Algebra and personal finance
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Algebra And Personal FiNANCE. Dr. Amit Dave Cornell Grant Georgia Piedmont Technical College Atlanta, Georgia. Importance of Financial Mathematics Many students have very limited knowledge of personal finance.

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Algebra and personal finance

Algebra And Personal FiNANCE

Dr. Amit Dave

Cornell Grant

Georgia Piedmont Technical College

Atlanta, Georgia

  • Importance of Financial Mathematics

  • Many students have very limited knowledge of personal finance.

  • They tend to make decision without realizing the impact of their decision on their personal finance.

  • Borrowing money for automobile, home, education can be a big burden if not managed properly.

  • A survey conducted in 2008 by the US Department of Education reflects continued increases in student debt.

  • According to this survey, the average debt of a public university student was about $17,000 in 2004, and it rose 24% to $23,200 in 2008.

  • According to the US Department of Education, the national two-year federal student loan cohort default rate rose from 9.1 percent for FY 2010 to 10 percent for FY 2011 and three-year cohort default rate rose from 13.4 percent for FY 2009 to 14.7 percent for FY 2010.

  • The average entry-level job pays $46,000 a year, and average college senior graduates with nearly $23,000 in debt.

  • That’s about half of the first year salary and not including other expenses like insurance, rent, utilities, car payments, etc.

  • These figures clearly emphasize the importance of financial literacy among students.

  • A research study conducted by Sallie May showed nearly 85% undergraduate students expressed their desire to have a college course to teach money management skills.

  • Approximately 25% of high schools in the United States teach personal finance.

  • Average student debt for a graduating senior in 2008 increased by 24% compared to 2004. The average debt amount for graduate was $23,200 compared to $18650 in 2004.

  • In 2008, the average debt at a public university was $20,200 - 20% higher than 2004.

  • In 2008, the average debt at a private non-profit university was $27,650 – 29% higher than 2004.

  • In 2008, the average debt at a private for-profit university was $33,050 – 23% higher than 2004.

  • Approximately 40-50% of the graduating kids will have less that $10,000.00 of net worth during their liftime.

Facts and figures from national post secondary student aid study npsas
. - 20% higher than 2004.Facts and Figures from National Post Secondary Student AID study (NPSAS)

  • In 2008, 67% graduating students from a four year college had student debt; which equates to approximately 1.4 million students (27% higher than 2004).

  • 62% graduates from public universities had student loans

  • 72% graduates from private non-profit universities had student loans

  • 92% graduates from private for-profit had student loans compared to 85% of the students in 2004.

Kelly walsh s 10 reasons to teach financial literacy to the students
Kelly Walsh’s 10 reasons to teach financial literacy to the students.

  • Students do not know enough about personal finance

  • They start at a younger age

  • There are greater temptations

  • They have more debt options

  • They have more debt in general

  • Student loans are more expensive

  • People are going bankrupt

  • Students start saving later

  • The government would not be able to support them

  • Not everyone is given the same chance

Class and student information

  • Many students enrolled in College Algebra class will not take another math class or any business class if it is not required in their major of studies.

  • Majority of these students are adult students in their early to mid 20’s.

  • They never received any formal training in money management.

  • These students need guidance from some source and algebra course can be a wonderful source.

What is the role of alegbra in financial mathematics

  • College Algebra class does not include any chapter that covers financial mathematics.

  • Instructor must be creative in using algebraic concepts to teach financial mathematics.

  • Instructor is expected to be knowledgeable in personal finance.

  • Just about all financial mathematics calculations can be performed using algebraic formula.

  • The idea is to assist students to use algebraic concepts to solve problems with financial applications, which in turn helps students to make best financial decisions.

  • The real world applications when incorporated with technology can be great motivator for students.

  • Students are exposed to formulas to determine monthly car payment, saving, investment, and retirement planning.

  • Students also work with examples on mortgage, and debt.

Specific topics covered
Specific TOPICS COVERED technology can be great motivator for students.

  • Difference between simple interest and compound interest.

  • Explain the difference between regular IRA (401K) and Roth IRA.

  • Home loan calculations.

  • Automobile loan and interest calculations.

  • Resources for information on financial planning.

Difference between simple and compound interest
Difference between SIMPLE and Compound Interest technology can be great motivator for students.

  • Students do not know the difference between simple and compound interest.

  • The difference is explained with real world example.

  • Explain the magic of compounding.

  • Explain the difference between APR and APY.

  • Introduce them to continuous compounding.

Retirement planning
Retirement planning technology can be great motivator for students.

  • Majority of the students do not know the difference between regular IRA(401K) and Roth IRA.

  • The project involves creating a nest egg with regular IRA and Roth IRA. For this purpose the concept of exponent is used in the classroom.

  • Each student is assigned a fixed amount (500.00) for investment per year for 25 years at 8% interest rate.

  • The future value of the $500.00 invested each year = $36,552.97.

  • Interest earned = $36,552.97 - $12,500.00 = $24052.97.

  • Many students do not have any idea that a small amount invested each year after year could result in such a large amount.

  • On top of this, the entire amount is tax free since the Roth IRA is after tax investment.

Personal savings example
Personal Savings Example 25 years and invest $36,552.97 for another 10 years at 6% interest compounded annually.

  • Students are asked to estimate the amount they need to save today so they can withdraw a fixed amount every month, six months, or year.

  • The formula for Present Value of the Annuity is used to perform this calculations.

Mortgage calculations
Mortgage “n”, and CALCUlations

  • The examples are based on first time home buyers.

  • Calculations of monthly payments are based on the affordable home price for first time home buyer.

  • Example: Calculate the monthly payment for a $90,000 home. Loan is for30 year fixed rate at 5% annual interest with 20% down payment.

  • The formula listed below is used: “n”, and

  • M = Monthly payment

  • R = Interest rate

  • N = Number of years

  • Students are asked to try the calculations for different loan amount at different interest rate.

  • Students are also asked to calculate the amount of interest paid to the lender.

Present value
PRESENT VALUE : “n”, and

  • CJ and Heather decided to establish a savings account at the SPC credit union for Taylor, their newborn baby girl, that would provide her with $48,000 college expenses at the age of 18 . The manager of the credit union advised them that they can deposit a certain amount at 10% compounded semiannually to reach their goal. How much money would they need to deposit in her savings account?

SOLUTION : “n”, and

  • P = unknown amount to be deposited

  • A = $48,000, I = 10%/2 = 0.05 , n = 2 x 18 = 36

  • Therefore, P = A(1 + i)^(-n)

    = $48,000(1.05)^(-36)

    = $48,000(.172657415)

    = $8,287.56

Resources for financial planning
Resources for financial Planning “n”, and






References “n”, and

  • Azimova, M. (2010). Student Debt and Financial Literacy, Business Today online Journal, Retrieved on March 27, 2013

  • Quick Facts about Student Dept (2010), Retrieved on March 26, 2013

  • Walsh, K. (2011). 10 Reasons Why Schools Should Be Teaching Financial Literacy To Our Kids, Retrieved on March 28, 2013

  • Default Rates Continue to Rise for Federal Student Loans (September 30, 2013)

  • on October 3, 2013