Middle and high school activity (grades 6–12)
Content standards: National Council on Economic Education standards 10 and 11
Beyond the Checkbook: Choices of Payment Methods
In this activity, students will examine different forms of money used for payment and the advantages of having multiple payment tools. The students will also participate in a simulation that demonstrates the differences between payments by electronic banking and check writing. The activity will reinforce the following key concepts: check clearing, currency, ATM/debit cards, electronic payments, the Federal Reserve's role in payments, the functions of money, and money.
- Tell students the following: Let's take a look at the different ways to make payments. In the past, cash and checks were the primary payment forms. A check would have several stops after it was passed from the consumer to the business in exchange for goods or services. Today an increasing number of transactions are completed electronically.
- Give students a copy of the handout "Which of the following is money?"
- Inform students that all of the payment forms mentioned on the page are money.
- Instruct the students to write notes in the boxes to the right of the pictures on the handout page as you explain each concept (see steps 6–9 below).
- Explain that money can be defined as anything that serves as a medium of exchange, a store of value, and a standard of value and is generally accepted as payment for goods or services or in the repayment of debts. Money as a medium of exchange makes possible the purchase of goods and services. As a store of value, we can save our earnings (money) for a later date. As a standard of value, money is a measure of the relative worth of goods and services.
- Explain that cash (currency and coin) is probably the most familiar form of money. Cash is convenient to use, and it is accepted by most businesses for small to moderate purchases. But because cash cannot be identified as belonging to any particular person, if it's lost or stolen you cannot recover its value, so it's not a good idea to carry large amounts.
- Explain that checks and bank accounts offer safety and convenience. You keep your money in the account and write a check on the funds when you want to pay a bill or transfer some of your money to someone else. Checks are an easy-to-use form of payment when you don't want to carry around large amounts of cash. They're especially convenient for person-to-person payments (such as paying your piano teacher for lessons). Another attractive feature of a checking account is that your bank provides you a monthly record, either by mail or by online banking access, of the checks you've written and debit card payments you've made that you can use as proof that you've made a payment. Checks have been used for hundreds of years, but their use is dwindling as debit cards and other forms of electronic payments become more popular. Some businesses will not accept personal checks, and those that do usually require you to show personal identification. Banks sometimes charge a fee for checking accounts because check processing is costly.
- Explain that many banks also offer ATM/debit cards in conjunction with checking accounts as an alternative for customers to access their bank accounts and make payments. A debit card is a banking card that can be used to withdraw cash from an automated teller machine (ATM) or used to make a purchase at a retail store. When you use a debit card to make a purchase, the purchase amount is automatically deducted from your checking account. Some banks charge a fee for such occurrences as insufficient funds and use of other institutions' ATM machines.
- Explain that as technology evolves within the payment system, so does consumer behavior. Studies by the Federal Reserve System show that consumers' use of checks is declining while the use of electronic payment methods such as ATM and debit cards and automated clearinghouse (ACH) payments has continued to increase. By 2003 the number of electronic payments surpassed the number of check transactions, and by 2006 electronic payments accounted for more than two-thirds of noncash payments.
- Ask the students their thoughts on some of the advantages and disadvantages of the different payment methods. For example:
- Cash—Convenient, immediate/if you lose it, it's gone
- Checks—Can be convenient/some places won't take checks/fees may apply
- ATM/debit cards—Convenient, immediate/fees may apply/not much protection if stolen
- Electronic payments—Convenient/online predators
- Determine if the students have an understanding of different payment forms by briefly quizzing random students about what they just learned.
- Give the students printed-out copies and have them read the Atlanta Fed's online brochure Paying for It: Checks, Cash, and Electronic Payments, especially the section "Check Use Slowing but Still Important." The students should gain an understanding of how payments move in the United States, especially the process of check clearing.
- Inform the students that they have received $100 for their birthday. Print the "Birthday Check" handout and make and cut out enough copies of the fake checks to give to half the students in the class.
Use the diagram from Paying for It to illustrate how checks move through the banking system. Point out that check clearing is time-consuming and labor-intensive.
- Set up a desk in the front of the classroom and indicate that it is the bank. Those students who have checks will need to walk their check to the bank. Inform the students that the desk is relatively close but many times, people must drive across town to get to the bank. Explain that once the student has deposited the check, the bank may have to present it to another bank to be "cleared" (that is, paid).
- Refer to the section "Electronic Payments: The Wave of the Future, Here Today" from Paying for It to illustrate the speed and efficiency of electronic payments. Have the students who didn't receive check role play the process of sending and receiving an electronic payment. Depending on your classroom capability, the students can illustrate the electronic payment transfer by e-mail or texting a message (for example, a $100 birthday gift) from one computer to another. (This procedure would need to be tested in advance of the activity.) If this is not possible, use a ball of yarn and have a student toss it to you at the bank. This will illustrate the funds being transferred from one account to another.
- Debrief the students by asking them the following questions:
- Why do you think we have seen a decline in check writing?
There may be charges associated with writing checks.
Electronic banking is convenient and easy.
- Which payment method do you prefer and why?
Answers will vary.
By Julie Kornegay, economic and financial education specialist, Birmingham Branch
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