Transcript #4. Interest - David Mckay Barker's Website

Will Work for Food Candy
Make sure your wrappers get in the garbage!!!
Honor System
1. p.1 If you brought back the packet
2. p.2 If you wrote a plan… Discuss with family…
3. p.4 If you did the 1st week of 13-week Budget.
4. p.12 If you completed the five stocks.
p.12 , Req.
6e*
Pretend you have $1,000 to save/invest, and help prepare yourself
for the future.
Explain to your merit badge counselor the advantages or
disadvantages of saving or investing for each of the following:
(e)*. Savings account at a bank or credit union:
Advantages:
interest
They pay us _________
Very ____
_____)
low risk of loss (if insured by _____
FDIC or NCUA
Disadvantages:
isn’t
The interest they pay ____
p. 12, Requirement 6 (d)
Certificate of Deposit (CD)
at a Bank or Credit Union
• Advantages:
higher rate than savings)
– They pay us interest
______ (usually ______
low risk of loss:(insured by _____
FDIC or ______)
NCUA
– Very _____
• Disadvantages:
– Timing risk: I may need my money before
_____ the CD
matures.
• U.S. Savings Bonds
– Similar, but ____
less convenient.
p. 12, Req. (6a)
Common Stocks.
• Advantages:
– If I invest in a company that is very profitable and if the stock
market does well, I could earn
____ ____
lots of money,
– The value of the stock could ___
go ___
up and I could get _________.
dividends
• Disadvantages:
– Compared to bank or cu savings, the risk of loss is ______.
higher
– If the company I invested in loses money, I probably ___
lose _____
money
– If the stock market in general goes down, I probably lose
____ money
_____
– Timing risk: If I buy when the price is high and sell when it is
low, I ____
lose ______.
money
Mutual Funds
different companies)
(invest in stocks of _________
• Advantages:
p. 12 Req. (6b)
– Compared to stock in a particular company, the risk of loss is
supposed to be _____
lower (but some have lost $ in scandals)
– The return on the investment is often ______
higher than at a bank.
– If the stocks in the fund do well, I am likely to earn ____
more _____
money
• Disadvantages:
– Compared to bank or cu savings, the risk of loss is ______.
higher
– If the stocks in the fund do poorly, I am likely to ____
lose ______
money
– If the fund mgr blows it or takes off, I ____
lose
– If the stock market in general goes down,
I probably ____
lose ________
money
D-13
D-12
D-11
D-10
D-09
D-08
D-07
D-06
D-05
D-04
D-03
D-02
D-01
D-00
D-99
D-98
D-97
D-96
D-95
D-94
D-93
M-93
Example
Mutual Fund vs. 5-yr CDs
6000
5000
4000
3000
2000
1000
0
p. 12 Req. (6c)
Life Insurance
• Advantages:
– Life insurance pays money to my ___________
beneficiaries when I die.
– Some policies invest part of the premium so people don’t have to
___
die to get some money (but they cost ______.)
more
• Disadvantages:
– Both the insurance and inv portions cost ______.
money
– The investment portion is not _______
insured by the US Government
– If I don’t die while I have the life insurance, I wasted _________,
money
but what if…?
p. 13 Req. 7
Explain to your merit badge counselor the following:
Explain what a loan is:
money or ________
things owned by someone who
A loan is ________
use ___
it
allows another person to _____
p. 13 Req. 7(a)
Explain what interest is:
interest
110
Interest is the amount
of money paid to a
excess
lender in ________
of what was
borrowed.
The amount earned as
time passes.
_____
100
90
80
70
principal
60
50
40
30
20
10
0
Amount Borrowed Amount Paid Back
Percentage Rate
(APR) measures the true cost of a loan.
p. 13 Req. 7(a) Explain
how the Annual
1. The APR is the ________
standard ____
rate
established by the U.S. Government
MPH is for highway speed)
(just as _____
2. So we can _______
compare the cost of
borrowing. (MPH or MPM? APR or MPR?)
3. It includes interest
______ and _____
fees
4. It is expressed as a _______
yearly rate.
110
100
90
80
70
60
50
40
30
20
10
0
Amount Borrowed
Amount Paid
Percentage Rate
(APR) measures the true cost of a loan.
p. 13 Req. 7(a) Explain
how the Annual
110
If you borrow $100, and pay back $110:
What is the interest cost?
What is the percentage rate?
10
$____
10 %
____
100
90
80
70
60
50
What is the Annual Percentage Rate (APR)?
40
30
That depends on when you are to pay the $110.
20
10
0
Amount Borrowed
Amount Paid
What is the APR if you borrow 100 and are
10 APR
scheduled to pay back $110 one year* later? _____%
What is the APR if you pay back $110 one month later? _____%
120 APR
If you paid $110, re-borrowed $100, 12 times, 12 x $10 = $120 cost for 1y, thus 120% APR
What is the APR if you pay back $110 one week later? _____%
520 APR
What is the cost if you pay $10 interest each week?
520 p/yr
$_____
p. 13, Req. 7(b) Explain
the different
ways to borrow money:
I might be able to borrow from a relative for ____.
free
I can borrow from myself for very ___
low ____.
cost
I can borrow from bank or cu at a ______
higher cost
___.
I can borrow by charging things using a _____
credit ____.
card
I can borrow by ________
financing a purchase (usually higher
rate)
If I am really stupid or really desperate:
I can borrow from ultra-high-cost lenders at
outrageous interest rates
____.
BEST BORROWING TIPS:
unnecessary borrowing!
1. Avoid _____________
increase in
2. Only borrow for things that _________
value.
early (when no penalty).
3. Pay off loans ______
don’t ____
buy
4. If you don’t have the money, _____
_________.
anything
5. When you do borrow, always pay less than
13% APR.
_______
Example: TOO EASY LOAN COMPANY
Promissory Note with Security Interest
Security: 1996 Olds Ciera
Annual
Percentage
Rate
The cost of your credit
as a yearly rate.
Finance
Charge
The dollar amount the
credit will cost you.
$4,442.80
300%
25% per month
Amount Financed
Total of Payments
The amount of credit
provided to you or on
your behalf.
The amount you will
have paid after you
have made all
payments as
scheduled.
$2000.00 $6,442.80
12 Payments of $536.90
Payment Schedule:
.
Beginning 2/4/99 and on the 4th of each month thereafter until final payment is
made on January 4, 2000.
Default Charge: If the payment is late 10 days, you will be charged 5% of the
payment amount.
Example
TV Purchase
•$400.00
• cash
Example
TV $400.00
Using a Credit Card
•
•
•
•
$26.00 per mo.
18% A.P.R.
18 mo. pmts
$59.00 interest
• Total Cost $
459
Example
TV $400.00
Finance Company
•
•
•
•
36% A.P.R.
18 mo. Pmts.
$29.00 per mo.
$123.00 int.
• Total Cost $
523
Example
TV $400.00
Rent-to-Own
• $70.00 mo. pmt
• 18 months
• (196% APR)
• $860.00 (int.)
• Total Cost $
1260
Example
TV $400.00
Too Easy Loan
(Bad Credit OK)
•
•
•
•
•
300% A.P.R.
Car Title Pawn
If 18 months
$102.00 payments
$1,433 interest
• Total Cost $
1833
Example
TV $400.00
Payday Loan
10%
x 52
=520%
110
100
90
80
70
60
50
40
30
20
10
0
Example
TV $400.00
Payday Loan
10% per week
520% APR
110
100
90
80
70
60
50
40
30
20
10
0
$174 payments
$2,725 interest
18 months (12 weeks max)
Total Cost $
3125
p.13 Req. 7(c)
Explain the differences between:
• A Credit Card
• A Debit Card
• A Charge Card
Credit Cards: Our Friends?
Or Our Foes?
p.13 Req. 7(c)
A CREDIT CARD is used to make purchases
card _________
company’s money.
using the credit
____ ____
• It may be paid off ____
each _____
month(without interest most cards),
• or it may be paid ____
over ____
time (plus interest charges)
• Advantages:
– One way to start building a good ______
credit ______
rating
for free (if you pay it off each month—on time!)
– Very ___________
convenient!
p.13 Req. 7(c)
A CREDIT CARD
• Pitfalls:
– Too easy to spend money, especially if its money I
_____
don’t _____
have
• Costs:
– If I don’t payoff each month, I pay ________
interest
higher than I want to pay.
– Always at a rate _______
p. 13, Req. 7(c)
• A CHARGE CARD is a type of credit card,
where a person is using the company’s
money, but no periodic interest rate is
charged, and the person is usually required
each ______
month.
to pay off the balance ____
• Pitfalls: Too easy to spend money, especially
don’t have.
money you _____ _____
• Costs: annual
______ fees.
p.14 req. #7 (c) cont’d
• A DEBIT CARD
– Is one way to withdraw money from a person’s
______________
account.
checking
• Advantages:
– Using _____
your ______
own money, so if you don’t
have it, you don’t spend it.
p.14 req. #7 (c) cont’d
Debit Card
• Pitfalls:
– If somebody else uses your debit card,
or a mistake is made, your money may
be gone when you _____
_.
need it
– Some places (like gas stations &
hold on your acct.
motels) place a _____
p.14, req. #7 (c) cont’d
Debit Cards
• Costs:
– If you don’t have enough money in your
checking account to cover the
withdrawal, your transaction(s) may
bounce (get returned – unpaid).
_______
fees
– Causing returned item ____
p.14 req. 7(c)
Costs of debit cards (checking accounts)
• If you don’t have a backup plan, like an
line __
of _____
credit (an empty loan),
overdraft ____
• you’ll probably get ________
returned _____
item fees.
fees
• Some checking accounts have monthly ____
Example
So, the differences between:
Charge Card
Debit Card
Credit Card
Money from your
checking account.
400
350
300
250
200
150
100
50
0
0
0
-50
-50
-50
-100
-100
-100
-150
-150
-150
-200
-200
-200
-250
-250
-250
-300
-300
-300
-350
-350
-350
0
Bal
-400
-400
Bal
Borrowed money.
No interest charge
Must pay off each month.
(Reg. Z 226.2(15))
-400
Bal
Bal
Borrowed money.
May pay off each month (no int)
or pay over time (high interest).
Charge Card
Debit Card
Credit Card
Using your own money
Your money gone…
400
350
300
250
200
150
100
50
0
0
Bal
Borrowing money
-50
-100
-150
Too easy to spend money
-200
-250
-300
-350
-400
Bal
Builds your credit rating
Very convenient
Protections
0
0
-50
-50
-100
-100
-150
-150
-200
-200
-250
-250
-300
-300
-350
-350
-400
-400
Bal
Bal
p. 14 Req. 7(c)
Explain why it is unwise to make only the minimum
payment on your credit card.
A person who only pays the minimum stays in
very long
debt a ____
____ time.
And pays ___
lots and ____
lots of interest.
34
At typical terms, it would take about _____
years to pay off a $5,000 balance (if no other
charges were made).
1000
0
-1000
-2000
-3000
-4000
-5000
Example
Simplified Credit Card Statement
Last Month’s Balance
Payments received
Interest
Auto Repair Center
Joe’s Gas & Goodies
Babe’s Apparel Store
128.42
(128.42)
0
289.94
14.32
96.24
Ending balance
400.50
*
20.00
Required (min) Payment Due
Credit Card Summary:
If used well,
a great tool,
if used poorly,
financial ruin!
p. 14, Req. 7(d).
Explain Credit Reports
Credit Reports or Credit Records:
A credit report is a report of a person’s credit ______
history
And it usually includes a credit _____
rating or credit _____
score
Credit reports show what ______
loans and _____
credit cards
_____ a
person has had.
And if he made his payments ___
on _____
time
If he was late, it shows how late he was and
many _____
times he was late.
how _____
Example
Credit Report (simplified)
Bill S. Preston
Creditor
•
•
•
•
•
•
•
529-00-0000 Score 380
Limit
Bal
Comments
Department Store
1000 1050 5>30, 3>60
Credit Card
5000 4999 6>30,3>60,1>90
Dumpy Bikes
500 430 Collection agency
Fast Car Lot
6000
0 Repossession
Credit Card
2000
0 as agreed
Home Mortgage
70000 65000 current
Overdraft Line of Cr 2000
0 as agreed
Explain how your personal
responsibility can affect your credit record:
p. 14
Req. 7(d)
• If I pay my bills on time, I will have a good
history
credit ______.
• And if I don’t borrow too much, I’ll have a good
rating or _______
score
credit ______
• If I am irresponsible, and pay my bills late:
bad credit history & ______
rating or ______
score
I’ll have a ____
late ____,
fees and next
I will also be required to pay ____
higher____.
rate
time I borrow I’ll pay interest at a ______
If I have too much debt, I’ll have a bad
___ credit
low credit score
rating, or a ____
Is it possible
• To have a good credit history while having
• A bad credit score? YES!
______
• If I have too much debt (even if I’ve paid on
time) a problem waiting to happen.
p. 14 Req. 7(e).
Describe ways to reduce or eliminate debt:
***Pay extra
____ principal
________ (more $ than required—if
no prepayment penalty).
Example
of Paying Extra Principal
• Bal
Rate Term Pmt Total Int Pd
•
(If simple interest)
• 10,000 12% 60 mo 222 13,346 3,346
Savings
• 10,000 12% 57 mo 232 13,167 3,167
179
• 10,000 12% 47 mo 272 12,582 2,582
764
• 10,000 12% 38 mo 322 12,069 2,069
1,277
p. 14 Req. 7(e).
Describe ways to reduce or eliminate debt:
***Pay extra
____ principal
________ (more $ than required).
first
***Pay off highest rate debt _____
Then, when it is paid off, add what you were
paying on that debt to the amount you were
paying on your next _______
highest ____
rate debt.
Example:
of paying highest rate debts first.
After 1 year
Existing
Obligations
Balance
(p & i)
Payment
Rate
Remaining
Term (yrs.)
New
Bal.
New New
Pmt. Term
1st Mort
78,721
651
8.5% 22.9 yrs. 77,554 651 21.9
Auto Loan
10,239
250
9.0%
Trailer
5,451
150
9.8%
Credit Card
6,539
120
Doctor
400
Dentist
Totals
4.1 yrs. 8,072 250
3.1
3.6 yrs.
4,126 150
2.6
18.0%
9.5 yrs.
6,253 120
8.5
40
21.0%
.9 yrs.
1,200
50
19.0%
2.5 yrs.
102,550
1331
0
0
0
794
90
.8
Reduce or eliminate debt quicker, by
paying highest rate debts first.
After .8 year (1.8 yrs total)
Existing
Obligations
Balance
(p & i)
Payment
Rate
Remaining
Term (yrs.)
New
Bal.
New New
Pmt. Term
1st Mort
78,721
651
8.5% 22.9 yrs. 76,547 651 21.1
Auto Loan
10,239
250
9.0%
Trailer
5,451
150
9.8%
3.6 yrs.
2,970 150 1.8
Credit Card
6,539
120
18.0%
9.5 yrs.
5,984 210 3.1
Doctor
400
40
21.0%
.9 yrs.
0
0
0
Dentist
1,200
50
19.0%
2.5 yrs.
0
0
0
102,550
1331
Totals
4.1 yrs.
6,194 250 2.3
Reduce or eliminate debt quicker, by
paying highest rate debts first.
After 1.8 more (3.7 yrs tot)
Existing
Balance
Obligations
Payment
Rate
(p & i)
Remaining
Term
New New New
Bal. Pmt. Term
1st Mort
78,721
651
8.5% 22.9 yrs. 73,863 651 19.2
Auto Loan
10,239
250
9.0%
Trailer
5,451
150
9.8%
Credit Card
6,539
120
18.0%
9.5 yrs.
4.1 yrs.
3.6 yrs.
1,153 250
0
.4
0
0
2,745 360
.7
Doctor
400
40
21.0%
.9 yrs.
0
0
0
Dentist
1,200
50
19.0%
2.5 yrs.
0
0
0
102,550
1331
Totals
Reduce or eliminate debt quicker, by
paying highest rate debts first.
After .7 more (4.4 years tot)
Existing
Balance
Obligations
Payment
Rate
(p & i)
Remaining
Term
New New New
Bal. Pmt. Term
1st Mort
78,721
651
8.5% 22.9 yrs. 72,760 1,261 6.2
Auto Loan
10,239
250
9.0%
Trailer
5,451
150
9.8%
Credit Card
6,539
120
18.0%
0
0
0
0
0
0
9.5 yrs.
0
0
0
4.1 yrs.
3.6 yrs.
Doctor
400
40
21.0%
.9 yrs.
0
0
0
Dentist
1,200
50
19.0%
2.5 yrs.
0
0
0
102,550
1331
Totals
Out of debt in 10.6
yrs.
p. 14 Req. 7(e).
Describe ways to reduce or eliminate debt:
***Pay extra
____ principal
________ (more $ than required).
first
***Pay off highest rate debt _____
Then, when it is paid off, add what you were
paying on that debt to the amount you were
paying on your next _______
highest ____
rate debt.
***Pay _____
more often than required (if allowed).
***Bi-weekly payments can be an easy way to
make extra principal payments
Example
p.14 Req 7d.
Describe ways to eliminate Debt.
Most loans require
Monthly payments
Example
Some Loans allow
Bi-Weekly Payments:
(every other week)
By paying ½ payment
every other week…
Example
Some:
Bi-Weekly Payments:
(every other week)
By paying ½ payment
every other week:
13 full payments
A very convenient way to pay off early—if
you get paid every other week.
•
p. 15, Req 8(a) Write a "to do" list of tasks or activities,
such as homework assignments, chores, and personal
projects, that must be done in the coming week. List these in
order of importance to you.
• TO DO LIST. Things that must be done in the coming week
(in order of importance—use as many rows as you want):
1 ________________
13 ________________
Eat
Sleep
2 ________________
14 ________________
School
3 ________________
15 ________________
4 ________________
Church
16 ________________
5 ________________
17 ________________
Scouts
BB
6 ________________
18 ________________
Date
7 ________________
19 ________________
Shower
8 ________________
20 ________________
9 ________________
21 ________________
p.15, Req. 8(b) & (c). Make a 7-day calendar or schedule…
Day 1 Day of the week __________ Date________
Scheduled
Times
6:
7:
8:
9:
10:
11:
Activity
Actual
Scheduled
Times
Times
Activity
Actual
Times
12:
PM
1:
PM
2:
PM
3:
PM
4:
PM
5:
PM
6:
PM
7:
PM
8:
PM
9:
PM
10:
PM
AM
AM
AM
AM
AM
AM
Review your “to do” list, your
1-week schedule, and diary/journal
entries and discuss what you learned your
merit badge counselor, and what you
might do differently the next time.
p.19, Req. 8(d)
p. 19, Req. 9. Prepare a written project or plan…
could include a camping trip…
a.
Define the project ___________________
What is your goal? ___________________
b. Develop a timeline…
Start
Finish
c. Describe your project ________________
Develop a list of resources…
If necessary develop a budget.
p.19 Req. #9(d) & (e)
(d) Develop a list
Identify how these resources Already
of Resources needed: will help you achieve the goal have it
______________
______________
______________
______________
______________
______________
______________
______________
______________
____________________
____________________
____________________
____________________
____________________
____________________
____________________
____________________
____________________
______
______
______
______
______
______
______
______
______
(e) budget
Est. cost if you
don't already have it
______________
______________
______________
______________
______________
______________
______________
______________
______________
• Discuss your completed project plan with your mb counselor.
p. 20, Req. 10. Do the following:
Choose a career you might want to
enter…
Research the limitations…
p. 20, Req. 10. Do the following:
Choose a career you might want to enter…
Research the limitations, qualifications.
Bank Examiner
Career:_______________________________
(b)
Research the limitations of your anticipated career:
Limitations
Where you learned about it Qualifications
Pay
average
MB Class Instructor
College Degree
_______________
_______________________
______________
Sometimes
boring _______________________
“
“
“
Banking
Experience
_______________
______________
Sometimes
conflicts_______________________
“
“
“
Communicate
_______________
______________
_______________ _______________________ ______________
Personal Management Merit Badge
• More things to finish.
• When you’ve completed ALL the requirements,
contact your scoutmaster and/or merit badge
counselor. Take the handout with you.
• Discuss the things and be excellent to each other!
$
Lots of effort , but totally worth it!