Cooperatives in Your Community
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Cooperatives in Your Community Consumer Cooperatives
Transcript of Cooperatives in Your Community
Cooperatives in Your Community
Consumer Cooperatives
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2014 VersionReleased: October 29, 2014900 Second Street, NE Suite 205Washington, DC 20002(202) 408-8522 Phone(202) 408-5385 Fax
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Cooperatives in Your CommunityA Curriculum for High School Students
Authors:
Barbara O’Neill, Ph.D., CFP®
Distinguished Professor and Extension Specialist in Financial Resource ManagementRutgers Cooperative ExtensionSchool of Environmental and Biological Sciences, Rutgers UniversityNew Brunswick, NJ
This publication was made possible through funding provided by the Council of Food, Agricultural and Resource Economics (C-FARE) and funding provided to C-FARE by the CHS Foundation. The Council for Economic Education is a supporting partner and provided technical assistance with peer review and marketing of the lesson plans.
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Cooperatives in Your CommunityLesson #1: Consumer Cooperatives
LESSON DESCRIPTION (Background for the Instructor)
In this lesson, the students will learn about the cooperative movement, how cooperatives (co-ops) operate, and examples of consumer cooperatives in various sectors of the U.S. economy (e.g., financial services, utilities, food, housing, child care, and health care).
The lesson includes seven activities that instructors can select from where students will: 1. Read about co-ops and answer a series of questions about them, 2. Watch a video and answer questions about cooperatives, 3. Answer a series of True-False questions, 4. Compare the features of deposit accounts at two banks and a credit union, 5. Compare the cost of loans at two banks and a credit union, 6. Debrief a skit about co-ops, and 7. Research a consumer cooperative and make a presentation about it in class.
INTRODUCTION (Background for the Instructor)
A cooperative (co-op) is a special category of corporation (business) or organization that is owned and operated by its members (also known as user-owners). Members become part of a co-op by purchasing a required minimum amount of shares (e.g., $25 to open a credit union share account). In the vast majority (around 95%) of cooperatives, each member has one vote (regardless of number of shares purchased) at the co-op’s annual business meeting. A few cooperatives base voting rights on the amount of business volume that someone generates. Voting systems in cooperatives are quite different from those in investor-owned firms where votes are based on the level of investment or amount of shares.
The members of a co-op buy its products (e.g., food) or use its services (e.g., electricity) and share in profits generated by the co-op. The primary objective of a cooperative is to provide high quality products or services at the lowest net price to its members. Thus, co-ops exist to serve the needs of their member-owners. Increased operating efficiency is an important concern, however, to run a successful operation. Cooperatives must cover their operating costs to
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remain viable business entities. While they are not organized to maximize profits for outside investors, they should not be confused with non-profit 501(c) (3) organizations whose primary purpose is to provide human services or to attain educational, social, or philanthropic goals.
Co-ops operate according to a set of rules, called bylaws (as many organizations do), and are governed by an elected board of directors that is chosen from among the co-op membership. Thus, there are generally no “outside” directors as is the case with investor-owned corporations. Co-op boards hire management and staff to run a co-op’s day-to-day operations. While cooperatives are widespread in the U.S. agricultural industry sector, the largest numbers of co-ops actually involve consumer products and services, particularly credit unions and electric co-ops. More than 100 million Americans, nearly one in three, belong to one or more cooperatives.
While cooperatives have many unique advantages, they also have unique challenges. The users of a cooperative must be willing and able to invest in the firm. As in any democratic organization, there is the potential for conflict between members. Because the board of directors is elected from the membership, they have unique insights as customers. However, the board members may need to work to develop business and financial skills and to fully understand the industries in which the cooperative operates.
CONCEPTS
u Board of directorsu Cooperativesu Credit unionsu One member/one voteu Share accounts and share draft accounts
OBJECTIVES
Students will be able to:
• Explain how cooperatives work and how they differ from investor-owned firms.• Identify the advantages and disadvantages of cooperatives as a business entity.• Define the terminology of cooperatives (e.g., share, patronage refund).• Describe five different types of consumer cooperatives with an example of each
(e.g., credit union: ABC Federal Credit Union).
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CONTENT STANDARDS
Common Core State Standards for Math: http://www.corestandards.org/Math/ The Consumer Cooperatives lesson supports the Common Core State Standards Initiative mathematics standards. Its content and learning activities link mathematics to everyday life decision-making (e.g., loan cost calculations and interest rate comparisons on deposit accounts). It also satisfies Common Core number and quantity requirements.
Council for Economic Education National Standards for Financial Literacy http://www.councilforeconed.org/wp/wp-content/uploads/2013/02/national-standards-for-financial-literacy.pdf • Buying Goods and Services-Benchmark 1 – Discuss how consumer decisions
are affected by the price of a good or service and its alternatives and by a consumer’s income and preferences. Financial well-being is improved by making informed spending decisions, which entails collecting information, planning, and budgeting.
• Saving-Benchmarks 2-3 – Compare and contrast credit unions versus banks in explaining that interest is the price that a financial institution pays for using a depositor’s money and it is determined by market forces and the cost of doing business. The higher an interest rate is, the more likely people are to deposit money and save and the less likely they are willing (and/or able) to borrow money and spend (e.g., interest rates charged for loans and credit cards).
• Saving-Benchmark 4 – Explain credit unions in the context that, when savers earn a higher interest rate on their deposits, their savings will grow more quickly.
Council for Economic Education Voluntary National Content Standards in Economics: http://www.councilforeconed.org/wp/wp-content/uploads/2012/03/voluntary-national-content-standards-2010.pdf.
Content Standard 2 (Decision Making) – This standard is relevant for this lesson: Effective decision making requires comparing the additional costs of alternatives with the additional benefits. An example would be comparing products available at credit unions, a type of cooperative business, with those available at commercial banks.
Content Standard 3 (Allocation) – This standard is relevant for this lesson: Different methods can be used to allocate goods and services. People acting individually or collectively must choose which methods to use to allocate different kinds of goods and services.
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Content Standard 4 (Incentives) – This standard is relevant for this lesson: People usually respond predictably to positive and negative incentives. To understand or predict behavior of people or organizations, students must understand the economic incentives that people or organizations face.
Content Standard 9 (Competition and Marketing Structure) – This standard is relevant for this lesson: Competition among sellers usually lowers costs and prices, and encourages producers to produce what consumers are willing and able to buy.
Content Standard 10 (Institutions) – This standard is also relevant and can be used for this lesson: Institutions evolve and are created to help individuals and groups accomplish their goals. Banks, labor unions, markets, corporations, legal systems, and not-for-profit organizations are examples of important institutions. Note that cooperatives could be included in the list of examples as another type of institution that students need to understand. Credit unions and other cooperatives are created to help individuals and groups accomplish their goals.
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TIME REQUIRED
60 to 180 minutes (depending upon content depth and number of activities that are used)
MATERIALS
• Slides 1.1 to 1.8• Cooperatives Quiz
• One copy of Activity 1.1 to 1.7 for each student
Teachers are encouraged to use as many of the seven student learning activities as possible to provide a fuller understanding of consumer cooperatives.
PROCEDURE
An introductory activity to interest students would be to ask them how they think profits of an enterprise should be distributed. They are likely to decide that profits should be based on how much owners invest in an enterprise. Then ask what students think about having every investor provide the same level of investment and having “profits” distributed based on how much they purchased from the enterprise. Such an approach could help students open their thinking to alternative forms of institutions, which “sets the stage” and makes a nice segue to a discussion of cooperatives.
It is important to note that the word “profit” (i.e., a surplus of income over expenses) should not necessarily be construed as a bad thing. Many people do not appreciate the role of risk-taking that is necessary to grow and maintain successful business enterprises. In addition, there are many benefits to society from allocating resources that are derived from profits. This discussion is merely meant to stimulate thinking about who benefits from profits: shareholders in investor-owned firms and members in businesses that are organized as cooperatives.
1. Distribute the Cooperatives Quiz as a pre-test to assess what students already know about cooperatives before teaching any curriculum content.
2. Explain to the students that they are going to learn about consumer cooperatives (co-ops). Co-ops are member-owned businesses or organizations that provide a product or service for their members. They come in a variety of sizes from small store front operations to large corporations. More than 100 million Americans (of about 318,000,000 in 2014) participate in co-ops, almost 1 in 3. Review slides 1.1 to 1.8.
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3. Tell the students that many commonly-used products and services can be purchased through a co-op including checking and savings accounts, telephone and electrical service, child care, housing, food, and health care. Yet, many people are unaware of this type of business enterprise.
4. Distribute a copy of Activity 1.1, Cooperative Facts and Discussion Questions. Organize the class into groups of no more than five members each. Working together, the students should read the handout and answer the questions at the end. Discuss the answers to the questions for discussion at the end of Activity 1.1.
A. How do cooperatives work? Cooperatives are businesses or organizations that are owned and operated
by members that purchase its goods (e.g., food) and services (e.g., utilities). People purchase shares to become co-op members and receive the right to vote on co-op business. Co-ops come in a variety of sizes and operate in a variety of industries.
B. What is the primary objective of cooperatives? The primary objective of cooperatives is to provide a high quality product
or service to its members at an affordable cost. The net cost for a product or service is the price minus the share of a cooperative’s profits that a member receives (similar to a rebate).
C. Why do some cooperatives, such as food co-ops and nursery school co-ops, ask or require members to volunteer time (labor)?
Co-ops that require their members to provide a contribution of volunteer time, as well as money to purchase shares, are able to decrease their operational expenses. This lowers the cost of their product or service because they do not have to hire paid staff. Another benefit of member service is “buy in.” Co-op members may feel more invested in the co-op when they actually work there.
D. Why do credit unions typically offer a higher interest rate on deposit accounts and a lower interest rate on loans than commercial banks?
Credit unions exist solely to serve their member owners, not to pay high dividends to an outside group of investors. The goal is to provide a service rather than maximize a profit. Co-ops have to make a profit, or surplus, over time or they may not stay in business. However, they do not have a goal of maximizing profit. A credit union’s profits are returned to members
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and that is why credit unions can offer higher interest rates on deposits and lower rates on loans.
E. Are there disadvantages to using credit unions? If so, what? Under federal and state laws, credit unions may only offer membership
to individuals who have a particular affiliation relationship. The affiliation relationship, which is called the “field of membership,” is the commonality between credit union members. The affiliation relationship may involve an employer, school, church, homeowner’s association group, or other organization. In addition, credit unions generally have fewer “brick and mortar” branch offices for face-to-face service than commercial banks do. This might not be a big disadvantage, however, for customers who primarily make financial transactions via direct deposit and online transactions.
F. Why are most utility (e.g., electric and telephone) cooperatives in rural areas?
Utility cooperatives (e.g., electric and telephone) were formed by citizens in rural communities with sparse populations because investor-owned utility companies would not provide service in those areas. Commercial companies did not want to incur the high cost of running wires to a relatively small number of homes.
G. What are the similarities between mutual insurance companies and mutual savings banks?
Both mutual insurance companies and mutual savings banks are financial services businesses that are organized as cooperatives. Thus, they are owned by their policyholders and depositors, respectively, and not by stockholders. Profits earned in excess of operating costs and reserves are returned to members. Costs for their products (e.g., insurance policies and savings accounts) are generally attractive, compared to companies that issue stock, because cooperatives are member-owned and do not have to generate a profit for outside investors.
H. How are buyers’ co-ops able to save their members money? Buying co-ops pool the orders of their individual members and negotiate
volume discounts from the suppliers of products and services. Discounts for large quantity orders reduce the cost of goods and services purchased by members.
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5. Distribute a copy of Activity 1.2, Electric Cooperatives Video. Ask students to watch the NRECA YouTube video, NRECA: The Electric Cooperative Story, and answer the ten questions that follow.
Video Link: https://www.youtube.com/watch?v=tenKnIx4ouY
A. In what country were cooperatives first formally organized by a group of weavers?
England (United Kingdom); see http://weaversway.coop/pages/rochdale-principles for more information about the weavers and artisans who established a sustainable cooperative and a set of operating principles that exist to this day
B. What U.S. President led the effort to establish rural electric cooperatives? Franklin Delano Roosevelt (FDR), U.S. President March 4, 1933-April 12,
1945
C. What is the primary purpose of cooperatives? To serve the needs of members for products and services
D. Who selects the board of directors for cooperative businesses? Cooperative members select members of the board of directors, generally
from among the cooperative membership
E. What federal agency was established to bring electricity to rural Americans?
REA (Rural Electric Administration); see http://www.nreca.coop/about-electric-cooperatives/history-of-electric-co-ops/ for additional information
F. How many Americans get their electric service through cooperatives? 42 million; see http://reic.uwcc.wisc.edu/electric/ for additional
information
G. How are a cooperative business meeting decisions made? Each member who attends the meeting has one vote and the majority rules
H. What are some distinguishing features of cooperatives? Concern for the communities that they serve, democratic control, and exist
to serve the needs of members
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I. What organization does the acronym NRECA stand for? National Rural Electric Cooperative Association; see http://www.nreca.
coop/ for more information
J. Describe something else that you learned from the video. Answers will vary with each individual student or group of students.
Students may need to watch the video more than once to determine answers for this question.
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6. Distribute a copy of Activity 1.3, Co-op Questions. Divide the class into groups of three or four students. To each group, distribute a sheet of cover stock paper with a large “T” printed on one side and a large “F” printed on the other. Give the students 10 minutes to discuss the 10 questions in their small group and come to a consensus about the correct answer. Each group should also choose a spokesperson.
Then, debrief the activity by asking each group spokesperson to “vote” true or false with their sign. Discuss the answers shown below. Tabulate the number of correct and incorrect votes and discuss each quiz item. Consider giving a small prize to the top scoring small group(s). Do this activity after Activity 1.1 and a glossary review.
A. A primary objective of cooperatives is to provide user benefits. True. A primary objective of cooperatives is to provide a high quality
product (e.g., food) or service (e.g., electricity) to its members.
B. Cooperative members generally receive a vote proportionate to their purchase of co-op products or services.
False. The vast majority of cooperatives follow a “one-member-one vote” philosophy. A few base votes on business volume. Unlike stockholders in investor-owned corporations, co-op members have an equal voice in decisions, regardless of monetary investment.
C. The origin of modern cooperative operations is most often linked to England in 1844.
True. While rudimentary co-ops for fire insurance existed in colonial America, the principles that modern co-ops operate by today are attributed to the Rochdale Society of Equitable partners in Manchester, England
D. All co-op members in good standing can vote in elections for co-op directors.
True. Cooperatives are owned and democratically operated by their members.
E. Generally, unless exceptions are made, co-op directors are co-op members. True. Co-op directors are generally elected from among the co-op
membership. This way, the directors have a familiarity with, and personal stake in, the way that the co-op is managed.
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F. A for-profit community bank is an example of a cooperative. False. Community banks are investor-owned corporations that seek to
maximize the returns of their investor shareholders.
G. Cooperatives are owned and operated by their members. True. Democratic member control is a core principle of cooperatives. Co-
ops consist of members who buy their goods and services and participate in policy decisions.
H. In cooperative corporations, earnings are taxed twice on both corporate and individual (member) tax returns.
False. Co-ops have a “pass-through” designation from the IRS. This means that net earnings that are distributed to members are not taxable at the cooperative level. In consumer cooperatives, patronage refunds may not be taxable to members if they relate to the purchase of household expenditures. Patronage refunds from all other cooperative purchases in agricultural cooperatives and business cooperatives are taxable to the member.
I. Cooperatives distribute patronage refunds from net earnings based on how much a member used the co-op’s products and services.
True. When co-ops return surplus income (profit) to members, this is called a patronage refund. Patronage refunds, as the name implies, are based on a member’s patronage; i.e.; how much he or she spends on the product or service offered by the co-op. For example, if a co-op has a profit margin of $10,000 to distribute for the year and Jane Smith accounts for five percent of the co-op’s business, she would receive a patronage refund of $500 ($10,000 x .05%). Patronage refunds are generally taxable to recipients as ordinary income in the year that they receive them.
J. Cooperatives that provide utility services (e.g., electricity and telephone service) are more commonly found in densely populated cities.
False. Utility cooperatives are typically found in rural areas with sparse populations. They were formed by citizens in these areas when investor-owned corporations would not provide service where they lived due to the high cost of running wires to a relatively small number of homes. The type of cooperative that is common in densely populated cities is the housing co-op where members receive a place to live in exchange for the purchase of shares of stock of the cooperative corporation.
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7. Distribute a copy of Activity 1.4, Two Banks and a Credit Union: Deposit Account Edition. Divide the class into groups of three of four students. Ask the small groups to go online to compare the features of deposit (i.e., checking and savings) accounts at two local banks and a credit union. Debrief the activity by discussing differences between banks and credit unions in terms of cost, convenience, and other features.
It is likely that the students will find higher interest rates paid on checking and savings accounts and CDs at the credit union than at the banks, perhaps with the exception of some online banks. Explain that this is because credit unions are member-owned and do not have to make a profit for outside investors like banks do.
Note that it may take students a bit of work to find comparable products and required minimum balances to do this activity. Also, it is possible that differentials among bank and credit union products may vary with different account balances. Check the web sites of banks and credit unions in your community, before assigning this activity, and see how difficult it is to find this information.
8. Distribute a copy of Activity 1.5, Two Banks and a Credit Union: Lending Edition. Divide the class into groups of three of four students. Ask the small groups to read the case study, complete the chart, and answer the accompanying questions. When they have finished, discuss the completed chart and the answers to the questions.
Below are the answers for the completed chart and the questions that follow:
Lender APR Finance Charge
Total Cost Monthly Payment
Far Away National Bank
5.0%
$ 947.40
$ 12,947.40
$359.65
Hometown Community Bank
4.5%
$850.56
$12,850.56
$356.96
Friendly Federal Credit Union
4.0%
$754.44
$12,754.44
$354.29
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Questions:
A. Which car loan is the best deal? Friendly Federal Credit Union has the lowest interest rate (APR), the
lowest finance charge, the lowest total cost, and the lowest monthly payment.
B. Which car loan is the worst deal? Far Away National Bank has the highest interest rate (APR), the highest
finance charge, the highest total cost, and the highest monthly payment.
C. Why did the loan that provided the best terms do so? Credit unions operate for the benefit of their members. With no incentive
to maximize profits for shareholders, like investor-owned banks have, they generally charge lower costs for loans and pay higher interest on savings than banks. Co-ops do have to make a profit or surplus over time, however, to stay in business and to fund capital investments that are needed by the co-op. Like many types of operations, the cost of future investment may be included in the present cost of doing business.
D. How much did Jennifer save by taking the best deal instead of the worst deal?
$192.96 ($12, 947.40 - $12, 754.44)
E. How could Jennifer have saved even more money on her car purchase? She could have paid cash for the car and not incurred any interest charges
at all (but there would be an opportunity cost for the next best alternative for the cash spent to buy a car). Another option is to shop around some more to find even lower interest rates than those stated above. A third option is to take out a loan for a shorter time period (e.g., 24 months), which would reduce the interest charged.
F. Where can Jennifer find information about the monthly cost of car loan payments?
Students will likely share a variety of responses. Three good online loan calculators are available through FINRA (http://apps.finra.org/Calcs/1/Loan) and Bankrate.com (http://www.bankrate.com/calculators/mortgages/loan-calculator.aspx) and Auto Loan Calculator (http://www.autoloancalculator.com/).
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G. What are the pros and cons of using banks and credit unions? Banks often have many conveniently-located branches and a wide array of
financial services but their costs are generally higher than those of credit unions because they are profit-driven. Credit unions have lower costs than banks and higher rates of interest on savings, but require some type of affiliation relationship to become a member and generally have fewer offices where consumers can transact business and fewer types of financial services.
H. What are the take-away messages from this activity? 1. Follow the “Rule of Three” when making a purchasing decision by
comparing three product providers, 2. The lower the interest rate on a loan, the lower the total cost, and 3. Credit unions generally charge a lower APR on car loans than banks.
9. Distribute a copy of Activity 1.6, A Conversation About Co-ops. Ask for four volunteers to read the speaking parts of Brittany, Carlos, Matthew, and Bella, respectively, in a short skit about cooperatives. Then debrief the activity by having small groups discuss follow-up questions and debriefing them with the entire class.
A. What are the advantages and disadvantages of belonging to a food co-op? Many food co-ops sell organic foods and provide them to members at an
attractive price. Food co-ops, like supermarkets, also buy food in bulk which lowers member costs. A disadvantage of food co-ops, for some people, might be a member service requirement (e.g., stocking shelves, ringing up sales, dividing up bulk food orders) that helps lower food costs. In addition, food co-ops are not as plentiful as supermarkets and may require driving a distance to pick up food and fulfill the service requirement.
B. What are some reasons why people choose to belong to food co-ops? Food co-op members are often health-conscious people who are interested
in purchasing unprocessed and organically grown foods. Food co-ops provide them with an opportunity to meet and work with like-minded people and to purchase the food that they are looking for at an attractive price because the co-op buys it in bulk. There is also often a social dimension to food co-op membership that members enjoy.
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Note, however, that most large chain grocery stores now carry organic foods and/or bulk food items, mostly because co-ops demonstrated that there was demand for such items. The price that food co-ops charge is often higher than what is charged at large grocery stores because large chains buy in larger quantities than local food co-ops.
C. What are the advantages and disadvantages of credit unions? Advantages of credit unions include higher interest rates on savings
and lower interest on loans than banks and an opportunity to affect a credit union’s policy-making decisions through member ownership. Disadvantages of credit unions include the need to meet member qualifications to join and the fact that credit unions do not have nearly the number of branches that banks do. This can make them inconvenient for people who need to visit a credit union frequently to cash checks and make ATM withdrawals.
D. What are some reasons why people choose to belong to credit unions? For many people, credit unions are affiliated with their place of
employment which makes them convenient for direct deposit and automatic savings. Branches might be located right in the building where they work. Other people are drawn by their lower cost compared to banks. In the aftermath of the 2007-2009 financial crisis, there was a backlash by some people against the fees charged by “big national banks” and credit unions, along with community banks, were touted as a lower-cost alternative.
E. Do cooperatives always save people money? Not always. There are certain to be cases sometimes when banks charge
less than credit unions or supermarkets charge less than food co-ops, for example. For many people, however, price is not the only factor that they consider when purchasing products and services from a cooperative business. Quality products and services and dependable service are also important as is personal service (e.g., credit union members are more often recognized personally by name).
F. Does anyone in your family belong to any type of cooperative? Answers will vary among groups of students. Instructors should do an
online search for cooperatives in their community so they will recognize the names that are discussed.
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Distribute a copy of Activity 1.7, Co-ops in the News. Divide the class into groups of three of four students. Ask the small groups to go online and find a news article about a specific consumer cooperative business and then visit the cooperative’s Web site for additional information. Each group should also choose a spokesperson.
Ask each spokesperson to provide a 2 to 3 minute summary about the co-op that the group selected including its industry sector, location, number of members, membership requirements, products and services, and other notable features.
An alternative learning activity would be to turn assignment 1-7 into a written assignment or extra credit activity where students would be asked to write a 1 to 2-page paper or school newspaper article describing what they learned during their online investigation of cooperatives in the news.
Note that not all cooperatives provide information on membership costs, total number of members, or trade area on their web sites. You can still encourage students to make their best inferences. A student visiting a consumer cooperative web site can probably infer that it has a large number of members while a local food cooperative would have much fewer. You can also ask students to consider what they would pay to join a particular type of cooperative.
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CLOSURE
Ask students if they have any remaining questions about cooperatives. Encourage them to check with their parents to see if they are one of the approximately one in three U.S. households who are members of a cooperative business. Many people belong to cooperatives, or purchase their products and services, and don’t even know it.
GLOSSARY
Cooperative – A member-owned business or organization that is operated by the people that use its products and/or services.
Credit Union – A member-owned financial cooperative that is controlled by its members and provides a range of financial services such as checking and savings accounts, credit cards, and loans.
Member – Also known as a user-owner, a member is a person who meets qualifications for membership in a co-op (e.g., place of employment, place of residence) and purchases a required number of shares to belong.
One Member/One Vote – A core principle of the democratic organization of cooperatives where each member gets one vote on cooperative business decisions (e.g., election of directors) regardless of their monetary investment in the cooperative. All votes are weighted equally. By operating in this manner, a select few members who are large investors cannot dominate the decision-making process.
Pass-Through Entity – Term used to describe the fact that cooperatives that comply with IRS rules do not pay federal income taxes as a business entity. Surplus earnings returned to members are taxed only once at the individual level on members’ income tax returns and not at both the corporate level and the individual level. Thus, co-ops differ from other businesses where corporate stock dividends are taxed twice.
Patronage Refund – Term used to describe a return of profits to co-op members based on how much they have used a co-op’s products and services (i.e., their patronage). Like corporate boards of directors with stock dividends, co-op boards can distribute cash refunds to members or retain a portion for business reinvestment.
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Profit – Term used to describe the situation where a co-op generates a surplus of income over expenses. When this happens, profits are returned to co-op members (and occasionally non-members, depending on a co-op’s bylaws) in the form of patronage refunds based on how much they use the co-op’s products and services.
Share – Individuals’ portion of a cooperative organization that establishes them as an equal member/owner. All members’ shares are exactly equal.
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ASSESSMENT
Instructors are encouraged to use the 20-question multiple choice and 10 true-false question quiz and two short answer questions below as a pre-and post-test to determine gains in student knowledge about cooperative businesses after teaching this lesson.
Correct answers to the multiple choice questions are shown in boldface type.
Multiple Choice Questions
1. Members can become part of a cooperative through the purchase of a. dividends b. shares
c. patronage refunds d. cooperative reserve funds
2. Cooperatives are governed by a. a manager and staff b. a President c. a Board of Directors elected from the membership
d. outside investors who purchase stock shares
3. Day to day operations of cooperatives are run by a. a manager and staff
b. a President c. an elected Board of Directors d. outside investors who purchase stock shares
4. The return of profits to co-op members proportionate to their use of a co-op’s goods and services is called a
a. dividend b. rebate c. profit exchange d. patronage refund
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5. The primary purpose of consumer cooperatives is to a. produce a profit b. increase market share c. provide tax-exempt income to members d. deliver goods and services to members at affordable prices
6. A person who both shops at and has an ownership interest in a cooperative is called
a. an approved investor b. a member
c. an affiliated user d. a director
7. The origin of the procedures that modern day cooperatives operate by is attributed to
a. Mutual of Omaha Insurance b. National Farmer’s Cooperative c. Rochdale Society
d. Wal-Mart and Sam’s Club
8. A document created by members of a co-op to describe membership requirements and responsibilities and operating procedures is called
a. bylaws
b. IRS code ruling 72(t) c. a LLC d. an industry permit
9. Members have direct input into the operations of a cooperative by a. answering membership surveys b. receiving co-op newsletters c. buying co-op products and services d. voting at annual meetings
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10. Which of the following is a benefit of belonging to cooperatives? a. Provides tax deductions for members b. Provides access to products and services at affordable prices
c. Generates capital gains for investors d. Members provide day-to-day management of co-op operations
11. Which of the following is the name for a member-owned financial institution with checking and savings accounts?
a. Community savings bank b. Commercial bank c. Credit union
d. Savings and Loan Association
12. Cooperatives can simply be defined as a a. type of non-profit organization b. special category of business operation
c. charitable organization designed to help people in need d. government-sponsored business operation
13. The first modern day cooperative business model was formed in England in a. 1784 b. 1844
c. 1894 d. 1924
14. What types of people do cooperatives have that other types of businesses do not?
a. Members
b. Shareholders/investors c. Board of Directors d. Management and staff
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15. How many votes do those who attend cooperative business meetings typically have?
a. Twice the voting rights of cooperative management and staff b. It depends on the amount of their monetary investment in the cooperative c. It depends on the amount of cooperative products/services that they buy d. One vote per member regardless of monetary investment
16. How many levels of IRS federal income tax are there on surplus earnings returned by cooperatives to their owner-users?
a. 0 b. 1
c. 2 d. 3
17. Approximately what proportion of Americans belongs to one or more cooperatives?
a. 1 in 2 b. 1 in 3
c. 1 in 4 d. 1 in 5
18. Which is NOT a reason for people to belong to a cooperative? a. Obtain an affordable product or service b. Obtain a high-quality product or service c. Have a say in how a product or service is delivered d. Maximize profit on their monetary investment
19. The name used for credit union checking accounts is a. share account b. share advantage account c. share draft account
d. share plus account
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20. Which word is often used in the names of cooperative banks and insurance companies?
a. Cooperative b. Mutual
c. Affiliated d. Unity
True-False Questions
1. Cooperatives do not have to cover all of their operating costs to remain viable entities because they are non-profit. (FALSE: Cooperatives must cover operating costs)
2. The largest numbers of cooperatives are in the U.S. agricultural industry sector. (FALSE: The largest numbers of cooperatives involve consumer products and services)
3. Some cooperatives require their members to provide a contribution of volunteer time. (TRUE: Volunteer service lowers the cost of cooperative products and services)
4. Utility cooperatives are generally located in urban areas with large populations. (FALSE: Utility cooperatives are generally located in sparsely populated rural areas)
5. Some rudimentary cooperative-like entities were formed to provide fire insurance in the U.S. during colonial times. (TRUE: Benjamin Franklin is credited with being associated with these initial cooperative ventures)
6. People who belong to cooperatives must wait until the annual business meeting to join or leave. (FALSE: People can join or leave a cooperative at any time without affecting its business operations)
7. Some cooperatives have recognizable names due to national advertising for products or services that they sell. (TRUE: Examples include Nationwide and Mutual of Omaha insurance and Land ‘O Lakes butter)
8. Credit unions often pay higher interest rates on deposit accounts than commercial banks do. (TRUE: Unlike commercial banks, credit unions do not have to earn a profit for shareholders)
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9. Mutual insurance companies return profits in excess of operating costs and reserves as dividends to their policyholders. (TRUE: Mutual insurance companies are owned by their shareholders)
10. Housing cooperatives are generally located in rural areas with sparse populations. (FALSE: Housing cooperatives are generally located in densely populated urban areas)
Short-Answer Questions
1. Describe why a credit union is a type of cooperative business.
Credit unions are owned and democratically controlled by their members. They elect directors from among their members and every member has one vote regardless of the size of their account balance.
2. Besides a credit union, list three different types of cooperative businesses.
Answers will vary with each student and can include agricultural co-ops, food co-ops, utility co-ops, housing co-ops, child care co-ops, funeral co-ops, mutual insurance companies, and mutual savings banks.
Constructed Response Items
1. What factors should people consider before joining a cooperative?
Students should discuss the location of their residence (i.e., is it within the territory of a cooperative utility company?), quality of service, time commitment, and cost.
2. Do any of your family members belong to a cooperative? If so, describe which one and what you know about it.
Responses will vary with each individual student. Instructor should become familiar with local cooperatives to verify the accuracy of students’ responses.
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REFERENCES
About Co-ops (2012). Washington, DC: National Cooperative Business Association. Retrieved from http://www.ncba.coop/.
Buying Groups and Co-ops: The More the Merrier (and Cheaper) (2013). Startup Nation. Retrieved from http://www.startupnation.com/business-articles/3714/1/buying-groups-coops.asp.
Consumer Cooperative. (2013). Wikipedia. Retrieved from http://en.wikipedia.org/wiki/Consumer_cooperative.
Consumer Cooperatives (n.d.). Washington, DC: Consumer Federation of America. Retrieved from http://www.consumerfed.org/about-cfa/consumer-cooperatives.
Consumer Cooperatives: Part of Our American Fabric. Washington, DC: Consumer Federation of America: http://www.consumerfed.org/pdfs/coop.pdf.
Cooperative. (2013). Washington, DC: U.S. Small Business Administration. Retrieved from http://www.sba.gov/content/cooperative.
Cooperative Vocabulary (2012). Retrieved from http://cultivate.coop/wiki/Cooperative_Vocabulary.
Cooperatives (2013), College Park, PA: Penn State Extension. Retrieved from http://extension.psu.edu/business/ag-alternatives/marketing/cooperatives.
Cooperatives and Profit: What is the Relationship? Retrieved from http://www.wedge.coop/newsletter/february-march-1997/cooperatives-and-profit-what-is-relationship.
Food Co-ops (2012). Washington, DC. National Cooperative Business Association. Retrieved from http://www.ncba.coop/ncba/about-co-ops/co-op-sectors/144-food-co-ops.
Health Care Cooperatives: Definitions and State Examples (2011). Washington, DC: American Academy of Family Physicians. Retrieved from http://www.aafp.org/dam/AAFP/documents/advocacy/coverage/insurance/ES-HealthCareCooperativesDefinitionsandStateExamples-032311.pdf.
High School Cooperative Syllabus (2012). eXtension. Retrieved from http://www.extension.org/pages/63097/high-school-cooperative-syllabus#.UfqBktrD-M8.
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How Agricultural Cooperatives are Taxed (1995). University of Missouri Extension. Retrieved from http://extension.missouri.edu/p/G903.
How Housing Cooperatives Work (n.d.). Retrieved from http://home.howstuffworks.com/real-estate/housing-cooperatives.htm.
Organize a Child Care Co-Op. (2006). Retrieved from http://voices.yahoo.com/organize-child-care-co-op-114775.html.
Patronage Dividends: A Primer (2008). Retrieved from http://www.cooperativegrocer.coop/articles/2009-07-14/patronage-dividends-primer.
Tax Treatment of Cooperatives (n.d.). Retrieved from http://www.rurdev.usda.gov/rbs/pub/cir23/CIR23.html.
Teaching Cooperatives (2010). Cultivate.Coop. Retrieved from http://cultivate.coop/wiki/Category:Teaching_cooperatives.
The structure of cooperatives (2011). U.S.D.A. Rural Development. Retrieved from http://www.rurdev.usda.gov/supportdocuments/CIR45_3.pdf.
Understanding Cooperatives. (n.d.) Win-Win Solutions – Unit 3. Retrieved from http://equalexchange.coop/sites/default/files/import/pdfs/downloads/curriculum/EEcurriculum_Unit3.pdf.
Understanding Cooperatives-Quiz 5 Answers. (n.d.) U.S.D.A. Rural Development. Retrieved from http://www.cooperativenetwork.coop/wm/education/youthprograms/web/USDACurriculum_MNedition/unit5/quizanswers5.htm
What is a cooperative? (2013). Kansas State University. Retrieved from http://accc.k-state.edu/coops101/whatiscoop.html.
What are patronage refunds? (1993). Washington, DC: U.S. Department of Agriculture. Retrieved from http://www.rurdev.usda.gov/rbs/pub/cir9.pdf.
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LEARNING ACTIVITY WEB SITES
Live Cooperative Activity: http://www.extension.org/sites/default/files/live%20coop%20activity.pdf.
This activity is a hands-on mock cooperative experience that teaches students how cooperatives work, how they are governed, and how they benefit their members.
Net Income Worksheet Activity: http://www.extension.org/sites/default/files/Net%20Income%20Distribution%20Wksht.pdf
This activity provides a hands-on experience to help students understand how net income from a cooperative is distributed to members.
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OPTIONAL LEARNING ACTIVITIES
u For extra credit or as an additional student learning activity, ask students to visit a consumer cooperative in their community and provide an oral or written report on their interview with co-op management and/or members.
u Ask students to identify cooperatives in their area (e.g., town, city, or county). Encourage them to contact a local co-op, introduce themselves, describe the project they are working on, and request additional information about the cooperative.
u Invite a guest speaker from a local cooperative to visit your class to discuss how cooperative businesses operate. For example, a director or employee of a food co-op or credit union can discuss “real world” examples of cooperative practices.
u Ask students the following question: Why don’t we see more co-ops if they are so good?
Answers could include the need to organize people with some type of a common relationship, very specific regulatory requirements, and consumer needs that are being adequately met by investor-owned corporations.
u Ask students the following question: Where would you expect more cooperatives to form?
Answers could include pre-formed groups of people, such as churches and places of employment, and rural areas that are underserved by investor-owned corporations.
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Cooperatives in Your Community What is a Consumer Cooperative (Co-op)?
Consumer Cooperatives Lesson
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• Business/organization owned and operated by its customer members
What is a Cooperative (Co-op)?
• Exists to provide products or services to members
• Involves both consumer and agriculturalindustries
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• More than 100 million Americans belong to one or more cooperatives (about 1 in 3)
• Largest number of co-ops involve consumer products and services
• Vary in size from small store fronts to large national level businesses
Co-op Facts
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The objective of cooperatives is to provide high quality products or services at the lowest net
price to members.
They are a special category of corporations.
Profits are returned to members via patronage refunds based on members’ purchase or use of
co-op products and services.
More Co-op Facts
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• One member/one vote (democratic decisions)-95% of cooperatives; a few vote by business volume
• Elected board directors from among membership
• Generally, there are no “outside” directors as is the case with investor-owned corporations
• Elected board hires management and staff
Co-op Governance
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• Ben Franklin started a co-op to provide fire insurance for homes
• Modern co-op model attributed to Rochdale Society in 1844 in Manchester, England
– Developed a set of organizing principles
• Some consumer co-ops have recognizable names
– REI (Recreation Equipment Inc.)
– Nationwide Insurance
Co-op History
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• Health care co-ops• Mutual insurance
companies• Wholesale distribution
co-ops• Buying co-ops• Funeral co-ops• Student housing and
bookstore co-ops
Types of Consumer Co-ops
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• Credit unions
• Electrical co-ops
• Telephone co-ops
• Housing co-ops
• Food co-ops
• Child care co-ops
• Nursery school co-ops
Types of Consumer Co-ops
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Credit Unions vs. Banks
Credit Union• Owned by customer members
• Similar products and services to banks
• Return profits to members resulting in favorable interest rates for savings and loans
• Fewer “brick & mortar” locations than banks
• Requires some type of membership affiliation relationship
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Credit Unions vs. Banks
Commercial Bank
• Financial institution owned by investing stockholders
• Often charge higher interest on loans and pay less interest on savings than credit unions (to provide a return on investment to stockholders)
• Generally have more convenient branch access than credit unions
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Credit Unions vs. Banks
Commercial Bank
• Financial institution owned by investing stockholders
• Often charge higher interest on loans and pay less interest on savings than credit unions (to provide a return on investment to stockholders)
• Generally have more convenient branch access than credit unions
Credit Union• Owned by customer members
• Similar products and services to banks
• Return profits to members resulting in favorable interest rates for savings and loans
• Fewer “brick & mortar” locations than banks
• Requires some type of membership affiliation relationship
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Some Co-ops Require Members to Volunteer Service
• Common among food and nursery school co-ops
• Member volunteer labor reduces operating costs
• Lower costs passed on to co-op members
• Volunteer service can build member camaraderie
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Glossary of Cooperative Terms
• Cooperative
• Credit Union
• Member
• One Member/One Vote
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More Cooperative Terms
• Pass-Through Entity
• Patronage Refund
• Profit
• Share
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Questions About Cooperatives?
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Activity 1.1
Cooperative Facts and Discussion Questions
Cooperatives (also known as co-ops) can be found around the world. A cooperative is a business or organization that is owned and operated by its members. Co-ops come in a variety of sizes from small store front operations to large corporations. More than 100 million Americans (of about 318,000,000 in 2014) participate in co-ops. That translates to about one in three Americans having a co-op affiliation as an employee or customer.
The cooperative form of business ownership has been in existence for centuries. Ben Franklin is credited with forming America’s first successful co-op to provide fire insurance for homes. The modern cooperative business model is attributed to formation of the Rochdale Society of Equitable Partners in England in 1844. A set of organizing rules called the “Rochdale Principles” became the basis for how co-ops still operate.
Members become part of a co-op by purchasing a required minimum amount of shares (e.g., $25 to open a credit union share account). The vast majority (about 95%) of cooperatives follow a “one member-one vote” philosophy. Each member has one vote (regardless of the dollar amount of shares purchased) at the co-op’s annual business meeting so members share equally in the decision-making process. A few cooperatives base voting rights on the amount of business volume. Some co-ops have a work requirement for members, such as members of a food co-op working a certain number of hours to run the cash register or stock store shelves. For other co-ops, service hours are not required and members’ activities are limited to product use and attending the annual business meeting and voting on business items.
The members of a co-op buy its products (e.g., food) or use its services (e.g., electricity) and share in profits generated by the co-op. Maximizing profit is not the primary purpose of a co-op, however. Provision of an affordable, high quality product or service for co-op members is. Thus, co-ops exist to serve the needs of their member-owners. Cooperatives must be profitable, however, to remain in operation. Co-ops are governed by an elected board of directors that is generally chosen from among the co-op membership. Co-op boards then hire management and staff to run a co-op’s day-to-day operations. While cooperatives are widespread in the U.S. agricultural industry sector, the largest numbers of co-ops involve consumer products and services, particularly credit unions for financial services and utility co-ops for telephone and electric service. Members can freely join or leave a co-op (e.g., when they move) without affecting its business operations.
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Some co-ops have widely recognizable names from advertising for the products that they sell including Ace Hardware (hardware stores), Nationwide Mutual Insurance Company (property insurance), Cabot Creamery (cheese), Land O’Lakes (butter), and Sunkist Growers, Inc. (citrus fruit). For a list of cooperative enterprises worldwide, see http://en.wikipedia.org/wiki/List_of_cooperatives.
Types of Consumer Cooperatives
Type of Cooperative
Description of Cooperative Enterprise
Credit Unions A credit union is a member-owned financial services cooperative offering a wide range of services including checking and savings accounts, certificates of deposit, and loans. Over 86 million consumers belong to more than 9,000 credit unions nationwide.
Credit unions often pay higher interest rates than for-profit banks on deposit accounts and charge lower interest and fees on loans.
Members have a common bond such as an employer, church, or community. Since members are required to purchase a minimum number of shares for a certain amount (e.g., $25) to open an account, credit union savings accounts are called share accounts and credit union checking accounts are called share draft accounts.
Utility Cooperatives Utility cooperatives exist to provide electrical and telephone service to their members who often live in rural areas with sparse populations. They service more than 30 million people nationwide.
Housing Cooperatives
Common in densely populated areas, such as New York City, housing cooperatives provide members a place to live in exchange for the purchase of shares of stock of the cooperative corporation. Monthly fees for maintenance of common areas are also charged. When members want to move, they sell their shares back to the corporation. Over one million U.S. families live in housing co-ops.
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Food Cooperatives Food cooperatives exist to distribute food to their members. They are common in large cities and college towns. Some food co-ops limit their product line to organic foods only and members may need to provide service hours. Over three million Americans are serviced by almost 5,000 food co-ops. Food is often purchased in large bulk quantities and packaged into smaller portions by members, which helps members stretch their food dollars.
It should be noted, however, that many large grocery store chains today also stock organic and bulk foods. These stores may charge lower prices for organic foods than food co-ops due to their ability to buy food in larger quantities.
Child Care Cooperatives
Child care co-ops are informal organizations of parents that take turns caring for each other’s children according to a pre-determined set of guidelines. They are common in local neighborhoods and small communities where families know one another. In effect, members barter child care services with one another. About half a million families participate in child care co-ops nationwide.
Nursery School Co-ops
Nursery school co-ops are nursery schools that are owned and operated by the parents of children enrolled in the school. Parents determine school policies and provide services to the school such as staffing fundraising events, maintaining equipment, and serving as teacher’s aides in the classroom.
Parental involvement reduces the cost of operating a nursery school and the savings is passed along to parents in the form of lower enrollment fees.
Health Care Cooperatives
Health care cooperatives provide health care services for their members with a focus on high quality care at the lowest cost. Some actually own health care facilities and employ doctors. Three service models exist: consumer-owned cooperatives, worker-owned cooperatives, and purchasing/shared services cooperatives where independent businesses band together. Over one million people nationwide receive health care services through co-ops.
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Mutual Insurance Companies
A mutual insurance company is an insurance company owned by its policyholders, as opposed to a stock insurance company that is owned by investors that purchase its stock. Profits earned by a mutual insurance company in excess of operating costs and reserves are returned to policyholders in the form of dividends.
Several dozen insurance companies, some with well-known names, operate in this fashion (e.g., Mutual of Omaha, Liberty Mutual, Nationwide Mutual Insurance Company).
Mutual Savings Banks
A mutual savings bank is a financial institution owned by its account owners, as opposed to banks that sell stock shares to investors. Originally designed to serve low-income consumers, mutual savings banks offer interest-earning checking and savings accounts. Over the years, many mutual savings banks have failed, merged, or been converted to stock-issuing commercial banks.
About 600 mutual savings banks remain in existence, located primarily in the eastern U.S. Profits earned in excess of operating costs and reserves are returned to depositors.
Wholesale Distribution Cooperatives
This type of cooperative supplies products to its member stores so they can leverage their buying power. The largest co-op of this type in the U.S. is Wakefern Food Corporation which is owned by 43 independent grocers that operate more than 220 Shop rite supermarkets in eight eastern states. The Wakefern co-op supplies groceries to its member stores and marketing support services.
Buying Co-ops Buying co-ops are organized groups that buy items in bulk, thus providing members with the leverage to negotiate lower prices for goods and services and coordinate marketing efforts. The types of products purchased by buying co-ops vary widely and include sporting goods, pharmaceuticals, and office supplies.
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Funeral Co-ops Funeral co-ops provide their members with affordable final arrangements and the ability to shop for funeral services (e.g., burial, cremation, caskets) without sales pressure.
College Campus Co-ops
Campus co-ops typically provide services related to textbook sales, food, and housing for student members.
Questions for Discussion:
A. How do cooperatives work?
B. What is the primary objective of cooperatives?
C. Why do some cooperatives, such as food co-ops and nursery school co-ops, ask or require members to volunteer time (labor)?
D. Why do credit unions typically offer a higher interest rate on deposit accounts and a lower interest rate on loans than commercial banks?
E. Are there disadvantages to using credit unions? If so, what?
F. Why are most utility (e.g., electric and telephone) cooperatives located in rural areas?
G. What are the similarities between mutual insurance companies and mutual savings banks?
H. How are buying co-ops able to save their members money?
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Activity 1.2
Electric Cooperatives Video
Watch the YouTube video NRECA: The Electric Cooperative Story and answer the following ten questions: https://www.youtube.com/watch?v=tenKnIx4ouY
A. In what country were cooperatives first formally organized by a group of weavers?
B. What U.S. President helped rural electric cooperatives get their start?
C. What is the primary purpose of cooperatives?
D. Who selects the board of directors for cooperative businesses?
E. What federal agency was established to provide loans for the construction of electric distribution systems that brought electricity to rural Americans?
F. How many Americans today get their electric service through cooperatives?
G. How are cooperative business operating decisions made?
H. What are some distinguishing features of cooperatives?
I. What organization does the acronym NRECA stand for?
J. Describe something else that you learned from the video.
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Activity 1.3
Co-op Questions
Form groups of three or four students. You will then be given a sheet of cover stock weight paper with a large “T” printed on one side and a large “F” printed on the other.
Take 10 minutes to discuss the 10 quiz items below and come to a consensus about the correct answer for each statement.
Choose a spokesperson to report your answers to the total group by holding up the “T” (True) or “F” (False) side of your sign. Be prepared to defend your answer.
A. A primary objective of cooperatives is to provide user benefits.
B. Cooperative members generally receive a vote proportionate to their purchase of co-op products or services.
C. The origin of modern cooperative operations is most often linked to England in 1844.
D. All co-op members in good standing can vote in elections for co-op directors.
E. Generally, unless exceptions are made, co-op directors are co-op members.
F. A for-profit community bank is an example of a cooperative.
G. Cooperatives are owned and operated by their members.
H. In cooperative corporations, earnings are taxed twice on both corporate (cooperative) and individual (co-op member) tax returns.
I. Cooperatives distribute patronage refunds from net earnings based on how much a member used the co-op’s products and services.
J. Cooperatives that provide utility services (e.g., electricity and telephone service) are more commonly found in densely populated cities.
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Activity 1.4
Two Banks and a Credit Union: Deposit Account Edition
Form groups of three or four students. Make a list of local financial institutions and search the web sites for two local banks and a credit union to gather informa-tion about features of their CDs and deposit accounts (i.e., checking and savings accounts). Discuss differences between the two banks and credit union in terms of cost, convenience, and other features.
Product and Service Features Bank #1 Bank #2 Credit UnionSavings AccountsFederal Account Insurance*
Minimum balance requirement on savings account to waive monthly fee
Interest rate on savings account
Certificates of Deposit (CDs)Interest rate on 1-year, 3-year, and 5-year certificate of deposit (CD)
Opening minimum balance for CDs
CD penalty for withdrawals made before maturity date
Checking AccountsMinimum balance requirement on checking account to waive monthly fee
Interest rate on checking account
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Overdraft, NSF, or returned item fee (for insufficient funds to cover check amount)
Fees and ServicesReturned deposited item fee (for deposited checks with insufficient funds)
Cost to use ATMs at another bank or location
Online banking services offered and costs
Description of banking programs for students
Cost of money orders and cashier’s checks
*FDIC insurance for banks and NCUA insurance for credit union
Which of the three financial institutions has the best deposit account features and why?
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Activity 1.5
Two Banks and a Credit Union: Lending Edition
Jennifer Kaplan is shopping around for a “new (to her) used” car and needs to get a car loan to help pay for it. The total cost of the car is $18,000 but she has $4,000 in savings and has a trade-in car worth $2,000. Thus, she needs to borrow $12,000 and wants to take out a loan for 36 months. She uses credit wisely and has an excellent credit score of 782.
Jennifer decides to “shop around” by comparing the costs of loans at two local banks and a credit union. Far Away National Bank offers a 36-month car loan with an interest rate of 5% and the total interest cost over the life of the loan is $947.40. Hometown Community Bank offers a 36-month car loan with an interest rate of 4.5% and the total interest cost over the life of the loan is $850.56. Friendly Federal Credit Union offers a 4%, 36-month car loan to its members and the total interest cost over the life of the loan is $754.44.
Fill in the chart below to determine the best loan for Jennifer. The total cost of the loan is the principal ($12,000) plus the finance charge. The monthly payment, for the purpose of this activity, is the total cost of the loan divided by the number of months.
Lender APR Finance Charge
Total Cost of Loan
Monthly Payment
Far Away National Bank
Hometown Community Bank
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Friendly Federal Credit Union
Questions:
A. Which car loan is the best deal?
B. Which car loan is the worst deal?
C. Why did the loan that provided the best terms do so?
D. How much did Jennifer save by taking the best deal instead of the worst deal?
E. How could Jennifer have saved even more money on her car purchase?
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F. Where can Jennifer find information about the monthly cost of car loan payments?
G. What are the pros and cons of using banks and credit unions?
H. What are the take-away messages from this activity?
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Activity 1.6
A Conversation About Co-ops
Brittany, Carlos, Matthew, and Bella are talking about cooperatives. Read their conversation as it is acted out in front of the class. Then answer the questions that follow.
Brittany: Hey, Carlos. What’s in that big bag that you’re carrying?
Carlos: It’s food from the food co-op that I’m bring home for my mom. Our family belongs to a food co-op that buys food in bulk and sells it in smaller quantities to its members.
Matthew: What’s a food co-op? Is it like a supermarket?
Carlos: Not exactly. Supermarkets are owned by big companies. Food co-ops, like all co-ops, are owned and operated by their members. The word co-op is short for cooperative.
Bella: Are there other types of co-ops besides food co-ops?
Carlos: Oh yeah. There are lots of different kinds of co-ops. We covered this in my business education class a few weeks ago. There are co-ops for electricity and telephone service and child care. Even for housing. A lot of people in big cities like New York City live in housing units that are part of co-ops. Some housing cooperatives for seniors are also found in rural areas.
Bella: Yes, I remember that business ed class. Mr. Murray also talked about financial companies that are organized as cooperatives. I remember he talked about insurance companies and banks and said that they have the word “mutual” in their name. This indicated that they are owned and operated by the people who do business with them.
Brittany: Yes, I remember that too. He also told us about credit unions and said that they were another type of cooperative. My Mom belongs to a credit union where she works.
Matthew: So what exactly is a credit union?
Brittany: The way my Mom explained it, it’s like a bank. They offer saving and checking accounts and other financial products like car loans and CDs. The difference between banks and credit unions is that banks are owned by their shareholders and want to earn a profit. Credit unions are owned by their members and just need to cover their operating costs. Credit unions often have better loan
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terms and pay higher interest on savings. My Mom likes her credit union so much that she opened a savings account for me there.
Carlos: Well, moneybags, I guess the next time we go out for ice cream or something, you can treat. Right now, I’ve got to get this food home for my Mom. See you guys later.
Questions:
In small groups, discuss the following questions. Choose a representative to take notes and report the results of your discussion to the class.
A. What are the advantages and disadvantages of belonging to a food co-op?
B. What are some reasons why people choose to belong to food co-ops?
C. What are the advantages and disadvantages of credit unions?
D. What are some reasons why people choose to belong to credit unions?
E. Do cooperatives always save people money?
F. Does anyone in your family belong to any type of cooperative?
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Activity 1.7
Co-ops in the News
Form groups of three of four students. Go online and find a news article about a particular consumer co-op. Then visit the Web site of the cooperative that you selected to learn about.
Choose a group spokesperson. The spokesperson will provide a 2 to 3 minute summary about the cooperative that the group selected including its name, why it is in the news, and information that you are able to find out about it such as its location and service area, industry sector, products and services, number of members, membership requirements, and other notable information.
Name of Cooperative
Why it is in the News
Location and Service Area
Industry Sector (e.g., financial services, health care, telecommunications)
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Products and Services
Number of Members
Membership Requirements
Other Notable Information
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NOTES
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NOTES
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