Reflection on Credit and Credit Cards

This week, we have been learning all about credit. We learned about bad credit, good credit, credit reports, credit bureaus, and credit cards. We learned that credit cards can be good, but that they have many dangers. Credit cards are convenient, offer rewards, allow for online shopping, offer purchase protection and fraud protection, and create an opportunity to purchase something that may otherwise have taken a long time to purchase. There are many clear perks that come with a credit, but with great power comes great responsibility. Credit cards have a flip side where the borrower has to pay interest and fees, risk identity theft and borrowing beyond the ability to repay, and undergo a long time period of payment if only paying the minimum payments.

We talked about how picking the right credit card to go with is very important. There were many people like Kyle and Nick who had to work out their financing. Broke Bill led them astray, but Finance Frank put them on the right track to success. Our class worked to find out which offers were the best for them. We noticed that the APR (annual percentage rate) was often 0% at first, but the percentage could jump to over 20% within 15 months. The class found that the perks of a credit card were sometimes there to mask a more taxing set of fees for that particular card. We learned which credit cards offered the most legitimate deals. If you aren't careful with keeping up with payments, then you can end up spending way more money on interest than the original purchase was worth. A person often chooses to use a credit card instead of cash because of the convenience, but this means the person will be accumulating interest on items that they could have easily purchased in cash. This person is using the credit card to buy items that they will need to spend even more money on later.
The fact that we learned about credit cards has already proved value to me. I use my parents' credit card and I often find myself thinking that it is so much easier to just use it for purchases so that I don't need to handle any cash. I now know that this could be a very dangerous habit. I have no idea how my parents pay all their credit card bills, but they do and I now have a deeper appreciation for them. I think that the more we learn about Personal Finance, the more and more valuable information we accumulate. I know that I will need to be careful about making all my payments on time so that I have good credit history and that I need be very selective when choosing which credit vehicle I want to use.

Works Cited

"Credit Card: A Friend in Need or A Foe Indeed?" RinggitPlus. Web. 15 May 2014. 

Reflection on the Miracle of Compounding

This week in Personal Finance and Economics, we learned about compound interest and how it can make money for you. Compound interest is when interest is added to the principal amount and the interest added also earns interest. We learned that compound interest may work slowly, but it can accumulate to a large sum. The amount that that compounding can earn people is based on how much money you invest, how long you set aside your money, and how much of your invested money grows each year. In order for compounding to work, we need to save money and take advantage of compound interest in stocks, bonds, and other high growth methods.
The Rule of 72 offers us a convenient method by which we can see how long it will take our money to double. This makes life much easier if we are just trying to get a rough estimate because we don't need to use nasty and long calculations with the equation: A = P(1 + r/n)nt. All that a person needs to do is take the number 72 and divide it by the average annual growth which can also be referred to as the return rate. Through this simple trick, people will arrive that the number in years that it will take for their money to double.

So, people can take advantage of compound interest and make their money work for them. The concept of compound interest is a very useful one that I am glad we are learning in class. As we delve further into our Personal Finance unit, we are going to be learning about skills that will directly help us later in life. By knowing about compound interest, we know the best ways to gain money and which savings vehicle might offer a better deal. The concepts on compound interest and the Rule of 72 offer us a good background of knowledge so we can start working on making money the easy way even earlier.

Works Cited

"MNP #152 - MLM and COMPOUND INTEREST !" Marketing Network Pro. Web. 08 May 2014.

Reflection on Money and Banking

This week in Economics was about money and banking. We learned that money is not a very easy term to describe. Luckily, we were given a very clear and concise definition of money: money is any good that is widely accepted for the purposes of exchange and in the repayment of debts. There are many qualities that an item must have to be money. The object must be durable, scarce, stable in value, accepted, divisible, portable, and difficult to counterfeit.  Money is given value by people and that is how people can exchange goods. This allows for people to make transactions in a more efficient manner. Money is also good for exchanges because it sets a value to everything and prevents a debate over the value of each item every time people want to buy or sell something. We also began to learn about banks and their function. Banks exist to store and loan money. They are a business and make money by charging interest on loans. There is the constant struggle between the bank wanting to make interest rates high on loans and wanting to make interest rates high so that their customers will keep putting money in their bank. Banks are looking to make the most profit without losing money.
We are learning first hand in Weserville about the value of money and the banking system. Everyone opened checking accounts. We received our first pay checks and quickly saw that taxes took away much of the money we earned. Personally, this made me a little upset, but that might just be me. After we made our checking account, we had to pay our electric bill. This was a significant deduction from our account so the value of money became more apparent. The freedom to withdraw and spend our money at the market on things we wanted was a nice option. I didn't want to take out too much money though because I was afraid we would get another bill and have to take out even more money. Needless to say, it has been an interesting experience keeping track of the money we spend with a mock bank account.
I think that learning about money and banks by actually experiencing the concepts being taught will prepare us more for life. I feel already that I know more about how to use a bank account. I have already learned how to write a check which is an essential part of having an account. People need to know first the concept of what a bank wants in order to be successful with using their money. Depositing money in the bank has benefits, but a person needs to be prepared before the start spending their money so that their bank balance won't go under.