Jessica is very proud of herself for having $5,000 in her savings account that pays 4 percent interest.She currently has a balance of $2,300 on her credit card account that charges 21 percent interest.Jessica thinks she is making a wise financial decision by keeping her money in her savings account instead of paying off her credit card balance.What financial principle from Chapter 1 would you use to give her good advice?

Question

Quizplus · Accepted Answer

The time value of money is the principle that states that money today is worth more than money in the future. This is because money today can be invested and earn interest, so it will grow in value over time. In Jessica's case, she is making a poor financial decision by keeping her money in her savings account instead of paying off her credit card balance. This is because the interest she is earning on her savings account is less than the interest she is paying on her credit card balance. As a result, she is actually losing money by keeping her money in her savings account.

Jessica Is Very Proud of Herself for Having $5,000 in Her