Personal Financial Literacy
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Texas 8th Grade Math › Personal Financial Literacy
Purchase options for a $600 laptop: (1) cash, (2) debit card, (3) credit card with 2% cashback and you will pay the statement in full each month, (4) store layaway that adds a $30 fee. Which method provides the best financial outcome and reasonable protections if you can afford the full price today?
Pay cash because it is always better than any card and there is never any other benefit.
Use a debit card because it is the same as cash and has no meaningful differences.
Use a credit card with 2% cashback and pay the statement in full; you get $12 back, strong purchase protections, and no interest if you avoid carrying a balance.
Choose layaway to avoid using credit, even though you will pay the $30 fee.
Explanation
Cost: Paying cash or debit has no fees, but the credit card with 2% cashback returns $12 on $600 and, if the full statement is paid, no interest is charged. Layaway adds a $30 fee, which is more than the $12 reward. Convenience/security: Credit cards often offer better dispute and fraud protections than cash/debit. Budgeting/behavior: Using credit requires discipline—paying in full each month is essential so rewards are not wiped out by interest. For a one-time, affordable purchase, credit with rewards and full payoff is best.
Credit card balance: $2,520 at 18% APR. Minimum payment: $75 per month. Online calculator excerpt after 12 months:
- Total paid: $900
- Interest paid: $540
- Principal paid: $360
- Remaining balance: $2,160
How much interest did Maya pay during the first 12 months?
$360
$540
$900
$2,160
Explanation
From the amortization output, interest paid is given directly as $540. It also matches total paid minus principal paid (900 − 360 = 540). With high APR and minimum payments, most of the payment goes to interest, so the balance stays high.
Loan Option A: $10,000 at 6% annual interest for 3 years. Loan Option B: $10,000 at 4% annual interest for 5 years. Which loan costs more in total interest?
Loan Option A costs more in total interest because its rate is higher.
Both options cost the same total interest.
Loan Option B costs more in total interest because the lower rate is applied for more years.
Not enough information without knowing monthly payments.
Explanation
Use simple interest $I = P r t$. For A: $I_A = 10000 \times 0.06 \times 3 = 1800$. For B: $I_B = 10000 \times 0.04 \times 5 = 2000$. Since $2000 > 1800$, B costs more. A higher rate increases cost, and more years increase cost; here the longer time outweighs the lower rate.
State university costs each year: tuition 11,000, room/board 8,000, other expenses 3,000. Family can contribute 8,000 per year. The student plans a 4-year degree. What is the total cost for 4 years before any family contribution or aid?
88,000
56,000
22,000
76,000
Explanation
Annual total cost = 11,000 + 8,000 + 3,000 = 22,000. Over 4 years: 22,000 × 4 = 88,000. If you also consider the family contribution, that would reduce the student's share by 8,000 × 4 = 32,000 to 56,000, but the question asked for the total cost before contributions. To plan for the first year, the gap would be 22,000 − 8,000 = 14,000. A simple plan is saving 14,000 ÷ 4 = 3,500 per year if starting in 8th grade with no interest, or slightly less if savings earn interest (e.g., using the future value factor $\frac{(1+r)^n-1}{r}$). Strategies to reduce costs include starting at a community college, applying for scholarships, and using student loans responsibly to fill remaining gaps.
Investment A: $1,000 at 5% simple interest for 8 years. Investment B: $1,000 at 5% compounded annually for 8 years. What is the difference in total interest earned (compound minus simple)?
$77.46
$0.00
$40.00
-$77.46
Explanation
Simple: $I=prt=1000(0.05)(8)=400$ (amount $1400$). Compound: $A=p(1+r)^t=1000(1.05)^8\approx1477.46$, so interest $\approx477.46$. Difference $=477.46-400=77.46$, and compound earns more. Compound grows faster because interest earns interest; this advantage increases with higher $r$ and longer $t$, which is why most investments use compounding.
Maya wants a new phone costing 900 dollars. She has 200 dollars saved and earns 12 dollars per hour working 12 hours per week. Which choice demonstrates financial responsibility?
Wait about 5 weeks to save the rest and pay cash, keeping a small cushion for a case and taxes.
Open a store credit card at 25% APR for a 10% discount now and make only minimum payments.
Use a 0% for 6 months plan but budget only 100 dollars per month, risking deferred interest on any remaining balance.
Borrow 700 dollars from a friend without a written plan or timeline to repay.
Explanation
Financial responsibility means choosing options that protect long‑term financial health. Saving for about 5 weeks lets Maya avoid interest and fees. The store card discount reduces the price to about 810 dollars, but carrying a balance at 25% APR can add well over 200 dollars in interest in a year if not paid off quickly. A 0% plan is only responsible if she can fully pay within the promo period; paying 100 dollars per month leaves a balance and triggers deferred interest from the purchase date, adding significant cost. An informal loan without a plan risks missed payments and damaged relationships. Paying cash avoids high‑interest debt and preserves future flexibility.
Monthly utility bill payment options: (1) free automatic bank draft (ACH), (2) online credit card payment with a 2.5% convenience fee, (3) check by mail (stamp cost and possible mail delays), (4) in-person payment that requires driving and waiting in line. Which method provides the best financial outcome and reliability for on-time payments?
Enroll in the free automatic bank draft; it avoids fees and late charges with minimal effort, as long as you keep enough money in the account.
Pay online by credit card to earn rewards even though there is a 2.5% fee, because the fee is small and doesn't matter.
Mail a check each month so you can time it on the due date without worrying about delays.
Pay in person to get a paper receipt, even if it takes extra time and travel.
Explanation
Cost: ACH autopay is free and prevents late fees; a 2.5% card fee adds up each month and outweighs small rewards. Convenience/security: Autopay is hands-off and reliable; mail risks delays and in-person costs time and travel. Budgeting/behavior: Autopay helps avoid missed payments but requires monitoring your balance to prevent overdrafts. Choosing free autopay balances cost and reliability best.
Community college pathway: 2 years at a community college (tuition 3,500, commuting 1,500, books 800 each year), then transfer to a university for 2 years (tuition 15,000, room/board 9,000, other 2,500 each year). What is the total cost for all 4 years?
58,000
64,600
11,600
53,000
Explanation
Community college annual cost = 3,500 + 1,500 + 800 = 5,800; for 2 years: 5,800 × 2 = 11,600. University annual cost = 15,000 + 9,000 + 2,500 = 26,500; for 2 years: 26,500 × 2 = 53,000. Total 4-year cost = 11,600 + 53,000 = 64,600. A common mistake is to ignore books/commuting or room/board, leading to 58,000 or 53,000. Families can reduce the student's needed amount with contributions and by seeking scholarships; starting at a community college is a cost-lowering strategy, and student loans can cover remaining gaps if used carefully.
College choice: Two schools offer the same degree. In‑state tuition is 12,000 dollars per year; out‑of‑state is 35,000 dollars per year. You expect 5,000 dollars in scholarships and 3,000 dollars family help each year. Which choice is most financially responsible?
Choose the out‑of‑state school because the campus looks nicer; you can worry about loans after graduation.
Take private loans at a higher interest rate to go out‑of‑state now since borrowing is easy.
Choose the in‑state school, live at home the first year if possible, work limited hours, and borrow only what you must.
Put tuition on a credit card at a high APR to earn rewards points and pay it off later.
Explanation
Financial responsibility weighs total long‑term cost and debt. Net annual cost after aid is about 4,000 dollars in‑state and about 27,000 dollars out‑of‑state. Over four years that's roughly 16,000 dollars versus 108,000 dollars before interest. The larger debt can lead to very high monthly payments for many years, reducing future options like saving, moving, or starting a business. Choosing in‑state and minimizing borrowing lowers total cost, interest paid, and financial stress.
Savings comparison: $500 earning 3% simple interest vs. 3% compound interest (compounded annually) over 6 years. Which earns more money over time?
Simple interest earns more
Compound interest earns more
They earn the same
Not enough information
Explanation
Simple: $I=prt=500(0.03)(6)=90$ (amount $590$). Compound: $A=500(1.03)^6\approx500(1.194052)=597.03$, so interest $\approx97.03$. Compound earns about $7.03$ more. Because $A=p(1+r)^t$ grows multiplicatively, the compound advantage increases with higher $r$ and longer $t$; real-world investments typically use compounding.