72 = I x Y, where, I is the interest rate, and Y is the number of years needed to double your investment. Divide 72 years by your interest rate to estimate the number of years it will take to double your investment. For example, at a rate of 8%, an investment’s value will double in 9 years. CREDIT Credit is based largely on trust. The average person in the Navy is trustworthy and expects to receive a fair deal in business and financial dealings. On the other hand, the way people handle their finances is a reliable sign of their general character and trustworthiness. Usually, when you think of credit, you think of time payment purchases or charge accounts. Actually credit has a much broader scope. The  entire  country  runs  on  credit,  including industries;  banks;  and  local,  state,  and  federal governments. In fact, if credit were to stop suddenly, the result would be catastrophic. For example, almost no one  would  be  able  to  buy  a  home,  an  automobile, furniture, or a television or stereo set. Without these sales, unemployment would skyrocket. These salaries, not  available  for  the  retail  market,  would  in  turn adversely affect the sale of other goods. The effect would continue from the highest to the lowest level, and economic chaos would result. Principles of Credit Credit  literally  means  buy  now,  pay  later.  The system permits you to purchase goods as you need them, but pay for them over a certain period. Credit means you receive a loan of money, and you always pay extra when you borrow money. Credit, if used wisely, ensures a reasonable standard of living. However, you cannot substitute credit for sound financial planning and a systematic savings plan. Additionally, improper use of credit  can  create  a  financial  nightmare  that  can adversely affect your job, family life, and mental and physical health. Cost of Credit Have you ever rented a motorcycle or sailboat? You always know in advance that it will cost you so much an hour or day. The rent or cost of using the bike or boat has its base on length of use. The rent paid for using borrowed money or credit is known as  interest. Sometimes, you may have difficulty figuring interest. Some lenders and businesses quote interest rates plus other charges in a way that hides the actual figures. Then, people don’t know the total cost of loans or installment purchases. When you borrow or buy something  on time, keep your eyes open for extra charges in addition to the interest charge for the use of the money. Some of these additional charges include credit life insurance, fees for credit investigations, loan-handling fees, and health and accident insurance. Often, the down payment and the monthly payments are the only figures stated. Ask for the total charges in writing, including early repayment penalties and monthly rates. If you don’t receive the amount in writing, you can figure it your self. First, find the total amount you will pay for the loan or the purchase. Then subtract the actual price of the goods from the total cost of the loan. The difference shows the total cost of credit. Taking the time to get the facts pays off. Credit Rating Most people find it to their advantage to build a good  credit  rating.  Some  people  object  to  buying anything on credit and insist on paying for everything in cash. They save until they have the cash to make a major purchase, and they often do get better buys for cash. However, a good credit rating is like money in the bank. When you have a good credit rating, it means that you pay your bills on time. Navy personnel usually have a good credit reputation and should have no problem getting a loan or credit when needed. A good credit rating  can  be  priceless  in  an  emergency,  such  as  a medical crisis, fire, or death in the family. You can establish a good credit rating by paying for time purchases according to the purchase agreement. Time purchases include items, such as furniture or cars and items bought on credit card accounts. You can also 17-13 Student Notes: