How a Financial Calculator Can Help Teens Make Decisions About Credit Cards $$$$$$$$$$$$ 2002.
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Transcript of How a Financial Calculator Can Help Teens Make Decisions About Credit Cards $$$$$$$$$$$$ 2002.
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How a Financial Calculator Can Help
Teens Make Decisions About Credit Cards
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22
Marsha A. Goetting Ph.D., CFP®, CFCS
Marsha A. Goetting Ph.D., CFP®, CFCS
Professor & Extension Family Professor & Extension Family Economics SpecialistEconomics Specialist
Department of Agricultural Department of Agricultural Economics & EconomicsEconomics & Economics
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Have you wondered? Have you wondered? • How long it would take How long it would take to pay off the balance to pay off the balance on aon a credit card?credit card?
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Have you wondered? Have you wondered? • How much you would How much you would save in interest save in interest charges by increasing charges by increasing your payments?your payments?
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WorkshopWorkshop• You are going to learn You are going to learn
how to solve these & how to solve these & similar problems quickly similar problems quickly & easily by using a & easily by using a financial financial calculatorcalculator
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Financial CalculatorFinancial Calculator
• Texas Instruments Texas Instruments BA-35 Solar Business BA-35 Solar Business Analyst (No longer Analyst (No longer available)available)
• Cost: About $20 at most Cost: About $20 at most discount storesdiscount stores
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IntroductionIntroduction• Getting Getting Acquainted with Acquainted with your Financial your Financial CalculatorCalculator
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Turn on Turn on
MODEMODE
CE/CCE/C
2nd2nd CPTCPT AC/ONAC/ON
NN
XX 12 12
% i% i PMTPMTPVPV FVFV
1212
FixFix
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Financial Mode Financial Mode
FinFin 0. 0.
• If If FINFIN is not lower left is not lower left cornercorner
• PressPress MODEMODE AC/ONAC/ONCPTCPT
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Decimal Function Decimal Function
FINFIN 0.00 0.00
• PressPress 2nd2nd
2nd2nd
FixFix
CPTCPT 22
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Clearing Screen/DisplayClearing Screen/Display
• Press key oncePress key once
• Clears Display Clears Display
• Corrects Incorrect EntriesCorrects Incorrect Entries
• Clears word “Error”Clears word “Error”
CE/CCE/C
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Clearing Financial Registers Clearing Financial Registers
• Press keyPress key Clears numbers in Clears numbers in
registers & displayregisters & display
NN %i%i PVPV PMTPMT FVFV
CE/C 2nd2nd
CMRCMR
CE/C
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Finance KeysFinance KeysNN
% i% i
PMTPMT
Number of PeriodsNumber of Periods
Interest RateInterest Rate
Payment AmountPayment Amount
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Finance KeysFinance KeysPVPV
FVFV
Present ValuePresent Value
Future ValueFuture Value
Compute keyCompute keyCPTCPT
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Credit CardsCredit Cards
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Minimum Payments • Average balance of Average balance of $1,825 $1,825 on your on your bank bank credit credit cardcard
• 18%18% APR APR
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Average Balance$1,825
• Pay $28 per monthPay $28 per month
• 21 years to pay off21 years to pay off
• $5,231 interest$5,231 interest
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Balance $1,825• Pay Pay $28$28 per per
monthmonth
• 2121 Years to Years to pay offpay off
• $5,231$5,231 interest interest
• Pay Pay $38$38 per per monthmonth
• 77 years to pay years to pay offoff
• $1,427.57$1,427.57 interestinterest
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True Confessions““It took me two It took me two
minutes to get a minutes to get a credit card & 10 credit card & 10 years to get out of years to get out of it.”it.”Lucy Vailakis, age 29Lucy Vailakis, age 29
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Payment???Payment???• If want to pay off credit card If want to pay off credit card
in 1, 2, 3 etc. 3 years, what is in 1, 2, 3 etc. 3 years, what is the monthly payment?the monthly payment?
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Goal: Pay off 3 yrs Goal: Pay off 3 yrs
• Tricia’s Balance $3,598Tricia’s Balance $3,598
• APR 18%APR 18%
• Payment Payment amount?amount?
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Credit Card 3 years Credit Card 3 years • Clear registers Clear registers 2nd CE/C CE/C2nd CE/C CE/C• Loan AmountLoan Amount 3,598 PV3,598 PV
• Periods Periods 3 x 12 = 36 N3 x 12 = 36 N• % Rate% Rate 18 18 12 = 1.50 %i12 = 1.50 %i• CPT PMT 130.08 CPT PMT 130.08
(don’t clear)(don’t clear)
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Credit Card 2 years Credit Card 2 years • Clear registers Clear registers 2nd CE/C CE/C2nd CE/C CE/C• Loan AmountLoan Amount 3,598 PV3,598 PV
• Periods Periods 2 x 12 = 24 N2 x 12 = 24 N• % Rate% Rate 18 18 12 = 1.50 %i12 = 1.50 %i• CPT PMT 179.63 CPT PMT 179.63
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Interest DifferenceInterest Difference
• 3 years = $1,084.75 3 years = $1,084.75
• 2 years = 713.052 years = 713.05
$371.70$371.70
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Central IdeaCentral Idea• Paying off credit card Paying off credit card
balance sooner means balance sooner means higher payments, but higher payments, but you pay less you pay less INTERE$TINTERE$T
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Payment???Payment???• Computed payment based Computed payment based
on goal of paying off on goal of paying off credit card in certain credit card in certain number of years.number of years.
• Interest paidInterest paid
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Different problemDifferent problem
• If make certain If make certain amount of amount of paymentpayment
• How long to pay How long to pay off?off?
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How long to pay off?How long to pay off?
• $13,000 owed$13,000 owed
• 18.5 % APR18.5 % APR
• $250 payment$250 payment
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Credit Card$13,000 Credit Card$13,000
• Clear registers Clear registers 2nd2nd CE/CCE/C CE/CCE/C• Credit balanceCredit balance 13,000 PV13,000 PV
• % Rate% Rate 18.5 18.5 12 = 1.54 %i 12 = 1.54 %i• Payment Payment 250 PMT250 PMT• CPT N 105.75 monthsCPT N 105.75 months
• 12 =12 = 8.81 years (Don’t clear) 8.81 years (Don’t clear)
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Compute interest paidCompute interest paid
• Press again: Press again:
• CPT N 105.75CPT N 105.75
• # of monthly # of monthly paymentspayments
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Interest Paid Interest Paid
105.75 months105.75 months
x x $250 payments$250 payments
$ 26,436.40 paid back$ 26,436.40 paid back
- 13,000.00 loan - 13,000.00 loan
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Interest Paid Interest Paid
• $13,436.40 paid $13,436.40 paid in interest over in interest over 8.81 years8.81 years
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Increase paymentIncrease payment
• Old paymentOld payment•$250$250
• New paymentNew payment•$450$450
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Credit Card $450 Credit Card $450 • Clear registers Clear registers 2nd2nd CE/CCE/C CE/CCE/C• Credit balanceCredit balance 13,000 PV13,000 PV
• % Rate% Rate 18.5 18.5 12 = 1.54 %i 12 = 1.54 %i• Payment Payment 450 PMT450 PMT• CPT N 38.53 monthsCPT N 38.53 months• 12 =12 = 3.21 years 3.21 years
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Calculate Interest Calculate Interest
• How much How much interest paid interest paid in 3.21 years?in 3.21 years?
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Compute interest paidCompute interest paid
• Press again: Press again:
• CPT N 38.53CPT N 38.53
• # of monthly # of monthly paymentspayments
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Interest Paid Interest Paid
38.53 months38.53 months
x x $450 payments$450 payments
$ 17,337.99 paid back$ 17,337.99 paid back
- 13,000.00 loan - 13,000.00 loan
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Interest Paid Interest Paid •$4,337.99 paid $4,337.99 paid in interest over in interest over 3.21 years3.21 years
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Interest DifferenceInterest Difference
• $250 8.81 yrs = $13,436.40 $250 8.81 yrs = $13,436.40
• $450 3.12 yrs = $ 4,337.99$450 3.12 yrs = $ 4,337.99
$9,098.41$9,098.41
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Central IdeaCentral Idea• By increasing the amount of By increasing the amount of
CREDIT CARD paymentCREDIT CARD payment• A loan can be paid A loan can be paid off off
sooner sooner
• You pay less INTERE$TYou pay less INTERE$T
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Credit Cards Credit Cards • Donna’s Balance Donna’s Balance
$6,500$6,500
• APR APR 19%19%
• $130$130 payments payments
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How long to pay off? How long to pay off? • Clear registers Clear registers 2nd CE/C CE/C2nd CE/C CE/C• Loan AmountLoan Amount 6,500 6,500 PVPV
• Payment Payment 130 PMT 130 PMT• % Rate% Rate 19 19 12 = 1.58 %i 12 = 1.58 %i • CPT NCPT N (months) (months) 99.8599.8512 = 8.32 years 12 = 8.32 years (don’t clear)(don’t clear)
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Compute interest paidCompute interest paid
• Press again: Press again:
• CPT N 99.85CPT N 99.85
• # of monthly # of monthly paymentspayments
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Interest Paid Interest Paid
99.85 months99.85 months
x $130 paymentsx $130 payments
$ 12,980.86 paid back$ 12,980.86 paid back
- 6,500.00 - 6,500.00 credit balance credit balance
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Interest Paid Interest Paid •$6,480.86 interest $6,480.86 interest paid by Donna over paid by Donna over 8.32 yrs8.32 yrs
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Increase paymentIncrease payment
• Old paymentOld payment• $130$130
• New paymentNew payment• $230$230
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How long to pay off? How long to pay off? • Clear registers Clear registers 2nd CE/C CE/C2nd CE/C CE/C• Loan AmountLoan Amount 6,500 6,500 PVPV
• Payment Payment 230 PMT230 PMT• % Rate% Rate 19 19 12 = 1.58 %i 12 = 1.58 %i • CPT N (months) CPT N (months) 37.7637.7612 = 3.15 years12 = 3.15 years
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Compute interest paidCompute interest paid
• Press again: Press again:
• CPT N 37.76CPT N 37.76
• # of monthly # of monthly paymentspayments
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Interest Paid Interest Paid
37.76 months37.76 months
x x $230 payments$230 payments
$ 8,685.58 paid back$ 8,685.58 paid back
- 6,500.00 - 6,500.00 credit balance credit balance
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Interest Paid Interest Paid •$2,185.58 interest $2,185.58 interest paid by Donna paid by Donna over 3.15 yrs.over 3.15 yrs.
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Interest DifferenceInterest Difference
• $130 8.32 yrs = $6,490.86 $130 8.32 yrs = $6,490.86
• $230 3.15 yrs = $2,185.58$230 3.15 yrs = $2,185.58
$4,305.28$4,305.28
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How a Financial Calculator Can Help
Teens Make Decisions About Credit Cards
$$$$$$$$$$$$$$$$$$$$$$$$
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