Credit Cards

I teach science, but every now and then I do a short lesson on credit and credit cards. I may have mentioned that I'm a bit of an Excel geek, I like to mess around with spreadsheets and what I do is set up a simple spreadsheet for my kids showing them what happens when they obtain and use a credit card.

I usually start with $1000 purchased and then show them what happens with 18.9% interest and minimum payments. When I do this it becomes glaringly apparent why so many people have credit issues (myself included). If you compound 18.9% interest monthly on a $1000 purchase, your monthly interest is roughly $15.75. So the credit card company charges you a minimum payment of, say, $16. In a year of $16/month payments you pay $192 to pay off a whole $3 of principle. At that rate it will take you 333 years to pay off the original $1000. Worse, you will have paid $64000 for that TV.

Ridiculous you say. Yes it is. But the bottom line is that young people don't think in the long term. They see a $1000 color TV for $15/month FOR THE REST OF THEIR LIFE as a good deal.
And the credit card companies make money at usurious interest rates. It's a racket, and one that the government doesn't seem interested in doing anything about.