Question

Pay It Off! Let's say you have $ 1,000 in savings and are making 6 percent interest. That means that you make $ 60 a month in interest. Let's also say that you have $ 500 you need to pay off on your credit card. By not paying it off, they charge you 18 percent interest a month. That means you owe an extra $ 90 a month! It's just foolish to keep putting money in a savings account when you have credit cards to pay off. You'll save money if you pay off the credit cards and then start saving. Save It! I don't know why people don't try to save more. Now, it's smart to go ahead and work on paying off any debt you currently have on credit cards. But, it's even better to stop using your credit cards! Instead of constantly buying things on credit cards, put your money in a savings account and wait until you have the cash to buy what you want. That way you won't end up losing all your money to credit card debt! Try to stop spending and start saving. Where could a reader find this kind of text?

A. In an online course
B. In the financial advice section of the newspaper
C. In a parenting magazine
D. In the comics section of the newspaper

Answer 1

This type of text, which provides financial advice about the wisdom of paying off credit card debt versus keeping money in a savings account, is typically found in the financial advice section of a newspaper. The text details the conflict between the psychological approach to money management and traditional economic rationality, where people often make financially suboptimal decisions due to mental accounting biases.

Step-by-step explanation:

The excerpt provided seems to be discussing financial strategies, particularly the comparison between the interests earned on savings and the costs of carrying credit card debt. This kind of text typically offers financial guidance and is often found in the financial advice section of a newspaper. The decision-making process described reflects the principles of mental accounting, where people treat money in different 'accounts' psychologically differently, sometimes leading to irrational financial decisions from a traditional economist's point of view.

For instance, a person who has a savings account earning 6 percent interest but is also incurring 18 percent interest on a credit card debt would be better off paying the debt first. This is because the net effect of paying off the debt is financially beneficial despite the psychological discomfort of seeing one's savings decrease.

Traditional economic theory considers money to be fungible; that is, every dollar is the same and can be interchanged. However, the example shows that people do not always follow this principle, leading to decisions that are not economically optimal, such as keeping savings with low interest rates while incurring high-interest credit card debt.