Commentary: Credit and Amortization Spreadsheet Activity
I started
teaching about credit cards in the mid ‘90s, when interest rates were very
high, and I found out that many of my students were doing things like charging
their tuition without understanding how interest works. Students’ intuition tends to be linear they assume that, for example, if they pay
half the credit card payment, it’ll take twice as long to pay off the
bill.
This activity uses a spreadsheet I wrote that gets the last payment correct and protects most of the fields from being accidentally messed up. It shows twenty years worth of payments. I often have students set up their own spreadsheets first and then move on to use mine. The questions on the activity make students think; they look for patterns and otherwise get a feel for how amortization works. They sometimes bring in their own bills or take a copy of the spreadsheet for later use.
I am always charmed when a student announces something like, “Boy, the banks make a lot of money on credit cards.” Then I tend to ask why s/he thinks a bank would give them a credit card … because the bank is nice and wants to make your life more convenient? 8/05