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How a Financial Calculator Can Help Teens Make Decisions About Credit Cards
2002
Marsha A. Goetting ®, CFCS Ph.D., CFP
Professor & Extension Family Economics Specialist Department of Agricultural Economics & Economics
Have you wondered?
• How long it would take to pay off the balance on a credit card?
Have you wondered?
•How much you would save in interest charges by increasing your payments?
Workshop
• You are going to learn how to solve these & similar problems quickly & easily by using a financial calculator
Financial Calculator
• Texas Instruments BA-35 Solar Business Analyst (No longer available) • Cost: About $20 at most discount stores
Introduction
• Getting Acquainted with your Financial Calculator
Turn on
Fix 2nd
X
CE/C
CPT
MODE AC/ON
12 N
12
%i
PV
PMT
FV
Financial Mode
• If FIN is not lower left corner • CPT Press AC/ON MODE
Fin
0.
Decimal Function
Fix
• Press 2nd
2nd
CPT
2
FIN
0.00
Clearing Screen/Display • Press CE/C key once
• Clears Display • Corrects Incorrect Entries • Clears word “Error”
Clearing Financial Registers CMR • Press 2nd CE/C key
CE/C
Clears numbers in registers & display
N %i PV PMT FV
Finance Keys
N
%i PMT
Number of Periods
Interest Rate Payment Amount
Finance Keys
PV
FV CPT
Present Value Future Value Compute key
Credit Cards
Minimum Payments • Average balance of $1,825 on your bank credit card • 18% APR
Average Balance
$1,825
• Pay $28 per month • 21 years to pay off • $5,231 interest
Balance $1,825
• Pay $28 per • Pay $38 per month month • 21 Years to • 7 years to pay pay off off • $5,231 interest • $1,427.57 interest
True Confessions
“It took me two minutes to get a credit card & 10 years to get out of it.”
Lucy Vailakis, age 29
Payment???
• If want to pay off credit card in 1, 2, 3 etc. 3 years, what is the monthly payment?
• Tricia’s Balance $3,598 • APR 18% • Payment amount?
Goal: Pay off 3 yrs
Credit Card 3 years
• Clear registers 2nd CE/C CE/C • Loan Amount 3,598 PV • Periods 3 x 12 = 36 N • % Rate 18 12 = 1.50 %i • CPT PMT 130.08
(don’t clear)
Credit Card 2 years
• Clear registers 2nd CE/C CE/C • Loan Amount 3,598 PV • Periods 2 x 12 = 24 N • % Rate 18 12 = 1.50 %i • CPT PMT 179.63
Interest Difference
• 3 years = $1,084.75 • 2 years = 713.05
$371.70
Central Idea
• Paying off credit card balance sooner means higher payments, but you pay less INTERE$T
Payment???
• Computed payment based on goal of paying off credit card in certain number of years. • Interest paid
Different problem
• If make certain amount of payment • How long to pay off?
How long to pay off?
• $13,000 owed • 18.5 % APR • $250 payment
Credit Card
• •
•
• •
$13,000 Clear registers 2nd CE/C CE/C Credit balance 13,000 PV % Rate 18.5 12 = 1.54 %i Payment 250 PMT CPT N 105.75 months
• 12 = 8.81 years (Don’t clear)
Compute interest paid
• Press again: • CPT N 105.75 • # of monthly payments
Interest Paid
105.75 months x $250 payments $ 26,436.40 paid back - 13,000.00 loan
Interest Paid
• $13,436.40 paid in interest over 8.81 years
Increase payment
•Old payment
•$250
•New payment
•$450
Credit Card $450
• Clear registers 2nd CE/C CE/C • Credit balance 13,000 PV • % Rate 18.5 12 = 1.54 %i • Payment 450 PMT • CPT N 38.53 months • 12 = 3.21 years
Calculate Interest
•How much interest paid in 3.21 years?
Compute interest paid
• Press again: • CPT N 38.53 • # of monthly payments
Interest Paid
38.53 months x $450 payments $ 17,337.99 paid back - 13,000.00 loan
Interest Paid
•$4,337.99 paid in interest over 3.21 years
Interest Difference
• $250 8.81 yrs = $13,436.40 • $450 3.12 yrs = $ 4,337.99
$9,098.41
Central Idea
• By increasing the amount of CREDIT CARD payment
• A loan can be paid off sooner • You pay less INTERE$T
Credit Cards
• Donna’s Balance $6,500 • APR 19% • $130 payments
How long to pay off?
• Clear registers 2nd CE/C CE/C • Loan Amount 6,500 PV • Payment 130 PMT • % Rate 19 12 = 1.58 %i • CPT N (months) 99.85 12 = 8.32 years (don’t clear)
Compute interest paid
• Press again: • CPT N 99.85 • # of monthly payments
Interest Paid
99.85 months x $130 payments $ 12,980.86 paid back - 6,500.00 credit balance
Interest Paid
•$6,480.86 interest paid by Donna over 8.32 yrs
Increase payment
•Old payment
• $130
•New payment
• $230
How long to pay off?
• Clear registers 2nd CE/C CE/C • Loan Amount 6,500 PV • Payment 230 PMT • % Rate 19 12 = 1.58 %i • CPT N (months) 37.76 12 = 3.15 years
Compute interest paid •Press again: •CPT N 37.76 • # of monthly payments
Interest Paid
37.76 months x $230 payments $ 8,685.58 paid back - 6,500.00 credit balance
Interest Paid
•$2,185.58 interest paid by Donna over 3.15 yrs.
Interest Difference
• $130 8.32 yrs = $6,490.86 • $230 3.15 yrs = $2,185.58
$4,305.28
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How a Financial Calculator Can Help Teens Make Decisions About Credit Cards
2002