An article on Blueprint for Financial Prosperity entitled Minimum Credit Card Payments Increase, in addition to reminding his readers that minimum payments on credit card balances are doubling from 2% to 4%, reminds everyone of the high cost of paying only the minimum balance.
This is years and years of repaying things that are already sold, broken, or obsolete.
The math to determine the total payments on a debt is pretty straightforward, but the results aren't pretty if you use normal credit card APRs of 12.99% or higher. You can pay for the item twice, or even more, if you make only the minimum payments.
Which brings me to my question: Have you ever done the math — in math class?
I got “Penny Power” in elementary school that was a short magazine on kid-level personal finance and saving. Also, I did a few interest problem in sixth grade in my math class back in the mid 1980s. Because everything in that class was done long-hand, we only computed a few payments for compound interest (maybe 4 or so). The interest problems were only in relation to savings problems, not debt problems. I didn't see any other such problems at any later time in public school.
Recently, one of my colleagues at work came to me with some math questions for his associates' level math class. His textbook included a section on consumer mathematics. Here they go through formulas for future falue, fixed mortgage payment, interest, debt, etc. — the kinds of topics that All Things Financial has posted on in detail in the past.
Now the calculations don't have to be done out long-hand, of course. You can crank out the numbers in Microsoft Excel or just go to a debt repayment calculator like this one at Money.com.
But if you're doing this, odds are you (a) really have nothing better to do or (b) you already have debt that you're trying to repay.
“Why wasn't I told about this earlier?” you might ask yourself. Or, “Why wasn't I taught this earlier?”
Thrift and living within one's means should be taught, in school, early and taught, in school, often. There may be more personal finance taught in the schools now, but it wasn't when I was in school. I'm very thankful that my parents taught me this, because I really didn't get it anywhere else.
If you were a high school student and got this question for homework, would it leave an impression?
You buy a $3,000 plasma TV with credit. Your APR is 12%, compounded monthly. You pay only the minimum due each month (4% of the balance, rounded up to the next dollar, or $10, whichever is greater). (a) How long does it take to pay off this purchase? (b) How much do you end up paying for that $3,000 plasma TV?
It probably would if you arrived at the answer, which is (a) 9 years and (b) $4,860!
Arriving at these answers does not involve complicated math. There will be at least a few students who will remember the examples and will shy away from going into debt when they get bombarded with credit card offers in college.
It's also sad that this kind of stuff must be taught at school, because the parents aren't teaching it to their kids.
There are parents who don't much to their kids… it's a wide wide world and yes it's unfortunate.
Definitely wish this kind of thing was taught in school back when I went. Whether it is to any greater extent now, I have no clue. But I can guarantee that my child will have a much better understanding of money early on than I ever did (he's 1 1/2, so all he knows about money so far is that it's shiny and it'd probably be tasty if they'd let me eat it!).
It's best if kids get the information from home and from school, but one place, be it either home or school, is better than nothing.