How Much Does It Really Cost

Learning Goals/Objectives:

Students will demonstrate an understanding of amortization tables, the time value of money, and how they relate to each other.
Students will demonstrate an understanding of minimum payments and their affects and opportunity cost in review inquiry questioning.

Grouping of Students:

Methods:

Activities:

a. Inquiry Questioning – 5 minutes (Review opportunity cost,
and the negative impact of minimum payments)

b. Direct Instruction – 10 minutes

Time Value of Money - The idea that a dollar now is worth
more than a dollar in the future, even after adjusting for inflation, because a
dollar now can earn interest or other appreciation until the time the dollar in
the future would be received. This is due to inflation. Inflation is…
Inflation - The overall general upward price movement of
goods and services in an economy, usually as measured by the Consumer Price
Index and the Producer Price Index. Over time, as the cost of goods and
services increase, the value of a dollar is going to fall because a person
won't be able to purchase as much with that dollar as he/she previously could.

c. Computer Assisted Learning – 20 minutes

Let’s look what we happen to the future value of $5000 in
savings over 30 years - http://www.zenwealth.com/BusinessFinanceOnline/TVM/TVMCalculator.html
Present Value (PV) - $5,000, Rate – 4%, PMT – 0, Periods –
30, Annual, Click FV (Future Value) As you can see, what would have cost $5,000
will cost over $16,000 in 30 years!
Now let’s look at what the cost of a loan would be over the
same period of time and at the same interest rate - http://www.bankrate.com/calculators/mortgages/amortization-calculator.aspx?pop=nopop&ec_id=MSN_ag_Amortization_Amortization_-_MSN_k_Amortization_Schedule

So now, that same investment is going to cost $8,000 over
the course of 30 years.

Click ‘Show Amortization Table’ – As you can see, it will
cost just over $3000 additional dollars to borrow $5000 over 30 years. Yet when
looking at the time value of money, by borrowing the money now and paying it
off over 30 years - - you are going to pay half the cost for your investment
when compared to waiting 30 years to pay for the investment with cash!
Now let’s look at what would happen if you were to invest
$5,000 in the market and it earned 8% (market average) over 30 years. http://www.planningtips.com/cgi-bin/savings.pl.
Think about this: by keeping your money under a mattress
it would be worth three times less then what it is worth today in 30 years. By
investing that same money now (based on the above information),that same money
will be worth triple what it is worth today in 30 years. Net – invest your
money or borrow money for an investment that increases in value (home, your own
value after additional education, stocks, bonds). Stay away from things that
lose value (cars, furniture, consumption)

Materials:

Assessment: