Lesson Note on Credit: Instruments, Functions and Credit Problems for SS 2

Class: Senior Secondary School 2 (SS2 / SSS2)
Term: 3rd Term
Week: 1
Age: 16 years
Duration: 45 minutes
Subject: Commerce
Curriculum Theme: Commercial Transactions
Previous Lesson: .
Topic: Credit
Subject Matter: Credit instruments, functions of credit to retailer and wholesaler, problems facing users of credit (buyer), problems facing business in granting credit (seller)

Specific Objectives

By the end of the lesson, pupils should be able to:

Cognitive Domain:

• Define credit.
• Identify and describe various credit instruments.
• State the functions of credit to retailers and wholesalers.
• Explain the problems faced by buyers when using credit.
• Discuss the problems faced by businesses when granting credit.

Affective Domain:

• Appreciate the importance of credit in commercial activities.
• Recognize the ethical considerations involved in credit transactions.
• Develop a cautious attitude towards the use and granting of credit.

Psychomotor Domain:

• Analyze simple credit transaction scenarios.
• Collect and interpret information on credit from various sources.
• Simulate the use of a credit instrument.

Social Domain:

• Participate actively in discussions about the role of credit in the economy.
• Collaborate with peers to identify solutions to credit-related problems.
• Share insights on responsible credit management.

Reference Materials

The following resources were used in planning this lesson:

• Senior Secondary Schools Education Curriculum
• State Unified Scheme of Work
• Any standard Commerce textbook for Senior Secondary Schools (e.g., Comprehensive Commerce for Senior Secondary Schools).

Instructional Materials

The teacher will teach this lesson with the aid of:

• Newspaper cuttings showing advertisements for credit facilities and finance houses.
• Sample documents of credit instruments (e.g., a blank cheque, a sample promissory note, a credit card).
• Whiteboard or chalkboard and markers/chalk.

Rationale for the Lesson

This lesson helps pupils understand the concept of credit, its various forms, and its role in business and personal finance. It enables pupils to recognize the benefits and challenges associated with credit for both buyers and sellers, which is important for making informed financial decisions.

Prerequisite/Previous Knowledge

Pupils should have a basic understanding of business transactions, buying and selling, and the concept of money from previous lessons.

Lesson Content/Board Summary

Credit

Definition of Credit

Credit is an agreement between a lender and a borrower, where the borrower receives goods, services, or money with a promise to pay back the lender at a future date, usually with interest.

Credit Instruments

Credit instruments are documents that represent an obligation to pay a specified sum of money at a future date. They are used to facilitate credit transactions.

The following are common credit instruments:

• Promissory Note: A written promise made by one person (the maker) to pay a specified sum of money to another person (the payee) on demand or at a definite future time.
• Bill of Exchange: A written order by one party (the drawer) to a second party (the drawee) to pay a specified sum of money to a third party (the payee) on demand or at a definite future time.
• Cheque: A written order to a bank to pay a stated sum of money from the drawer’s account to the payee.
• Credit Card: A small plastic card issued by a bank or financial institution, allowing the holder to purchase goods or services on credit.
• Overdraft: A facility that allows a customer to draw more money from their current account than is actually available in it, up to an agreed limit.

Functions of Credit to Retailers and Wholesalers

Credit plays an important role in the operations of retailers and wholesalers:

• Increased Sales: It enables customers to buy goods even when they don’t have immediate cash, leading to higher sales volume.
• Stock Replenishment: Businesses can buy goods on credit from suppliers, ensuring their shelves are always stocked without tying up immediate capital.
• Meeting Customer Demand: Allows businesses to meet fluctuating customer demand by purchasing inventory when needed.
• Capital for Expansion: Credit facilities can provide working capital for business expansion or investment in new products.
• Building Customer Loyalty: Offering credit can attract and retain customers, fostering long-term relationships.

Problems Facing Credit Users (Buyers)

While beneficial, using credit can present challenges for buyers:

• Debt Burden: Excessive use of credit can lead to high levels of debt, making repayment difficult.
• Interest Charges: Credit usually comes with interest, increasing the total cost of goods or services.
• Loss of Reputation: Failure to repay credit can damage a buyer’s creditworthiness and reputation.
• Impulsive Buying: The availability of credit can encourage buyers to make unnecessary or impulsive purchases.
• Legal Consequences: Defaulting on credit can lead to legal action and asset seizure.

Problems Facing Businesses in Granting Credit (Sellers)

Granting credit also poses risks and challenges for businesses:

• Bad Debts: Some customers may fail to repay their debts, resulting in losses for the business.
• Administrative Costs: Managing credit accounts, sending reminders, and debt collection incur administrative costs.
• Capital Tied Up: Money owed by customers cannot be used for other business operations, tying up working capital.
• Risk of Fraud: Businesses face the risk of fraudulent credit applications or transactions.
• Liquidity Problems: If a large number of customers delay payment, the business may face cash flow or liquidity problems.

Teaching Methods/Instructional Techniques

Discussion, Lecture, Demonstration, Question and Answer, Visual Aids

Instructional Procedures

Step 1: Introduction

Time: 5 minutes
Teaching Skill: Set Induction
Teacher’s Activity: The teacher greets the pupils and asks them if they have ever bought something without paying immediately, or if they know someone who uses a credit card. The teacher then introduces the topic of Credit.
Pupils’ Activity: Pupils respond to the questions and listen attentively to the introduction.
Learning Point: Pupils are introduced to the concept of credit and its relevance in daily life.

Step 2: Definition of Credit

Time: 5 minutes
Teaching Skill: Explanation/Definition
Teacher’s Activity: The teacher defines credit, emphasizing the promise to pay later, and explains how it differs from immediate cash payment. The teacher writes the definition on the board.
Pupils’ Activity: Pupils listen, take notes, and ask clarifying questions.
Learning Point: Pupils understand the fundamental meaning of credit.

Step 3: Credit Instruments

Time: 10 minutes
Teaching Skill: Demonstration/Explanation
Teacher’s Activity: The teacher displays the sample credit instruments (cheque, promissory note, credit card) and explains each one in detail, highlighting their uses and characteristics. The teacher encourages pupils to identify similar instruments from their newspaper cuttings.
Pupils’ Activity: Pupils observe the samples, ask questions, and discuss the instruments they found in their newspaper cuttings. They also take notes.
Learning Point: Pupils identify and understand various credit instruments and their functions.

Step 4: Functions of Credit to Retailers and Wholesalers

Time: 7 minutes
Teaching Skill: Discussion/Listing
Teacher’s Activity: The teacher leads a discussion on how credit benefits retailers and wholesalers, prompting pupils to think about increased sales and managing stock. The teacher lists these functions on the board.
Pupils’ Activity: Pupils contribute to the discussion, offer their ideas, and copy the points from the board.
Learning Point: Pupils understand the advantages of credit for businesses in the supply chain.

Step 5: Problems Facing Credit Users (Buyers)

Time: 6 minutes
Teaching Skill: Questioning/Brainstorming
Teacher’s Activity: The teacher asks pupils to consider the disadvantages or problems that individuals or buyers might face when using credit. The teacher guides the discussion and lists the problems on the board.
Pupils’ Activity: Pupils share their thoughts and experiences, contributing to the list of problems and taking notes.
Learning Point: Pupils recognize the potential pitfalls and risks of using credit as a buyer.

Step 6: Problems Facing Businesses in Granting Credit (Sellers)

Time: 7 minutes
Teaching Skill: Guided Discussion
Teacher’s Activity: The teacher facilitates a discussion on the challenges businesses encounter when they offer credit to customers, such as bad debts and administrative costs. The teacher writes these problems on the board.
Pupils’ Activity: Pupils engage in the discussion, identify problems from a seller’s perspective, and record the points in their notebooks.
Learning Point: Pupils understand the challenges and risks businesses face when extending credit.

Step 7: Evaluation/Review

Time: 5 minutes

Teaching Skill: Questioning/Assessment

Teacher’s Activity: The teacher evaluates the learning by asking the following questions:

1. What is credit?
2. Mention three common credit instruments.
3. State two functions of credit to a retailer.
4. Identify two problems a buyer may face when using credit.
5. List two problems a business may encounter when granting credit.

Pupils’ Activity: Pupils answer orally and in writing.

Learning Point: Pupils demonstrate understanding of the lesson.

Step 8: Conclusion

Time: 2 minutes
Teaching Skill: Summarization/Assignment
Teacher’s Activity: The teacher summarizes the key points of the lesson on credit, its instruments, functions, and associated problems for both buyers and sellers. The teacher then assigns homework: “Research and write down three advantages of using a credit card and three disadvantages.”
Pupils’ Activity: Pupils listen to the summary and copy down the homework.
Learning Point: Pupils consolidate their understanding and prepare for further learning.

Lesson Keywords

• Credit – An agreement to pay for goods or services at a later date.
• Credit Instruments – Documents like promissory notes or bills of exchange that represent a financial obligation.
• Promissory Note – A written promise to pay a specific sum of money.
• Bill of Exchange – A written order to pay a specific sum of money.
• Overdraft – Permission to draw more money from a bank account than is available.
• Bad Debts – Money owed that is unlikely to be repaid.

Differentiation

For pupils who grasp concepts quickly, the teacher can encourage them to research different types of credit facilities offered by banks. For pupils who need more support, the teacher can provide simplified definitions and more direct examples of credit transactions, possibly using visual aids to illustrate concepts.

Note for teachers using this lesson plan

Ensure that actual samples of credit instruments are available for pupils to see and interact with, as this enhances practical understanding. Emphasize the importance of responsible credit management to prepare pupils for future financial decisions. Encourage pupils to share real-life examples of credit use they may have observed.