
around.
> If you don’t pay back the entire amount owed each month, you’ll owe interest on the
outstanding balance. > Cash advance fee – Charged for using your credit card to withdraw cash from your
available credit limit. It can appear either as a per-use flat rate or as a percentage of
> Remember, if you buy something on sale with your card but don’t pay off your entire the transaction amount.
balance with your next payment, the added interest may increase the cost to more
> Late payment fee – Charged if payment is received after the due date. Credit card
than what you saved by buying on sale.
companies must send statements 21 days before a payment is due. (Caution: Miss a
few payment deadlines, and your interest rate could quickly increase.)
> A rebate or rewards card may be a good option if you plan on paying your bill on
time each month. They usually charge higher interest rates and may have annual > Balance transfer fee – Sometimes charged to transfer balances from one card to
fees but offer features like airline frequent flier miles, cash rewards and free or another.
discounted merchandise.
> Over-the-limit fee – Charged if you go over your credit limit, but only if you have
> It’s easy to get in over your head by charging more than you can afford to pay off. opted in and given them permission to authorize purchases that put you over your
Save credit cards for budgeted purchases and emergencies. limit. (Overages can also lead to rate increases.)

> Try to use debit cards, secured credit cards, cash or checks for basic living expenses > Minimum finance charge – Imposed whenever you carry forward a balance to the
like your mortgage or rent, food and utilities. next billing cycle. (This can be up to a $2 charge even if your balance is only a penny.)

> You can damage your credit score by having too many open accounts or carrying Decoding Other Credit Card Terms
high balances (learn more about credit scores on page 22). Annual percentage rate (APR): The interest rate you’ll be charged if you don’t pay the
balance in full each month. Credit cards often have different APRs for purchases, cash
Advantages and Disadvantages of Credit Cards advances and balance transfers, so make sure a low APR in one category isn’t offset
by unreasonably high APRs in others. Also, if there’s a low introductory APR, note how
Advantages: But remember… long it’s offered and what the rate will be after the introductory period ends.
> Convenient > It’s a loan Interest-free period: If your credit card offers “interest-free days,” be aware that in
> Immediate purchasing power > Interest rate may go up most cases, you get a no interest-free period on purchases if you have an outstanding
> No need for cash > May include additional fees balance on your last statement. You begin paying interest immediately if you have cash
> Bills can be consolidated > Can be easy to overspend advances, balance transfers or balances carried over from previous months.
> Zero liability on fraud > Can promote impulse buying
Cash advances: Cash advances can bail you out of emergencies, but they can become
very expensive loans if you don’t pay them off quickly. Ask about each card’s cash
advance APR, fees and any other limits that may apply.
28 Practical Money Skills Workbook Practical Money Skills Workbook 29
Understanding Credit

Remember that cash advances

will require you to pay a higher
APR than you do for purchases.
Compare the cost of different
credit cards using the APR.

k for in a credgita cred

Things to looprin card
t associated with usin it card.
Learn all about the fine

(Sample Credit Card Agreement)

Note that you may be charged
annual fees whether or not you
These fees are on top
use your card.
of any interest you
might pay.
30 Practical Money Skills Workbook Practical Money Skills Workbook 31
Test Yourself

Worksheet
Take our quiz to see how much you know about managing your money. 6. T / F Credit reporting agencies can have inaccuracies in their reports.

1. T / F The moment you take out a loan, you’re starting to build your credit history. 7. T / F A credit card is a type of loan.

2. T / F A car loan doesn’t count on your credit report. 8. T / F If you sign for a debit card purchase rather than a credit card purchase, the
funds clear your account faster.
3. T / F Your credit score is directly related to your credit history.
9. T / F A debit card is backed by a bank loan.
4. T / F Your credit score rarely changes.
10. T / F It’s a good idea to write your PIN on your card so you don’t lose or forget it.
5. With a credit score in the 300 to 600 range:
11. T / F Impulse buying is one of the hazards of carrying a credit card.
a) Getting a credit card or loan should be easy
b) You’ll need to work hard to improve your score 12. T / F All credit cards usually have the same annual percentage rate (APR) for
c) Getting a credit card may be a challenge purchases, cash advances and balance transfers.
d) Both b and c

12. F 6. T
11. T 5. d
10. F 4. F
9. F 3. T
8. F 2. F
7. T 1. T

Answers for Test Yourself worksheet:

32 Practical Money Skills Workbook Practical Money Skills Workbook 33

Glossary of Terms

ATM: Automated teller machine. Overdraft protection: Advances money to cover a withdrawal from an account that
does not have sufficient funds. Overdraft protection can loan money to cover ATM
Balanced budget: Income equals or exceeds expenses. withdrawals, debit card purchases, electronic transfers and checks.

Budget: An itemized estimate of income and spending during a specified period. PIN: Personal identification number.

Compound interest: This is interest calculated not just on the principal amount, but Rule of 72: The rule says that to find the number of years required to roughly double
also on any unpaid interest that has been added to the principal. The more often your money at a given compound interest rate, you just divide the interest rate into
interest is compounded, the faster your balance will grow. 72. For example, if you want to know how long it will take to double your money at 8%
interest, divide 8 into 72 and approximately get 9 years.
Credit bureaus: Bureaus that report an individual’s credit activity. There are three major
credit bureaus: Equifax, Experian and TransUnion. For one free annual credit report
from each bureau per year, call 1-877-322-8228 or log on to annualcreditreport.com, a
website co-operated jointly by all three credit bureaus.

Credit limit: The maximum amount you are authorized to spend on your credit card.

Credit score: A numerical score that’s calculated based on information contained in

your credit report. Lenders use your credit score, among other measurements, to
determine your creditworthiness and potential ability to repay debt. (For more, check
out www.myfico.com.)

Simple interest: The cost of using money, expressed as a rate per period of time (usually
one year, in which case it is called an annual rate of interest).

Overdraft: The fee an account holder must pay a bank because the balance in the
account does not cover an amount he or she has withdrawn.

34 Practical Money Skills Workbook Practical Money Skills Workbook 35

Online Resources

Budgeting your money

Practicalmoneyskills.com Financial education resources

Banking
ABA.com American Bankers Association
FDIC.gov Federal Deposit Insurance Corporation
ICBA.org Independent Community Bankers of America
NCUA.gov National Credit Union Administration

Understanding credit
Myfico.com Information about your FICO score
Annualcreditreport.com Free comprehensive credit report
Consumerfinance.gov Consumer Financial Protection Agency

For more information, visit: practicalmoneyskills.com

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