Personal Financial Literacy>Identifying Advantages and Disadvantages of Payment Methods(TEKS.Math.8.12.E)
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Texas 8th Grade Math › Personal Financial Literacy>Identifying Advantages and Disadvantages of Payment Methods(TEKS.Math.8.12.E)
Purchase options for a $600 laptop: (1) cash, (2) debit card, (3) credit card with 2% cashback and you will pay the statement in full each month, (4) store layaway that adds a $30 fee. Which method provides the best financial outcome and reasonable protections if you can afford the full price today?
Pay cash because it is always better than any card and there is never any other benefit.
Use a debit card because it is the same as cash and has no meaningful differences.
Use a credit card with 2% cashback and pay the statement in full; you get $12 back, strong purchase protections, and no interest if you avoid carrying a balance.
Choose layaway to avoid using credit, even though you will pay the $30 fee.
Explanation
Cost: Paying cash or debit has no fees, but the credit card with 2% cashback returns $12 on $600 and, if the full statement is paid, no interest is charged. Layaway adds a $30 fee, which is more than the $12 reward. Convenience/security: Credit cards often offer better dispute and fraud protections than cash/debit. Budgeting/behavior: Using credit requires discipline—paying in full each month is essential so rewards are not wiped out by interest. For a one-time, affordable purchase, credit with rewards and full payoff is best.
Monthly utility bill payment options: (1) free automatic bank draft (ACH), (2) online credit card payment with a 2.5% convenience fee, (3) check by mail (stamp cost and possible mail delays), (4) in-person payment that requires driving and waiting in line. Which method provides the best financial outcome and reliability for on-time payments?
Enroll in the free automatic bank draft; it avoids fees and late charges with minimal effort, as long as you keep enough money in the account.
Pay online by credit card to earn rewards even though there is a 2.5% fee, because the fee is small and doesn't matter.
Mail a check each month so you can time it on the due date without worrying about delays.
Pay in person to get a paper receipt, even if it takes extra time and travel.
Explanation
Cost: ACH autopay is free and prevents late fees; a 2.5% card fee adds up each month and outweighs small rewards. Convenience/security: Autopay is hands-off and reliable; mail risks delays and in-person costs time and travel. Budgeting/behavior: Autopay helps avoid missed payments but requires monitoring your balance to prevent overdrafts. Choosing free autopay balances cost and reliability best.
Grocery budget: A student often overspends on groceries. Payment options: (1) credit card with 3% grocery rewards, (2) debit card with overdraft turned on, (3) buy-now-pay-later (pay-in-4) with no interest if on time, (4) envelope cash system with a set amount of cash each week. Which method best supports budgeting control and minimizes costs for someone who tends to overspend?
Use the 3% rewards credit card because the rewards always outweigh any risk of overspending or interest.
Use a debit card and turn on overdraft protection for safety, even if there are overdraft fees when you go over.
Use buy-now-pay-later to smooth cash flow because it is free and has no risks.
Use the envelope cash system to set a hard spending limit; it has no interest or fees, and the physical limit helps control spending, though you must track receipts.
Explanation
Cost: Cash envelopes have no interest or fees; overdrafts and missed BNPL payments can add fees. Convenience/security: Cards are convenient and may offer protection, but can make overspending easier. Budgeting/behavior: A physical cash limit strongly supports self-control for habitual overspenders. Rewards only help if you pay in full; if you overspend and carry a balance, interest cancels rewards. The envelope system best supports budgeting while avoiding costs.
Online subscription $15 per month. Choices: (1) bank draft (no rewards, no fees), (2) credit card autopay with 1% rewards and you always pay the statement in full, (3) prepaid debit card with a $5 monthly maintenance fee, (4) monthly money order that costs $2 and a trip to the store. Which method best balances cost and security if you always pay on time and in full?
Use bank draft because credit cards always charge interest even if you pay in full.
Use a credit card on autopay and pay the statement in full; there are no extra fees, you earn small rewards, and you have strong dispute and fraud protections.
Use a prepaid debit card to avoid overspending, even with the $5 monthly fee.
Buy a money order each month to avoid digital payments, even though it costs money and time.
Explanation
Cost: Bank draft is free but offers no rewards; a credit card with on-time, full payment charges no interest and yields small rewards. Prepaid cards add a $5 fee, and money orders cost money and time. Convenience/security: Credit cards provide strong fraud protection and easy cancellation/dispute options. Budgeting/behavior: Autopay helps avoid missed payments; you must budget so the full card balance is paid each cycle. With disciplined full payoff, the credit card gives the best mix of cost and protection.
Emergency car repair costs $900 today. You have $300 in checking. Options: (1) buy-now-pay-later (pay-in-4) with no interest and no fees if all installments are on time, (2) regular credit card at 25% APR making only minimum payments, (3) small personal loan at 10% APR plus a $30 origination fee, (4) pay with debit and accept a $35 overdraft fee. You can afford four equal payments over the next six weeks. Which option minimizes costs while keeping payments manageable?
Use the pay-in-4 plan with no interest and no fees when paid on time; set reminders to avoid late fees and stay within budget.
Put it on a 25% APR credit card and make minimum payments to keep cash free because the interest will be small.
Take the personal loan because loans are always cheaper than other options regardless of fees.
Swipe debit and accept the overdraft fee because it is only charged once and is cheaper than any other method.
Explanation
Cost: A true $0-interest pay-in-4 has no finance charge if you pay on time, beating a 25% APR card and a 10% loan with a $30 fee; an overdraft immediately costs a fee. Convenience/security: BNPL auto-schedules payments, but you must track your bank balance. Budgeting/behavior: Fixed installments can help planning, but multiple BNPL plans can encourage overspending—use sparingly. Credit card rewards only help if you pay in full; carrying a balance adds costly interest. Given the ability to make four on-time payments, the no-interest BNPL minimizes costs.