snopes.com  

Go Back   snopes.com > Non-UL Chat > Business Bytes

Reply
 
Thread Tools Display Modes
  #21  
Old 06 February 2013, 05:39 PM
Mickey Blue's Avatar
Mickey Blue Mickey Blue is offline
 
Join Date: 01 February 2004
Location: Oregon
Posts: 17,571
Default

Another place more practical classes could be useful in a high school environment; basic maintenance on things like cars, homes, etc could save you a bundle. I've had a handful of bad clogs appear in my home over the years, usually it just entails taking apart the drain and clearing it manually but once it involved cutting out a section of PVC pipe and replacing it.

This cost me under ten bucks plus my time (and I got all wet and slimy I guess) but a plumper would likely have charged hundreds.

I feel most people would benefit from a class that taught things like that, and or how to make a budget, how to use credit cards, how to get a loan and what kind of predatory loans to watch out for, etc than they'll ever get from intro to trig or humanities (just to pick two very opposite classes).
Reply With Quote
  #22  
Old 06 February 2013, 07:22 PM
Hero_Mike's Avatar
Hero_Mike Hero_Mike is offline
 
 
Join Date: 06 April 2005
Location: Phoenix, AZ & Hamilton, ON
Posts: 7,267
Canada

Quote:
Originally Posted by Mickey Blue View Post
I feel most people would benefit from a class that taught things like that, and or how to make a budget, how to use credit cards, how to get a loan and what kind of predatory loans to watch out for, etc than they'll ever get from intro to trig or humanities (just to pick two very opposite classes).
Compound interest is generally covered even in high-school math, but only at the higher levels. It was part of the section on "sums of infinite series". A more practical approach can be taken to it - basically "here's the formula, learn to use it", with maybe an explanation of, say, how to use those functions in a spreadsheet? It isn't that difficult. Fifteen years ago I went into a car dealership with my company laptop, fired up a spreadsheet I made myself and calculated the exact monthly payment based on the variables (purchase price, duration, interest rate), and the sales people there looked at me like I had found Atlantis. It wasn't magic, but just because they didn't have tools available to them like that, doesn't mean that they couldn't be made. Nowadays anybody with a smart phone should be able to duplicate that.
Reply With Quote
  #23  
Old 06 February 2013, 07:33 PM
Beachlife!'s Avatar
Beachlife! Beachlife! is offline
 
Join Date: 22 June 2001
Location: Lansing, MI
Posts: 28,669
Default

I can do a ballpark payment calculation in my head. Compound interest isn't involved in standard payment calculations though.
Reply With Quote
  #24  
Old 06 February 2013, 07:50 PM
Mickey Blue's Avatar
Mickey Blue Mickey Blue is offline
 
Join Date: 01 February 2004
Location: Oregon
Posts: 17,571
Default

I don't so much mean the mathematics behind how loans work, more what you need to look for and some basics on loan language. For example, what do 'points' mean, what is the difference between fixed and variable interest, how to spot 'scams', or at least predatory loans?

Things like that.

Yes, the actual math of it can be done on any computer (I had an excel sheet myself in college that would give you all the particulars of a hypothetical loan) or smartphone/tablet but knowing what to look for can be more important and is easier to teach without devoting a whole class to it.
Reply With Quote
  #25  
Old 06 February 2013, 09:19 PM
Hero_Mike's Avatar
Hero_Mike Hero_Mike is offline
 
 
Join Date: 06 April 2005
Location: Phoenix, AZ & Hamilton, ON
Posts: 7,267
Canada

Quote:
Originally Posted by Mickey Blue View Post
I don't so much mean the mathematics behind how loans work, more what you need to look for and some basics on loan language. For example, what do 'points' mean, what is the difference between fixed and variable interest, how to spot 'scams', or at least predatory loans? Things like that.
A lot of that is pure judgment without any kind of backup - being able to understand that a payday loan or a high-interest credit card aren't the best way to borrow money, isn't that difficult. People get into those things, sometimes out of ignorance, but often out of necessity. Preventing them from getting there is the real key, and I don't think that you can teach everyone, or even most people, to have that kind of "fiscal wisdom". imply explaining the way that compound interest climbs, or how the "minimum payment" on a credit card only makes the card provider very rich, is a pretty big achievement on its own. Trying to get someone to learn how fixed and variable interest rates work, and how they are, essentially, betting on what will happen in the financial market in the future, is light years beyond the basics. There's no clear-cut reason why one is better than another because this gets into elements of risk, and that's way beyond your average high school student. And exactly what is a scam? Even people with high levels of education fall into the trap of pyramid scams - despite having been told, often from childhood, that if something appears to be too good to be true, it often is. Predatory loans? Sure, but a payday loan is legal in some states but illegal in others, so if it's legal, how bad can it be? It's not like it's getting money from a loan shark with an "enforcement team" that breaks bones when they come to collect. I think what you're suggesting here is way beyond the scope of "basic" education, because of how much is purely opinion-based.

Time would be better spent in going over how to do a basic income tax return.

FWIW, some of these things change with time, so what's valid now is different from what was valid even a few short years ago. For example, we still have "closed mortgages" in Canada with penalties for premature payoff - today, in the US they are considered predatory lending, but that's a new thing because of the current financial crisis. Being anything more than "basic" would be a moving target for the curriculum, and anything that makes it more difficult just makes it less likely to happen.
Reply With Quote
  #26  
Old 06 February 2013, 09:34 PM
Hero_Mike's Avatar
Hero_Mike Hero_Mike is offline
 
 
Join Date: 06 April 2005
Location: Phoenix, AZ & Hamilton, ON
Posts: 7,267
Canada

Quote:
Originally Posted by Beachlife! View Post
I can do a ballpark payment calculation in my head. Compound interest isn't involved in standard payment calculations though.
Huh? I don't understand what you mean, because compound interest is pervasive in modern finance - specifically - almost all loans are done as a compound interest loan. If I buy a car and owe $20,000 on it, at 2.9% interest, calculating the monthly payment isn't simple interest. Having a trick for a certain set of circumstances doesn't adapt easily when the parameters change. For example, what's the monthly on that car loan for 4 years? What about 5 years? What if the amount owed is now $21,000? Those are not "in your head" calculations. What kind of "standard payment calculations" are you talking about?
Reply With Quote
  #27  
Old 06 February 2013, 10:02 PM
Beachlife!'s Avatar
Beachlife! Beachlife! is offline
 
Join Date: 22 June 2001
Location: Lansing, MI
Posts: 28,669
Default

Interest doesn't compound unless the periodic interest charged exceeds the payment. Using a simple example. If I have a $5000 loan for five years at 12%, the first month of the loan my accrued interest would be $50. They payment for that loan is $111.22. The payment pays the interest plus $61.22 of principle. The next month the interest is based solely on the remaining principle. There is no compounding. There isn't compounding unless the payments aren't equal, there is a balloon or the period interest is calculated on is shorter than the payment period. If the bank is say calculating interest daily for a monthly loan.

Incidentally, the payment I worked out in my head for that loan was $108 which is close enough for the purpose at hand. A $20,000 four year loan at 2.9% interest $465 which is about $20 off. the five year loan I calculate at $348 which is off by about $10. $21,000 works out to $486 (off by $20ish) and $365 (off by $10ish). That's close enough for talking points. And I'm not saying I'm spitting the numbers out like Rainman, but fast enough to for my purposes.
Reply With Quote
  #28  
Old 07 February 2013, 02:11 AM
Hero_Mike's Avatar
Hero_Mike Hero_Mike is offline
 
 
Join Date: 06 April 2005
Location: Phoenix, AZ & Hamilton, ON
Posts: 7,267
Canada

Quote:
Originally Posted by Beachlife! View Post
Interest doesn't compound unless the periodic interest charged exceeds the payment. Using a simple example. If I have a $5000 loan for five years at 12%, the first month of the loan my accrued interest would be $50. They payment for that loan is $111.22. The payment pays the interest plus $61.22 of principle. The next month the interest is based solely on the remaining principle. There is no compounding. There isn't compounding unless the payments aren't equal, there is a balloon or the period interest is calculated on is shorter than the payment period. If the bank is say calculating interest daily for a monthly loan.

Incidentally, the payment I worked out in my head for that loan was $108 which is close enough for the purpose at hand. A $20,000 four year loan at 2.9% interest $465 which is about $20 off. the five year loan I calculate at $348 which is off by about $10. $21,000 works out to $486 (off by $20ish) and $365 (off by $10ish). That's close enough for talking points. And I'm not saying I'm spitting the numbers out like Rainman, but fast enough to for my purposes.
First, I had a different definition of "compound interest" in mind - I considered a constant payment loan to include the principles of "compound interest", which isn't easy.

Second, your method of calculating in your head may be "close" but not "close enough" when talking about your own money. Think about it - say the bank quotes you that $465 for that loan, and not $441.80 like it really is. Then the interest rate is actually 5.49%, or almost double. But it doesn't appear to be a big deal because it's "only" $20 a month, and only off by about 4%. However, at $465 and not $441.80, the amount paid over the course of that loan would be in excess of $1100. It's inexact - and because this imprecision adds up over time, it matters. In a big way. Even $5 a month over the life of a 30 year mortgage is $1800. Nobody is just going to *take* that from me just because I won't take the time to do the math. Your method really is only valid in the most basic of discussions, because that few dollars here and there adds up to thousands. Without being able to duplicate the exact numbers, people are going to risk giving away money, with a false sense of security that they know what they are doing. Teaching them this method and implying that it is "good enough" is, well, misinformation.

An order of magnitude may be good precision for some scientific calculations - for financial calculations, it is not.
Reply With Quote
  #29  
Old 07 February 2013, 02:58 AM
Beachlife!'s Avatar
Beachlife! Beachlife! is offline
 
Join Date: 22 June 2001
Location: Lansing, MI
Posts: 28,669
Default

I wouldn't buy a $20,000 car or go with a four or five year loan so my margin for error is much smaller.

It is also a matter of understanding approximately what it will cost me, not a number I'm going to be signing loan papers on. But finding a loan calculator to check my work was a ten second deal on my phone so I could always go there when I was interested in getting a precise number.
Reply With Quote
Reply

Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is On

Forum Jump

Similar Threads
Thread Thread Starter Forum Replies Last Post
12-week fetus snopes Fauxtography 19 20 April 2012 06:27 PM
A Week Without God Magdalene Glurge Gallery 28 24 September 2011 01:43 AM
National Gang Week snopes Crime 6 14 December 2009 04:04 PM
Koalas during Fire Week Jenn Fauxtography 5 13 September 2009 11:01 PM
Counterfeit I.D. of the Week snopes Fauxtography 29 24 July 2008 02:19 PM


All times are GMT. The time now is 05:32 AM.


Powered by vBulletin® Version 3.8.7
Copyright ©2000 - 2019, vBulletin Solutions, Inc.