Lesson 6: CONSUMER MATHEMATICS

In everyday life, people must strive to be intelligent in decision-making especially

when it involves money. Many people with a lot of money today have learned early on
how to maximize the use of their wealth by investing their money. Knowing how to
secure one’s financial well-being is one of the most important things to learn in life. No
matter how much or how little money you earn, it is important that you know the basics
of saving, investing, and grabbing opportunities for the security of their future.

Consumer mathematics comprises of practical mathematical techniques used

in commerce and everyday life. It is a branch of math that uses basic math skills in real
life situations like shopping, calculating taxes, estimating monthly budget, calculating
interest rate for a loan, etc.

Investing is putting money to work to start or expand a project - or to purchase

an asset or interest - where those funds are then put to work, with the goal to income
and increased value over time. The term "investment" can refer to any mechanism
used for generating future income. In the financial sense, this includes the purchase of
bonds, stocks or real estate property among several others. Additionally, a constructed
building or other facility used to produce goods can be seen as an investment. The
production of goods required to produce other goods may also be seen as investing.

Taking an action in the hopes of raising future revenue can also be considered
an investment. For example, when choosing to pursue additional education, the goal is
often to increase knowledge and improve skills in the hopes of ultimately producing
more income. Because investing is oriented toward future growth or income, there is
risk associated with the investment in the case that it does not pan out or falls short. For
instance, investing in a company that ends up going bankrupt or a project that fails. This
is what separates investing from saving - saving is accumulating money for future use
that is not at risk, while investment is putting money to work for future gain and entails
some risk.

Borrowing occurs in everyday life, from borrowing your neighbor's bicycle pump,
to renting out a DVD from the store. The most common form of borrowing is financial
borrowing. To borrow something, whether in regards to money or an item is to take
possession of said money or item for a set period of time before giving it back to the
original owner. Rules may apply.

Financial borrowing is when a borrower (person or business) approaches

a lender (bank or other financial institution) and obtains some form of loan. This spans
lots of different forms, but common loans include mortgages and the use of a credit
card. Borrowing a mortgage involves obtaining a lump sum from a bank and using it to
fund the purchase of real estate. Then over a set number of years the mortgage is paid
back at regular intervals with interest.

A lender is an individual, a public or private group, or a financial institution that

makes funds available to another with the expectation that the funds will be repaid.
Repayment will include the payment of any interest or fees. Repayment may occur in
increments (as in monthly mortgage payment) or as a lump sum.

Lenders may provide funds for a variety of reasons, such as a mortgage,

automobile loan, or small business loan. The terms of the loan specify how the loan is to
be satisfied, the period of the loan, and the consequences of default. One of the largest
loans consumers take out is home mortgages.

Interest is the fee or rent that the lenders charge to the borrowers for the
temporary use of the borrowed money. Interest is the charge for the privilege of
borrowing money, typically expressed as annual percentage rate (APR). Interest can
also refer to the amount of ownership a stockholder has in a company, usually
expressed as a percentage.

Two main types of interest can be applied to loans: simple and

compound. Simple interest is a set rate on the principle originally lent to the borrower
that the borrower has to pay for the ability to use the money. Compound interest is
interest on both the principle and the compounding interest paid on that loan. The latter
of the two types of interest is the most common.