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L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY Principal and Interest Review: Principal.

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Presentation on theme: "L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY Principal and Interest Review: Principal."— Presentation transcript:

1 L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY Principal and Interest Review: Principal is the amount invested or borrowed. Interest is the money that one pays or earns in addition to the principal invested or borrowed. In other words, if you take out a loan, you will pay back the principal plus the interest

2 L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY Interest Rate Review Interest Rate is expressed as a percentage. It is the annual fee placed on a loan or investment Currently, banks are charging a 4-5% interest rate on a car. Credit card companies are charging about 15% interest rate, (up to 22%)

3 L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY Interest Rate (APR) Lenders are required to tell you the annual percentage rate (APR) in writing before you sign an agreement. The APR is the interest rate calculated in a consistent way so it’s easier to compare different borrowing options.

4 L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY Interest Rate So, A borrower desires a __________ interest rate. An investor desires a __________ interest rate.

5 L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY Compound(ing) Interest Compound(ing) Interest is when earned interest is added to the principal. It is Interest that is earned not only on the principal but also on the interest already earned

6 L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY Compounding Interest Example For example, if someone deposits $2,000 in an account that pays interest at 8 percent, he or she will earn $160 in interest after one year, for a balance of $2,160. If the depositor leaves this sum in the account for another year, however, he or she will earn $ in interest because the 8 percent rate will apply to the new balance of $2,160, not the original $2,000 deposit. The longer the money is left in the account, the more dramatic the compounding effect.

7 L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY A Useful Site Online Compound Interest Calculator Online Compound Interest Calculator

8 L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY C REDIT : Y OUR B EST F RIEND OR Y OUR W ORST E NEMY ?

9 L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY Credit Definitions Credit The ability to obtain goods and services before paying for them, based on a promise to pay later. Individuals who use credit are borrowing money. Revolving credit Credit that is available up to a limit and automatically renewed as debts are paid off or paid down. People who use revolving credit often make partial payments on their unpaid balances at regular intervals. Credit-card accounts offer revolving credit to credit-card users. C REDIT : Y OUR B EST F RIEND OR Y OUR W ORST E NEMY ? S LIDE 12.1

10 L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY How Credit Cards Can Mess You Up Online Daily Periodic Interest Rate Calculator C REDIT : Y OUR B EST F RIEND OR Y OUR W ORST E NEMY ? S LIDE 12.1

11 L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY Answers to Worksheet for Justin Jabowski JanuaryPurchases$ Minus minimum payment11.75 Unpaid balance FebruaryPurchases Previous balance Plus finance charge3.35 Total owed Minus minimum payment19.18 Unpaid balance C REDIT : Y OUR B EST F RIEND OR Y OUR W ORST E NEMY ? S LIDE 12.2

12 L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY Answers to Worksheet for Justin Jabowski C REDIT : Y OUR B EST F RIEND OR Y OUR W ORST E NEMY ? MarchPurchases Previous balance Plus finance charge5.47 Total owed Minus minimum payment31.99 Unpaid balance AprilPurchases Previous balance Plus finance charge9.12 Total owed1, Minus minimum payment55.35 Unpaid balance1, S LIDE 12.3

13 L EARNING, E ARNING, AND I NVESTING FOR A N EW G ENERATION © C OUNCIL FOR E CONOMIC E DUCATION, N EW Y ORK, NY “it is midnight, and your car breaks down on I-25 you are far from home. You use your cell phone to call an emergency auto repair service. The service visit will cost $50, plus the cost of any parts and labor that are needed to get you driving again. You have $7.57 in your pocket. Should you use credit? Scenario


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