Educating Youth on Investment Growth
As this interest calculator clearly demonstrates, investment growth can be a fundamental way for individuals to build wealth over the long term. This is a concept that must be understood by our youth if they are to be able to reach financial independence later on in their lives. Understanding how compounding interest works is key in understanding this fundamental concept.
These days the economic outlook has been dim at best, and without some dramatic actions on the part of governments all over the globe, it might have been a depression. Manufacturers and mortgage institutions have been manipulating rates for months trying to spark activity. For individuals leaning toward a big purchase, an interest calculator can help make things clearer.
We have seen rates drop to historic lows and remain there, so to entice consumers packages are designed to present the investments in the best light. People are wary however, because it was these same financial institutions that designed loans and offered credit which ended up with so many in default, unable to comply with their obligations. With Wall Street still defying every congressional and Presidential effort to rein them in, it is no wonder people are anxious.
But for the consumer, these often clever packages can seem confusing, and when one is making a large investment, clarity is key. With the aid of a device or program to calculate how rates affect monthly costs for oneself, one can enter the negotiations confidently. Gone are the days when consumers are willing to gamble on adjustable rates that benefit the bank at the expense of homeowners.
Before one gets too far into the activity, it is good to refresh the memory of how the cost of money is calculated in the first place. Basic interest is simply the rate multiplied by the principle and then multiplied by the number or periods. For a $100,000 dollar loan at 5 percent for 30 years, the cost to the homeowner is $150,000 dollars, greater than the original loan.
Understanding how money works can prevent a major financial mistake by getting. It also helps to understand how one can influence monthly payments and the total amount paid over the life of the loan. A $30,000 dollar down-payment on that $100,000 dollar home means the total amount to be paid above the principle drops to $105,000 dollars, a savings of $45,000 dollars.
With the same down-payment and a shorter loan, say 15 years, the interest drops to $52,500 dollars but the monthly payment will increase. These are the types of decisions one must filter through to make this important decision. Having the ability to run these numbers before the bank makes their pitch can save time, trouble and frustration.
Calculating the cost of money can also work for savings, in this case the bank pays you. Knowing how much interest one earns on a certificate of deposit with compounding interest versus a mutual fund of uncertain rate helps for an easier decision. It may be that the safer certificate is a better bet than a mutual fund promising big dividends in a bearish market.
In financial decisions, it makes sound sense to do some calculations before the negotiations so you can get the best deal for you. Sometimes a longer loan with lower monthly payments is best. The important thing is to be armed with information before walking into the bank, and an interest calculator is a tool that will give you that confidence.