Credit Crunch Teacher Guide
Teacher Facilitation Guide
Lesson: Credit Crunch Mechanics
Financial Literacy
Learning Objectives
- Convert Annual Percentage Rate (APR) to Monthly Periodic Rates.
- Calculate interest charges on a revolving credit card balance.
- Analyze the impact of compounding interest over multiple months.
- Compare the total cost of borrowing across different APR scenarios.
Pacing
Presentation 15 min
Worksheet 20 min
Debrief 10 min
Instructional Script & Prompts
Defining APR & Periodic Rates (Slides 2-3)
"Many people think they only pay interest once a year because of the 'Annual' in APR. But credit cards are a 'revolving' debt. Every 30 days, the meter resets."
Discussion Prompt:
"Why do you think banks advertise the yearly rate instead of the monthly rate? Which one sounds more 'expensive'?"
The Compounding Trap (Slide 5)
"Notice how the interest amount in the table goes up every month—even though the person didn't buy anything new. This is the 'interest on interest' effect."
Key Misconception:
Students often think interest is only calculated on the original 'Principal'. Clarify that credit cards use the 'Average Daily Balance', which includes previous interest charges.
The Showdown (Slide 6)
Math Extension:
Ask students to estimate the interest for a 10% APR vs a 30% APR. Point out that the 29% card results in more than double the interest because of how compounding accelerates with higher rates.
Worksheet Guidance
Common Student Pitfalls
Decimal Placement
Students often multiply by 2 instead of 0.02 when calculating 2% interest.
Rounding Errors
Stress the importance of rounding to the nearest cent (two decimal places) at every step to stay accurate in compounding tables.
Ignoring Previous Interest
Remind students to add the interest back to the balance before calculating the next month's charge.
Differentiation Strategies
S
Support (Scaffolding)
Provide a "Calculation Cheat Sheet" that pre-converts common APRs (12, 18, 24) into their decimal monthly rates (0.01, 0.015, 0.02).
E
Extension (Challenge)
Ask students to calculate how much they would need to pay monthly to pay off the $1,500 balance in 6 months exactly, including interest.
Closing Reflection Questions
1. The Minimum Payment Myth
"If your interest charge is $30 and your minimum payment is $35, how much are you actually reducing your debt by? Why does this make it so hard to get out of debt?"
2. Comparison Shopping
"When looking for your first credit card, which is more important: the 'rewards points' or the APR? Based on what we saw today, defend your answer."
