...Credit Cards, Excess Debt, and the Time Value of Money: The Parable of the Debt Banana Timothy Falcon Crack and Helen Roberts University of Otago, New Zealand The parable of the debt banana is an analogy between the accumulation of excess personal debt and the accumulation of excess body weight. We created this parable to grab student attention and to then serve as a springboard for discussion of personal debt, time value of money mathematics, the mechanics of credit cards, personal bankruptcy, moral hazard, ethics, and credit card reform. A follow-up survey in a large class (453 students; 84% response rate) showed that 92% of students seeing the parable alongside the underlying finance principles said that it grabbed their attention more than if the underlying finance principles alone were presented, and 87% of students said it made an impression upon them that will make them more careful in their future credit card spending habits. We provide worked examples of credit card use as well as a spreadsheet that lets readers explore these examples and perform sensitivity analysis. INTRODUCTION The parable of the debt banana is an analogy between the accumulation of excess personal debt and the accumulation of excess body weight. We created and presented our parable in a compulsory Finance 101 course taken by all business majors. Most students had little or no exposure to the world of finance and many had poor mathematical skills. Both their lack of financial...
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...Turkey,[23] Ukraine,[24] the United Kingdom, and the United States.[25] * These types of schemes have existed for at least a century, some with variations to hide their true nature. Multilevel marketing plans have also been classified as pyramid schemes.[26][27][28][29] II. What is Multi-Level-Marketing? * Multi-Level Marketing really isn’t something that is bad. Some MLM companies have given the home business industry a bad name. Many companies will tell their associates to only take care of those that chose to be associates with the company and not just customers * Associate based companies will never survive and in a way they are more of a illegal pyramid company. The reason I say this is most companies only make money when they sale their products to consumers and not to the associate. * Consumers are what real honest companies focus on. Think about it …If you take a 100 percent of a companies earnings and break it down * You will realize that only 20% are sales associates and 80% are consumers. * Now with that said how can a company...
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...If you ever wondered where money comes from, how it's created, and why it's created in the way it is, then The Grip of Death is for you. This book explains how the banking system is actually a form of institutionalised fraud, based on the original activities of goldsmiths who would lend more "money" than they actually had on deposit. The only reason we accept the system without a second thought seems to be that it has the weight of tradition behind it. But the weight of tradition is not enough to justify its validity, as the author shows. The basic thesis of the book goes like this. Money, in the sense of credit, is not and has not for a long time been created by the governments of the world. Instead, it is created by the banks every time someone borrows from them, and along with it is created an equal amount of debt. This is how it works. You borrow a sum of money from the bank. They don't take it out of their assets--they can't; their assets belong to other people. Instead, they magic into existence a credit balance in your account. You spend the money, which goes round and comes back into the banking system: at the same time you are working to get money to pay off the debt you owe. The money the bank created, and the money you have made by working, come back to the bank, get added to the bank's assets, and get used as the basis for more and larger borrowing. Right now there is more money around than there has ever been--but it's almost all debt-based. The government closes...
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...happens to the debt problem. So some way to solving this problem should be addressed secular Al Hiwalah this as a way of disposing of the problem. Al Hiwalah not only used to resolve the debt problems even more than that, it also serves as the transfer of funds from individual to another individual, company or firm as well as which has been adopted by some of the banking system. Thus, we takes the opportunity to study a bit about al Hiwalah, al Hiwalah concepts, definitions, propositions evidences, harmonious and conditions of al Hiwalah. We were also discusses the concept of al Hiwalah in the banking system is related to money (remittances). Concept of Al-Hiwalah: Definition: Al Hiwalah terms of language is moving. According to the Hanafi scholars define the term as the transfer of claims from obligations owed to dependents who are ready to take the liability. Other Hanafi scholars define as a aqad al-Hiwalah (contract) which led to the transfer of debts to other debt obligations. This means that al Hiwalah kind of contract (agreement qabul) the transfer of debt liability of a person owes to others, where other people had also due to the transfer. For example, Ali has a total debt to Ahmad. Ahmad has a total debt currently is to Umar, according to the same amount. As Ahmad was unable to pay its debts, then consult with Ali Ahmad was asked to loan it to Umar. In this case, the Umarlah to be directly related to Ali, and Ahmad regardless of the debt obligation...
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...The U.S. debt and its budget surplus and deficit(s) has been an on-going discussion way back from the foundation of America. America started borrowing money during the American Revolution. It wasn't officially considered a national debt until the Independence and the declaration of the U.S. Constitution. By the year of 1835, they were completely debt-free due to several budget surpluses and an effective budget planning. However, the budget surplus didn't last that long as the borrowing of money started again right after a year. The U.S. borrows money from Federal Reserve, U.S. Individuals and Institutions, Social Security Trust Fund, and other foreign nations and governments by issuing bonds for sale through the U.S. Treasury. Throughout history, some of the key reasons for the accumulation of the national debt was due to wars such as; WWI, WWII, Cold War, etc., drastic tax-cuts, The Great Depression, economic recessions, military and defence spending, welfare programs, bail-outs of big corporations, etc. America is forced to borrow money every time when their expenses are more than their revenue. This borrowing of money ultimately puts a debt on the U.S. and its citizens. The majority of the U.S. debt is owned by Federal Reserve and other U.S. individuals and institutions like; Social Security Fund, etc. whereas the second largest holder of the U.S. debt is China followed by Japan. Both China and Japan own 1.1+ trillion of U.S. debt each. The major borrowing of the debt started...
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...Why has America continued to be in so much debt? Well, our nation began its existence in debt after borrowing money to finance the Revolutionary War. The Revolutionary War had great finical effects on all who participated in the war. The United States was one of those combatants who participated in the war from April 19, 1775, to September 3, 1783. When the war was over the war reflected in a great amount of money which had to be paid for. The nation used many methods to pay for the war which included some of the methods we still use today. During this time, the president of the United States was Andrew Jackson, and he believed that debt was a “national curse” that would soon build up over time. Jackson’s main goal was to eliminate all of...
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...Public Debt? Public debt is also sometimes referred to as government debt. It is a term for all of the money owed at any given time by any branch of the government. It encompasses public debt owed by the federal government, the state government, and even the municipal and local government. Public debt accrues over time when the government spends more money than it collects in taxation. As government engage in more deficit spending, the amount of public debt increases. Public debt can either be: 1.1External debt 1.2Domestic debt or Internal Debt 1.1External debt: Public debt can be made up of all sorts of different types of debt. A great deal of public debt is external debt, which is money that is owed by the government to foreign lenders, either in the form of international organizations, other governments, or groups like sovereign wealth funds which invest in government bonds 1.2Domestic debt or Internal Debt: Public debt is also made up of internal debt, where citizens and groups within the country lend the government money to continue operating. In some ways, this is a lot like lending to oneself, since ultimately the responsibility for public debt falls back on the very people lending money. 2.0Benefits of Public Debt * It is an alternative for financing fiscal budget deficit * Deficit budget raise the recession and public borrowing help the economy not to be fall in recession * Public debt refers...
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...Incurring Personal and Corporate Debt Debt is stated many times throughout the Bible, and it really pushes the point that you should avoid incurring debt at all cost. Being in debt is a common thing most people and companies face at some point, and sometimes the debt you have incurred can be a good thing or a bad thing. As defined by the Oxford Dictionary, debt is “something, typically money, that is owed or due” (Oxford, 2012). Debt, in the finance world, is directly correlated to how much risk a company has. Some risk or debt is acceptable, until it gets out of control. However, if no risk is presented in a company, not many people will invest. Proverbs 22:7 says, "The rich rule over the poor, and the borrower is slave to the lender." This is a great example of how we should be living our lives and running our companies. When dealing with the issue of debt, one must consider the risk and return on accumulating and eliminating debt. The verse from Proverbs is a great example of how risk affects our own personal and corporate lives. Whenever a loan or debt is taken out, one becomes a slave to the lender. We must be wise and careful as to whom we accept loans from and how much we take out. We must also be good stewards in who we, as a company, will lend money to. Ecclesiastes 5:11 says “As goods increases, so do those who consume them. And what benefit are they to the owner except to feast his eyes on them?” As more items are manufactured, marketed, and sold in this world...
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...The US Debt and Deficit The US Debt and Deficit are one of the most widely discussed and often misunderstood items of national interest of the United States. As we know almost every action and decision we make has a tax consequence. Someone who isn't aware of the tax laws or concepts doesn't really consider tax when making a decision. Also they aren't aware of how their decisions they may affect their income. There are different types of income that receive different types of taxes. Some incomes are not taxed at all while others are taxed at a very high or low rate. The definition of Tax is money that is paid by citizens and residents to federal, state, and local governments. The money that is collected from those taxes help fund services provided by the government. Taxes are the main sources of the government’s revenue. Types of taxes include income tax, payroll tax, corporate tax, excessive duty tax, sales tax, and property tax. The amount collected for each type are; 5.65 percent in payroll tax, 27.2 billion in sales tax, 9.8 billion in corporate tax, 50.4 billion in income tax and 8.9 billion in property tax. These are paid on a federal level and state or local governments as well. All money is considered Taxable income which is money obtained through wages, self-employment, and from other things like the sale of property. The majority of people pay their income taxes by having money withheld from their paychecks. The amount of income tax a person has to pay varies according...
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...classes. The crisis had a contagion effect and spread far and wide without an end in sight creating more and more uncertainties day by day. When Government creates stimulus it goes to increase the government debt making the government vulnerable to financial weakness. In a few cases , where there was a government failure, investors have taken an hair cut in their investments. But in General, Sovereign debt is supposed to be more trustworthy since Central Banks can print money to lend it to the government when in need. Governments in an effort to stop economic slide, tried many measures including Monetary and Fiscal Stimulus but black swan events had overtaken the efforts of governments. Many of the developed countries printed more money and tried to stimulate the Economic Growth and reduce the unemployment. But it has gone into a spiral. The only effect is the outstanding debts of governments are going up, their credit rating is being downgraded and there was a lot of trust deficit between governments.,Banks and investors. Everybody is in a dilemma searching for solutions and immediate remedy. The effective solutions are eluding the policy makers. . According to Classical Economics, Printing money is likely to increase the demand, inflation and reduce the value of money. This is true in cases of countries where the potential for high growth, high...
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...accumulated more than 34,000 dollars in student debt (Dickler). ADD. Student loan debt creates early financial difficulties for young adults, leading to many mental and physical issues from stress and overall hurts the economy. With the weight of student debt on a person’s shoulder, they are less likely to be financially successful in the future. According to Kelly Holland, the time for someone to get ahead financially is when they are twenty to thirty years old, however, their student debt can prevent them from doing so. Having to pay off their debt and...
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...Debt and Equity Financing Paper Organizations funding money in the form of capital for their business can be tedious especially if the risk involved is not properly analyzed well. Organizations must be able to identity if the method of funding their capital is going to contribute to the vision and will also provide enough benefits to satisfy investors and lastly if the weighted average cost will generate future income to the business. Organizations fund their business operations through two main sources of capital called debt financing and equity financing. Each in its own way contributes to the finance of the business. Debt Financing Debt financing takes the form of loans that must be repaid over time, usually with interest. With debt financing businesses can borrow money over a short term or long term period. Banks and government agencies, such as the Small Business Administration (SBA) are the main sources of debt financing that businesses can use. The Small Business Administration (SBA) has a loan guarantee program that allows small and minority-owned businesses to borrow money for various business purposes. This organization does not issue loans, but rather guarantees the loans that will be made under its programs by commercial banks and other lenders. Another example of debt financing is the line of credit. This is a bank loan where a business can draw out funds whenever money is needed in the business. These are usually only available to well-established businesses...
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...PERSONAL FINANCE WITH SUZE ORMAN Debt Mistakes to Never Make Again We all make mistakes. What’s important is learning from them. This section teaches you strategies for dealing with debt problems you may already have, and how to steer clear of common debt mistakes in the future. 1 Never borrow more than you absolutely need. There are some good reasons to take on debt: your education, for example, or to buy a home. But even if you are borrowing for a good reason, make it your goal to borrow the least amount possible. The less you owe, the more flexibility you have to focus on other money goals. Don’t be seduced by a lender who tells you how big a loan he can get for you. For example, let’s say you know you can buy a terrific home in a neighborhood you like, and your mortgage will be $800 a month. A mortgage lender says you can qualify for a larger mortgage, for which the monthly payment will be $1,000 a month. “Great!” you think. “We can afford a house with an extra bedroom and a renovated kitchen!” Not so fast. By opting for the less-expensive mortgage, you free up $200 a month to put toward another goal. That’s $2,400 a year you could invest in a Roth IRA for your retirement, for example. In 30 years—the typical time it takes to pay off a mortgage—the $200 a month you managed to save in your Roth IRA could be worth nearly $170,000 at an average annual rate of return of 5%! Debt Mistakes to Never Make Again (cont.) pg. 1 Debt Mistakes Never to Make Again ...
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...The student loan debt crisis is a major issue in the United States. Every day, students are dropping out of college because they cannot afford college. Ever since college tuition went up in the 1960s, the student loan debt has risen. Student loan debt takes a major effect of student’s lives after college is over and they must start paying their loans off. On average, students take out as much as $28,000 to $30,000 of student loans (Holland). Taking out these large amounts of loans cause students to dig a hole of financial debt for themselves. From the history of student loan debt to the current solutions that could solve the debt issue, student loan debt will always be a constant issue in students’ lives unless drastic measures are taken to...
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...child’s play compared to what is lurking on the horizon. While the government artificially stimulates the economy by printing new money and propping up the stock market to make things appear rosy, economists are sounding the alarm to get ready for the biggest economic collapse in the history of America. It is not about pessimism or optimism, it is about the facts. The truth is that America is bankrupt at every level and no amount of bailouts, stimulus packages, budget cuts, or tax increases will get us out of the debt hell we have created. So, what is really going on with our economy and how did we get in this mess? What options do we have? What are the consequences of those options? Economics 101: Deficit vs. National Debt Deficit is basically the shortcomings in the budget for any given year. If the government has $300 billion in available funds and it spends $350 billion, it has a deficit of $50 billion. At the end of that year, what happens to the $50 billion owed? It gets rolled over into the long-term shortcoming, which is the national debt. The latter debt is ideally to be paid by using revenue from corporate and income taxes plus other fees imposed by the government. The U.S. national debt then, is the sum of all outstanding debt owed by the federal government. It includes the money government borrowed, plus the interest it must pay on this debt. Putting Deficit and...
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