Montecito Bank & Trust President Janet Garufis taught students at Santa Barbara High School on Tuesday — Teach Children to Save Day — how to responsibly use credit and how interest compounds.

Garufis addressed a group of juniors and seniors listening behind rows of computers in her third class of Tuesday morning, but rather than structuring her lecture around risk and reward as before, she asked the group what they wanted to know.

Credit card debt was the first topic. When Garufis asked about the possible risks of using a credit card, students responded with increased debt, higher interest rates and a lower credit score.

“Credit card debt escalates quickly and that interest is very expensive, so credit cards are not something you want to use for long-term loans,” Garufis said. “Banks want you to take credit and use it because they know you will spend money, but it can take a long time to dig out of something like that.”

She advised students to use credit cards for emergencies so it will improve their credit score and eventually let them get a loan for a car or house.

Banks often charge 3 percent or 4 percent of a person’s principal credit card balance plus interest, Garufis said, and some banks charge up to 24 percent annually. It’s a tool to be used frugally and responsibly, and a means to participate in the global economy, she added.

“I got my first credit card when I turned 18. It was a student Visa with a $1,000 limit. I maxed it out after about four months,” Montecito Bank & Trust employee Will Freeland said. “It took me about a year to pay off because of the interest. Now I just use it for emergencies and gas. I pay off about $200 every month and improve my credit score.”

One student asked about the common characteristics of the bank’s wealthiest customers.

“You could tell she was thinking critically,” Garufis said. “She was thinking about how does someone measure success and what do successful people do, and that’s a great way to think about things. It’s a sophisticated way to solve a problem.”

She told the students that wealthy people who are self-made are entrepreneurial, disciplined, not afraid to take calculated risks and decide with reason rather than emotion.

“They make sure they have options, they are passionate about what they do, but also passionate about giving back to the community,” she said.

Next a student asked: “If you leave the interest you acquire in your savings account, is that a smart decision?”

That question transitioned into a discussion of how interest compounds. Garufis explained that if someone puts $1,000 in a savings account for a year and the bank pays 3 percent annually, it would result in a $30 gain. She then talked about how to calculate compounded rate of return and the rule of 72 — or how long it will take one to double their money based on annual capitalization.

Finally, Garufis explained the purpose of banks, how they give back through the community based on the Community Reinvestment Act, and some of the reasons for the economic recession.

“Banks take people’s deposits and lend them back into the community so the economy can grow,” she said. “It’s a simple model that got screwed up over the past couple years.”

She said banks were doing a lot of things that weren’t good for the people, such as giving people loans they couldn’t afford to pay back. She added that banks knew it wasn’t right, but people also didn’t take responsibility for their own financial futures.

“The more you learn and know how to manage your own money, the more successful you will be because you won’t have to rely on someone else to tell you what to do,” Garufis said.

Instructional assistant Vanesa Ortiz said it was a good experience for students to know what the real world is all about and not just in their high school bubble. She said many students don’t understand how their parents handle money.

“For some of our students, this is new information. They hear their parents complain financially how they are not able to pay for things, but don’t understand the concepts behind it,” Ortiz said. “Students think I want, I want, I want, but never see behind the want and where all the money is going to and coming from.”

Ortiz said she signed up for her first credit card when she was 18, but she didn’t understand she had to pay the money back. She said many students understand debit cards, but not credit.

“It’s a great opportunity for kids to realize they need to have banking knowledge and to be aware of the resources out there,” Ortiz said.

After the last session ended, Garufis told Noozhawk there was a big difference between her first two classes and her last. Many students needed individual attention in the first two sessions because they couldn’t handle basic math through a calculator, and students were largely unaware of the financial crisis as well.

“The level of knowledge around basic investments, stocks, bonds was surprising,” Garufis said. “Students were also unaware of the impacts of the financial crisis, even though they knew it in general terms.”

It could be that students just aren’t engaged, Garufis said, and that teaching through interactive computer lessons would better captivate their attention because that’s how kids learn today.

The third class Garufis taught were students involved in the Dons Net Café, an entrepreneurship class where students run their own business, market and produce a product that’s featured in a national contest. Ortiz said that each student has a different role, from CEO to human resources manager.

— Noozhawk staff writer Alex Kacik can be reached at akacik@noozhawk.com. Follow Noozhawk on Twitter: @noozhawk, @NoozhawkNews and @NoozhawkBiz. Become a fan of Noozhawk on Facebook.