Creditwise - Opportunity Costs (1982)

The following is presented by the Joint Council on Economic Education and the Canadian Foundation for Economic Education. Tina Leland and Becky Houston on an ordinary shopping trip. Becky, come here. Come here. Come here. Come here. Come here. Isn't that pretty? Come on, it's me. One of them will use credit to pay for her purchases. She will learn the reality of consumer credit and the meaning of opportunity costs. I got to like this. That is beautiful. Come here. All right. I'm going to get it. No. Can't decide. I'll get both. Both? Sure. You getting something? No. If I buy a purse, I won't have the cash to get my tape deck fixed. Ooh, and I'll take one of these, too. Uh will that be cash or charge? Charge. Becky Houston knows the meaning of scarcity and opportunity costs. She knows that opportunity cost means that if she spends her limited funds on one thing, she must give up something else. An idea that Tina Leland doesn't yet understand. All that money and you're not even going to buy a shirt? I know, they're nice, but I really want to get my tape deck fixed. Honestly, Becky, why'd you come shopping if you're not going to buy anything? I'm sorry, but the credit limit on your mother's card has been reached. Really? So soon? I'm afraid so. You'll have to loan me the money. No way! You've got money. This? I can't use it. It's for my car brakes. Come on, you have $30. Your tape deck won't be ready till next week. I'll pay you back Monday. All right, the way you paid back Allison and Mary Jo. I did pay back Allison. Well, I'll pay you back. You're my best friend. TINA LELAND, POPULAR, SMART, but an impulse spender. I've got to have it. But it costs $85, Tina. I thought that was for your brakes. It was. And you're going to spend it on the jacket? $30 down and 55 at the end of the month. Then I get the jacket, right? That's right. But what about your brakes? Don't tell me about the brakes again. Can you hold this for me? Opportunity costs, a reality that Tina Leland will soon have to face. Thanks. So, what is opportunity cost? I know Tina really well. She's been postponing getting her brakes fixed for weeks. Now, she's going to spend her money buying a new jacket. She doesn't have enough money to buy both, right? So, getting her brakes fixed is the opportunity cost of getting the jacket. Yesterday, I heard Becky say that she wanted to buy a t-shirt, but she also wants to get her tape deck fixed. I guess she didn't have money for both. So, when she decided to get her tape deck fixed, the t-shirt became the opportunity cost. If Becky lends money to Tina and then gets paid back, the opportunity cost of that loan be getting her tape deck fixed. What's opportunity cost? Let me tell you. Last week, I had $15 and I wanted to take my girlfriend to the movies and I also wanted to buy this new shirt. So, what happened? His opportunity cost was the movie with me. So, opportunity costs are the things you give up when making one choice instead of another. But, why not use credit and get both? Using credit means buying now. Of course, you still have to pay for it in the future. But, you have to give up the opportunity of buying other things when you repay the loan. And, they charge interest, which means you have to give up even more things. Whether you use credit or not, opportunity costs are the things you give up when making one choice instead of another. Didn't you get those brakes fixed? Next month, okay? When I get my next allowance. If you can't afford to keep your car safe, you can't drive it. I'll do it soon, Daddy, really. You're not driving that car anywhere until you get brakes fixed. Give me the keys. Tina? Tina, is that you? Hi Mom, be right with you. Well, I've been waiting for you. Could you bring me my credit card, please, dear? I need to run out and get a couple of things before the stores close and I'm out of cash. Did you hear me, dear? I'm in a hurry. Well, there's a problem, Mom. You can't use the card. Why not? Did you lose it? No, no, Mom. I just charged up to the limit on it, that's all. You did what? Well, just for the things I needed, honestly. Give me that card. You reached more than the card's limit, Tina. You reached mine as well. The next time you charge anything on a credit card, it's going to be your own. Mom, that'll take forever. That's precisely what I mean, Tina. Paula, don't you understand? I've got to get the brakes fixed. If I don't, I won't get the car back. Sorry, you still owe me $2 from the movies last week. Now I'll owe you more. Think of how rich you'll be. Possibly, if I charge you interest. Interest? You never charged me interest before. Well, I am now. Look, Tina, credit allows you to buy now and pay later, but interest is the cost of using credit. Besides, I could be earning interest in my savings account instead of lending this to you. Sign here. Becky, you got to loan me some money. It's Wednesday. What? It's Wednesday and my tape deck is ready and I really want it, but I can't pick it up thanks to you. Oh, I'll pay you back first thing on Monday. I've had it with you, Tina. Come and find me when you've got the cash. Will you loan me a couple dollars? Sure. We're doing adjectives and things in there. Going to have a test on on Monday. On Monday? I don't know yet. Tina, your mother and I have decided to lend you the $50 you need to get the brakes fixed in your car. Thanks, Dad. Mom, that's great. But, we're going to deduct half of your allowance each week until you pay us back in full. Sure, anything. Hey, Tina. Now, can I have my 15? Um May I have your attention, please? Today's pep assembly will begin at 3:45 in the gym. Hi. I have part of what I owe you. My father gave me some money this morning. It's $10 because I have to pick up a jacket this week. It's the end of the month, you know. You know, Tina, you have yourself in debt with more people than I can count, and all you think about is that jacket. Mom, Becky, it's a great jacket. I almost have enough, too. Yeah, you'll have your designer jacket, but you won't have any friends. You won't have any credit with anybody, either. You can't just spend and spend and not pay people back. You never spend a dime. At least I enjoy myself. Do you, Tina? Opportunity costs and consumer credit closing in on Tina Leland. So, when can credit cause problems? When? When you get in over your head, like Tina. And when you don't realize that using credit just postpones your payments. Credit usually makes buying something more expensive because you have to pay interest. Yeah, like if I bought a lot of stuff that I couldn't pay for, my parents would make me take it all back. You can't just borrow and never repay. Credit has responsibilities. If you don't repay, you lose your chance to borrow later on. So, what's good about credit? Credit comes in handy sometimes, like when my parents give me the credit card to go shopping. I don't have to carry cash, and I have a good record of exactly what I spend. Using credit means I don't have to worry about losing my money or being robbed. If there's a sale and you don't have cash, you can use credit to take advantage of the lower prices. Even with interest charges, you could still end up saving money. Yeah, and for some very expensive items like cars, credit helps to spread out the payments a little bit at a time, and also lets you enjoy the car while you're paying for it. So, what's good about credit? Well, credit is convenient. It provides a record, and it is safer than cash. You can buy sale items without paying cash, and you can have use of products while paying for them. Credit has advantages and disadvantages, but regardless, you have to remember the responsibilities and that everything has an opportunity cost. But, you can't raise the interest rate. I'm too broke. Sorry, if you want more money, you have to pay a higher rate of interest. But, it's only $10. 10 of my dollars. You're a bad credit risk, Tina. Bad risks have to pay higher rate of interest than good risks do. You mean I have to pay more interest because you're afraid I might not pay you back? Yes, but it's more than that. The higher rate protects me against inflation and rising prices. By the time you get around to paying me back, the $10 won't buy what it buys today, you know. Sign here. All right, moving on down the road. Let's follow the pacemakers. Today Okay, miss. Just tell me, how did this whole thing happen? I've got to have it. But, what about your brakes? You're not driving that car anywhere until you get the brakes fixed. You can't just spend and spend and not pay people back. Okay. Poor Tina. If she had only understood the meaning of opportunity costs and consumer credit, what then? The content for Give and Take was developed with funds from a consortium of 45 state and provincial education agencies. Other funds were provided by these corporations and foundations. Additional support was provided by the Office of Consumers Education, U.S. Department of Education. This program was produced by the Educational Film Center under the supervision of AIT, the Agency for Instructional Television.