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Black Coffee and Black Cards (B)
Fairchild, Gregory B. Case F-1883 / Published August 5, 2019 / 5 pages.
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Product Overview

This case continues the story of Shane and Erin as they learn about credit cards. In the A case, Shane researched credit cards and explained the fine print from the disclosures to his wife Erin, a marketing manager in a baby-formula company. The B case begins with Erin interested in choosing the best credit card that offers airline miles in order to earn a free beach trip. Three cards are presented (case Exhibit 1) with different options, though the annual percentage rate (APR) is unknown until an application is made. To compare the three offers, Shane attempts to measure the costs and benefits of each card assuming the couple spends as much as $500 and pays 75% back ($350) per month. This case reveals the complexity of the credit card business and the risks and rewards to consumers. In particular, students should recognize that the risk of having a credit card is how it might influence their consumption behavior. Credit cards offer a variety of conveniences, but they are an expensive form of short-term debt that can become an onerous burden if used beyond the means of the card owner. Thus prudent use of credit cards is a key learning objective of both the A and B cases.


Learning Objectives

?Developing a decision process that focuses on the relevant information ?Understanding that risk and return are the key aspects of any financial decision ?Comparing costs and benefits of a credit card ?Understanding the risks and returns a credit card issuer faces ?Understanding the convenience and the economic incentives of credit cards ?Understanding the consequences of excessive consumption and excessive consumer debt ?Learning the "language" of credit: float, APR, credit limit, prime rate, FICO, secured card, authorized user, cosigner, and so on ?Understanding the importance of maintaining a high credit score ?Demonstrating comparison-shopping skills ?Developing an effective debt-management strategy ?Understanding that credit cards are financial products that are designed to have different attributes to appeal to specific customer segments

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  • Overview

    This case continues the story of Shane and Erin as they learn about credit cards. In the A case, Shane researched credit cards and explained the fine print from the disclosures to his wife Erin, a marketing manager in a baby-formula company. The B case begins with Erin interested in choosing the best credit card that offers airline miles in order to earn a free beach trip. Three cards are presented (case Exhibit 1) with different options, though the annual percentage rate (APR) is unknown until an application is made. To compare the three offers, Shane attempts to measure the costs and benefits of each card assuming the couple spends as much as $500 and pays 75% back ($350) per month. This case reveals the complexity of the credit card business and the risks and rewards to consumers. In particular, students should recognize that the risk of having a credit card is how it might influence their consumption behavior. Credit cards offer a variety of conveniences, but they are an expensive form of short-term debt that can become an onerous burden if used beyond the means of the card owner. Thus prudent use of credit cards is a key learning objective of both the A and B cases.

  • Learning Objectives

    Learning Objectives

    ?Developing a decision process that focuses on the relevant information ?Understanding that risk and return are the key aspects of any financial decision ?Comparing costs and benefits of a credit card ?Understanding the risks and returns a credit card issuer faces ?Understanding the convenience and the economic incentives of credit cards ?Understanding the consequences of excessive consumption and excessive consumer debt ?Learning the "language" of credit: float, APR, credit limit, prime rate, FICO, secured card, authorized user, cosigner, and so on ?Understanding the importance of maintaining a high credit score ?Demonstrating comparison-shopping skills ?Developing an effective debt-management strategy ?Understanding that credit cards are financial products that are designed to have different attributes to appeal to specific customer segments