Understanding percentages when shopping and in life By Gale, Cengage Learning, adapted by Newsela staff on 05.02.18 Word Count 942 Level 1000L Image 1. A shopper walks by a clothing store at the Independence Mall in Kingston, Massachusetts, in December 2007. Photo: Stephan Savoia for AP. Percentages are calculated in many real-life situations involving money. Understanding these calculations is important. Examples include calculation of any type of rate, like a bank interest rate, a student loan rate, or a tax rate. In stores, discounts and sales tax are almost always shown as a percentage. Calculating A Tip In North America, between 30% and 50% of what a family spends on food is spent in restaurants. The price in a restaurant includes the cost of the meal and plus any taxes. It also includes a tip, which is paid directly to the server. The tip is an important factor in the total cost. The tips earned by a server usually make up an important part of their earnings. This article is available at 5 reading levels at https://newsela.com. 1
The calculation of a tip involves a percentage on top of the total amount of the bill, not including sales tax. A 15% tip is usually given for good service. A 20% tip tells the server that the service was outstanding. Tips of less than 10% mean the person paying was dissatisfied in some way. Let's look at a 15% tip in the following examples. Remember that 15% = 15/100 = 0.15. Say a restaurant bill totals $28.56. To calculate the tip, 0.15 28.55 = 4.28, so the 15% tip on this bill is $4.28. It is unusual to leave such a precise amount for the tip, especially if the bill is being paid by cash. If the diner is paying by cash, a rounded figure close to 15% will be left for the server. In this case, $4.25 or $4.50 would be more common. Retail Sales: Price Discounts And Markups And Sales Tax Many aspects of sales advertising are expressed in percentage terms. Sale prices, discounts, and sales tax calculations depend on percentages. A discount is any sale where the seller claims that the goods are being sold at less than the regular price. In some cases, the original price of the item is known, as is the percentage discount. The sale price is not known and must be calculated. Let's say a refrigerator has a regular price of $625. In the store, there is a tag on the refrigerator advertising it as on sale at 40% off its regular price. To find the discount, remember that 40% = 0.40. Then, 40% of 625 = 0.40 625 = 250. After that subtract the discount, so 625 250 = $375. In this example, the discount of 40% is $250, so the sale price is $375. As an alternative method for calculating the sale price, 100% 40% = 60%. 60% = 0.60. 0.60 625 = 375. Sales Tax Calculations In many places, the cost of an item also comes with a sales tax. A 5% sales tax is common. The total cost of an item must include any taxes. For example, a car dealership is selling a car for $21,595, plus tax. The tax rate is 4.5%. To find the total cost of the item, remember that 4.5% =.045. Then, the tax =.045 21,595 = $971.76. The total cost is 971.76 + 21,595, or $22,566.78. Bank Accounts, Credit Cards And Compound Interest Bank interest is expressed as a percentage. Banks pay "interest" to people who keep their money in savings accounts there. The interest is paid on the money a person deposits and over time, the amount of interest increases, or "compounds" on top of all the old interest that the account has earned. This article is available at 5 reading levels at https://newsela.com. 2
For example, in the first year, someone deposits $10,000 to a bank account. The bank agrees to pay the depositor 4% per year. The interest earned at the end of the first year will be $400. Now there is $10,400 in the account. The interest to be calculated in Year 2 will be calculated on that $10,400. Since 4% = 0.04, then Year 2 interest = 10,400 0.04 = $416. The total in the account at the end of Year 2 will be $10,816. Credit cards use compound interest too. Credit cards are valuable tools for dealing with emergencies or to have when traveling. They can also be extremely convenient to use. In most cases, there are no fees if customers pay their balance in full each month. However, if the amount owed is not paid in full each month interest is charged. How much does it really cost to use credit cards for purchases? The answer depends on several factors, including how much is paid each month and what interest rate is being charged. For this example, we will assume a credit card purchase of $400 and an interest rate of 17%. Also, credit card companies require that people pay at least a minimum monthly payment, which we will say is $10. After the purchase and making six months of minimum payments, the buyer has paid $60 (six months $10 per month). But because more than half that amount, $33.06 has gone to pay the 17% interest, only $26.94 has been paid on the original $400 purchase. At this point, even though the buyer has paid out $60 of the original bill, $373.06 is really still owed ($400 - $26.94). This pattern will continue until the original purchase is completely paid off, including interest. If the buyer continues making only the required $10 monthly payment, it will take five full years, or 60 payments, to pay off the original debt. Over the course of those five years, the buyer will pay a total of $194 in interest, swelling the total purchase price from $400 to almost $600. There is a simple rule of thumb. Buyers who pay off their charges over the longest time allowed can expect to pay about 50% more in total cost when putting a purchase on the credit card. This article is available at 5 reading levels at https://newsela.com. 3
Quiz 1 Which statement would be MOST important to include in a summary of the article? Local sales taxes and credit card interest rates are percentages that affect everyday life. It can be very convenient to use a credit card if the company does not have any extra fees. The best time to buy expensive items like cars and refrigerators is when there is a big discount. Remember that the percentage you tip a server depends on how happy you were with the meal. 2 Read the list of sentences from the article. 1. Sale prices, discounts and sales tax calculations depend on percentages. 2. The total cost is 971.76 + 21,595, or $22,566.78. 3. The interest earned at the end of the first year will be $400. 4. Over the course of those five years, the buyer will pay a total of $194 in interest, swelling the total purchase price from $400 to almost $600. What two CENTRAL ideas does this evidence support? Percentages are calculated in many real-life situations involving money. Some people are better at figuring out percentages than others. Percentages are an important part of many situations involving money. Understanding percentages can help people know how much they will pay or earn. Percentages can be used to calculate the total cost of purchases and meals. Percentages are sometimes rounded to whole numbers to make things easier. Percentages can show shoppers how much they will save on items they buy on sale. They also help banks know how much to pay people. This article is available at 5 reading levels at https://newsela.com. 4
3 Read the section "Calculating A Tip." Which sentence from the section suggests that meals that include percentages for tax and tip are quite common in many households? In North America, between 30% and 50% of what a family spends on food is spent in restaurants. The price in a restaurant includes the cost of the meal plus any taxes. The tips earned by a server usually make up an important part of their earnings. The calculation of a tip involves a percentage on top of the total amount of the bill, not including sales tax. 4 Read the section "Bank Accounts, Credit Cards And Compound Interest." Which sentence supports the inference that it is wise to pay off credit cards as quickly as possible to save money? The answer depends on several factors, including how much is paid each month and what interest rate is being charged. Also, credit card companies require that people pay at least a minimum monthly payment, which we will say is $10. This pattern will continue until the original purchase is completely paid off, including interest. Buyers who pay off their charges over the longest time allowed can expect to pay about 50% more in total cost when putting a purchase on the credit card. This article is available at 5 reading levels at https://newsela.com. 5
Answer Key 1 Which statement would be MOST important to include in a summary of the article? Local sales taxes and credit card interest rates are percentages that affect everyday life. It can be very convenient to use a credit card if the company does not have any extra fees. The best time to buy expensive items like cars and refrigerators is when there is a big discount. Remember that the percentage you tip a server depends on how happy you were with the meal. 2 Read the list of sentences from the article. 1. Sale prices, discounts and sales tax calculations depend on percentages. 2. The total cost is 971.76 + 21,595, or $22,566.78. 3. The interest earned at the end of the first year will be $400. 4. Over the course of those five years, the buyer will pay a total of $194 in interest, swelling the total purchase price from $400 to almost $600. What two CENTRAL ideas does this evidence support? Percentages are calculated in many real-life situations involving money. Some people are better at figuring out percentages than others. Percentages are an important part of many situations involving money. Understanding percentages can help people know how much they will pay or earn. Percentages can be used to calculate the total cost of purchases and meals. Percentages are sometimes rounded to whole numbers to make things easier. Percentages can show shoppers how much they will save on items they buy on sale. They also help banks know how much to pay people. This article is available at 5 reading levels at https://newsela.com. 6
3 Read the section "Calculating A Tip." Which sentence from the section suggests that meals that include percentages for tax and tip are quite common in many households? In North America, between 30% and 50% of what a family spends on food is spent in restaurants. The price in a restaurant includes the cost of the meal plus any taxes. The tips earned by a server usually make up an important part of their earnings. The calculation of a tip involves a percentage on top of the total amount of the bill, not including sales tax. 4 Read the section "Bank Accounts, Credit Cards And Compound Interest." Which sentence supports the inference that it is wise to pay off credit cards as quickly as possible to save money? The answer depends on several factors, including how much is paid each month and what interest rate is being charged. Also, credit card companies require that people pay at least a minimum monthly payment, which we will say is $10. This pattern will continue until the original purchase is completely paid off, including interest. Buyers who pay off their charges over the longest time allowed can expect to pay about 50% more in total cost when putting a purchase on the credit card. This article is available at 5 reading levels at https://newsela.com. 7