We need to teach our students to be savvy consumers.  How can we do that?  I have a few posts titled “What’s the Catch” in which students analyze a financial product and come up with reasons they should be wary of it.  My inspiration in the middle of the night was to string together a few of these posts and have students “solve” them in class today as an activity I called “Financial Detectives.”

Here is how the class unfolded:

• Sorted the class into groups of 4-5
• Students entered class with Mission Impossible theme music playing
• Each student in class got a handout (WhatsTheCatch?) and laptop to conduct web research.
• 5 minute countdown clock to encourage students to work efficiently to solve each of the mysteries before time expired (since there were four scenarios most chose to assign one to each group member).  I added three minutes and all teams were done by then.
• Total time to complete the activity: 35-40 minutes moving at a crisp pace.

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1. You see a Stanford International Bank advertisement on the Wall Street Journal site.  This Bank is offering “risk-free” interest rates of 6% on a savings account while other banks are only offering 3%.  You read the small print and see that the bank is located in Antigua.  After some initial research, you discover that they have thousands of customers and billions of dollars in deposits. What’s the Catch?

Discussion:  Students uncovered the fact that the founder of Stanford International Bank was running a Ponzi scheme and had defrauded customers to the tune of $7.2 Billion.  This two minute CNBC video described how the scheme worked and the mastermind behind it.  What were the warning signs?  1)  Based in Antigua so no FDIC insurance if bank failed.  2)  “Risk free” but earning double the going interest rates seems suspicious (if it sounds too good to be true, well, it probably is).

2.  Who has some of the most enjoyed commercials on TV?  Freecreditreports.com, of course.  Their jingles are some of the most downloaded on YouTube and besides they offer a free service so what could possibly be the catch.  You know that you are supposed to check your credit report every year and this seems like the place you should go to find it since it’s free.  What’s the Catch?

Discussion:  Before starting the discussion, I showed two commercials (there are nine total in the video but I could only take so much of this jingle) from Freecreditreports.com.  Great response here from a student who noted that the government provides a free credit report at annualcreditreport.com.  Freecreditreports.com was sued for deceptive advertising and now has a disclosure on their webpage which includes a link to annualcreditreport.com.  So, what was the deception?  Consumers would sign up and provide a credit card number to see their credit report during a “free” trial period.  If they didn’t cancel, they were charged $14.95/month for credit monitoring services.  Moral of the story:  Free doesn’t always mean free.  Be sure to read the fine print!

3.  You just received this text from your wireless carrier regarding your data plan (Full disclosure: I got this text this week):

We appreciate your loyalty.  You are currently on the $50/2GB plan.  You can now get an extra 2GB of data per month for the same price you pay now.  There’s no change to your voice plan or contract extension.  Would you like to move to this new plan.  If so, reply YES.

What would you do?

Discussion:  A savvy student pointed out their concern that they would ultimately be charged for this when their contract expired so if they chose YES they would be sure to monitor this at the end of the contract period to go back to smaller data plan.  Unfortunately, they may get used to having more data and not be able to change their habits to go back to a lesser plan.

4.  You receive this email offer from a credit card provider (known in the industry as a 0% APR offer).  A few quick definitions:  APR is annual percentage rate or the interest rate that you pay on your credit card balances (if you don’t pay off your card every month).  Cashback Bonus is the credit that the credit card company gives to you based on your purchases.

What five questions would you want answered before you signed up for this card?  Despite the fact most of the students do not have a credit card, they were able to come up with some good questions:

1. What is the length of the Introductory Period?
2. What is the interest rate after the introductory period?
3. What are the popular categories for the Cashback Bonus?
4. What if I don’t pay the full balance back before the Introductory Period ends?
5. What are the other terms in the contract?
6. How long is the Annual Fee waived for?

About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.

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