how a financial calculator can help teens make decisions about credit cards $$$$$$$$$$$$ 2002

How a Financial Calculator Can Help

Teens Make Decisions About Credit Cards

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20022002

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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


• $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?



• CPT N 38.53CPT N 38.53






- 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


• $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)



• CPT N 99.85CPT N 99.85




x $130 paymentsx $130 payments


- 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



• CPT N 37.76CPT N 37.76






- 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.


• $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

how a financial calculator can help teens make decisions about credit cards $$$$$$$$$$$$ 2002

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