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How a Financial Calculator Can Help
Teens Make Decisions About Credit Cards
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20022002
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
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?
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?
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
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
IntroductionIntroduction• Getting Getting Acquainted with Acquainted with your Financial your Financial CalculatorCalculator
Turn on Turn on
MODEMODE
CE/CCE/C
2nd2nd CPTCPT AC/ONAC/ON
NN
XX 12 12
% i% i PMTPMTPVPV FVFV
1212
FixFix
Financial Mode Financial Mode
FinFin 0. 0.
• If If FINFIN is not lower left is not lower left cornercorner
• PressPress MODEMODE AC/ONAC/ONCPTCPT
Decimal Function Decimal Function
FINFIN 0.00 0.00
• PressPress 2nd2nd
2nd2nd
FixFix
CPTCPT 22
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
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
Finance KeysFinance KeysNN
% i% i
PMTPMT
Number of PeriodsNumber of Periods
Interest RateInterest Rate
Payment AmountPayment Amount
Finance KeysFinance KeysPVPV
FVFV
Present ValuePresent Value
Future ValueFuture Value
Compute keyCompute keyCPTCPT
Credit CardsCredit Cards
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
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
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
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
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?
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?
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)
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
Interest DifferenceInterest Difference
• 3 years = $1,084.75 3 years = $1,084.75
• 2 years = 713.052 years = 713.05
$371.70$371.70
Central IdeaCentral Idea• Paying off credit card Paying off credit card
balance sooner means balance sooner means higher payments, but higher payments, but you pay less you pay less INTERE$TINTERE$T
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
Different problemDifferent problem
• If make certain If make certain amount of amount of paymentpayment
• How long to pay How long to pay off?off?
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
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)
Compute interest paidCompute interest paid
• Press again: Press again:
• CPT N 105.75CPT N 105.75
• # of monthly # of monthly paymentspayments
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
Interest Paid Interest Paid
• $13,436.40 paid $13,436.40 paid in interest over in interest over 8.81 years8.81 years
Increase paymentIncrease payment
• Old paymentOld payment•$250$250
• New paymentNew payment•$450$450
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
Calculate Interest Calculate Interest
• How much How much interest paid interest paid in 3.21 years?in 3.21 years?
Compute interest paidCompute interest paid
• Press again: Press again:
• CPT N 38.53CPT N 38.53
• # of monthly # of monthly paymentspayments
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
Interest Paid Interest Paid •$4,337.99 paid $4,337.99 paid in interest over in interest over 3.21 years3.21 years
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$9,098.41
Central IdeaCentral Idea• By increasing the amount of By increasing the amount of
CREDIT CARD paymentCREDIT CARD payment• A loan can be paid A loan can be paid off off
sooner sooner
• You pay less INTERE$TYou pay less INTERE$T
Credit Cards Credit Cards • Donna’s Balance Donna’s Balance
$6,500$6,500
• APR APR 19%19%
• $130$130 payments payments
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)
Compute interest paidCompute interest paid
• Press again: Press again:
• CPT N 99.85CPT N 99.85
• # of monthly # of monthly paymentspayments
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
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
Increase paymentIncrease payment
• Old paymentOld payment• $130$130
• New paymentNew payment• $230$230
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
Compute interest paidCompute interest paid
• Press again: Press again:
• CPT N 37.76CPT N 37.76
• # of monthly # of monthly paymentspayments
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
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.
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
How a Financial Calculator Can Help
Teens Make Decisions About Credit Cards
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20022002