Guide to Reading Big Idea You and everyone around you are consumers and, as such, play an important role in the economic system. Consumer Rights To make good economic decisions as consumers, we need to be aware of our rights and responsibilities. Consumer Rights (cont.) • Consumers have rights, or protections, in the free enterprise system. • Consumers have two types of income to spend: – Disposable Income: money left after taxes are paid – Discretionary Income: money left after bills are paid Consumer Rights (cont.) • Consumerism: – Laws (ex. Pure Food and Drug Act) – Private groups (Better Business Bureau) Consumer Rights (cont.) • Consumer Bill of Rights – Right to a safe product – Right to be informed – Right to choose – Right to be heard – Right to redress Consumer Responsibilities In addition to rights, consumers also have responsibilities. Consumer Responsibilities (cont.) • Consumers have responsibilities as well as rights. • Smart buying strategies: – Gather information – Use advertising carefully – Determine the best value – Comparison shopping Consumer Responsibilities (cont.) – Look at brand name and generic items – Balance costs and benefits Consumer Responsibilities (cont.) • Other responsibilities: – Initiate problem-solving process for faulty goods or services – Keep warranty information – Respect rights of producers and sellers – Report problems to government when a settlement cannot be reached Making Buying Decisions Buying a product or service costs more than money; it also costs the time it takes to make the purchase and the opportunity cost of not buying something else. Making Buying Decisions (cont.) • Many factors are involved in consumers’ buying decisions. • Steps: – Decide whether to buy an item or not – Invest time obtaining product information – Balance opportunity cost Making a Budget—and Sticking to It! Making and following a budget can help you organize your financial life. Making a Budget—and Sticking to It! (cont.) • A budget is a record of money earned and spent to help you match expenses to income. • Basic budgeting terms – Income – Expenses – Balance: leftover money Making a Budget—and Sticking to It! (cont.) – Surplus: More income than expenses (good) – Deficit: More expenses than income (bad) Making a Budget—and Sticking to It! (cont.) • How to Make a Budget – List what you spend. – Record what you earn. – Analyze the data. – Try to have surplus. – Monitor spending. Credit Credit can be a valuable item in your financial toolbox; however, as with all tools, you have to know how to use it correctly. Credit (cont.) • Credit allows consumers to receive a good or service and pay for it later. • Recognizing credit terms – A lender gives money to a borrower. – A lender charges interest, expressed as the annual percentage rate (APR). Credit (cont.) – A credit rating evaluates how well the borrower will repay the loan. – The borrower may pledge collateral for the loan. Credit (cont.) • Sources of Credit: – Usually require down payment – Banks, savings and loans, credit unions, finance companies offer credit – Most common—credit cards – Can charge high interest rates Credit (cont.) • Credit: Benefits and Drawbacks – Benefits: • Allows you to get what you want sooner • Teaches financial discipline Credit (cont.) – Drawbacks: • Spending more than you can afford • Bankruptcy • Poor credit rating Credit (cont.) • Your Responsibilities as a Borrower – Have a plan to make payments – Use budget skills – Understand credit agreement Methods of Payment Do you think credit should be hard to obtain? A. Yes B. No A. A B. B Guide to Reading Big Idea We all make economic choices. Opportunity cost, scarcity, and supply and demand influence the decisions we make. Saving for the Future Saving part of your income is the key to meeting many of your short-term and long-term financial goals. Saving for the Future (cont.) • To save is to set aside income for later use. • Why save? – Money for large purchases – Emergency aid – Luxuries – Benefits the whole economy Saving for the Future (cont.) • Saving regularly – Automatic deposits into savings accounts – Budgeting for savings – Earning interest by saving through financial institutions Saving for the Future (cont.) • Deciding about your savings • Trade-offs: – Less to spend today – More to spend tomorrow Types of Savings A variety of options is available to allow you to save money. Types of Savings (cont.) • Many ways exist for people to save portions of their incomes. • Savings accounts – Earn low interest on principal – Financial institutions loan the money to others The Savings Rate, 1952–2006 Types of Savings (cont.) • Checking accounts – Money for purchases – Must keep careful records – Debit cards allow paperless money transfer Types of Savings Accounts Types of Savings (cont.) • Money market accounts – Allows you to write checks, like a checking account – Pays interest like a savings account Types of Savings (cont.) • Certificates of deposit – Type of time deposit – Agreement to leave money in financial institution for a set amount of time Investments Making wise investments in a variety of stocks and bonds is an important part of achieving long-term financial goals. Investments (cont.) • Investing in stocks and bonds leads to higher returns than other types of savings. • Stocks – Shares of stock provide partial ownership in a company – Stock prices may go up or down, based on company performance. Investments (cont.) – Investors may earn dividends. – Higher possible return, but at greater risk Investments (cont.) • Bonds – Loans money to company or government – Pays set rate of interest over several years – U.S. government bonds are a very safe investment. Investments (cont.) • Mutual funds – Pools money to invest in different stocks and bonds – Chosen by financial experts – Less risk than investment in individual stocks Guide to Reading Big Idea We all make economic choices. Opportunity cost, scarcity, and supply and demand influence the decisions we make. What Kind of Spender Are You? Careful spenders avoid pitfalls, such as impulse buying, on their way to meeting their financial goals. What Kind of Spender Are You? (cont.) • Setting financial goals can help you spend money wisely. • Evaluate your spending to help you meet financial goals. Analyzing Advertising What Kind of Spender Are You? (cont.) • Beware of impulse buying. – Try not to buy too quickly based on emotions. – Some impulse-buying is okay. Too much is bad. – Follow guidelines to avoid too much impulse buying. Your Goals and Your Buying Decisions The buying decisions you make can have a major impact on your life and career choices. Your Goals and Your Buying Decisions (cont.) • Consider goals when buying items. • Long-term goals can conflict with short- term goals. – Must balance long and short-term goals. – Long-term planning can improve finances down the road (e.g., saving for college will lead to higher income later) Do you think it is easy to sacrifice short-term goals for long-term benefits? A. Yes B. No A. A B. B Buying Strategy • Making consumer decisions involves deciding the following: • whether to spend your money • what you will purchase • how to use your purchase • Comparison shopping involves making comparisons among brands, sizes, and stores. Consumerism Consumer rights include • the right to safety • the right to be informed • the right to choose • the right to be heard • the right to redress Budget • A budget is an organized plan for spending and saving money. • What you do with the information in a budget is up to you. No one can force you to spend less and save more unless you want to. Credit • When buying on credit, the amount you will owe is equal to the principal plus interest. • Financial institutions that provide credit include commercial banks, savings and loan associations, and credit unions. Saving and Investing • It is important to get into the habit of saving. • Individuals have many places to invest their savings, including savings accounts and certificates of deposit. • Shares of stock entitle the buyer to a certain part of the future profits and assets of the corporation that is selling the stock. Possible response: spend less money on food and entertainment a savings account; an investment account consumer someone who buys a good or service disposable income money income left after all taxes on it have been paid discretionary income money income left after necessities have been bought and paid for consumerism a movement to educate buyers about the purchases they make and to demand better and safer products from manufacturers comparison shopping buying strategy to get best buy for the money warranty the promise made by a manufacturer or a seller to repair or replace a product within a certain time period if it is faulty reject to refuse or throw away alternative a choice or possibility budget a plan for making and spending money income money received from labor, business, or property expense money spent on goods and services credit money borrowed to pay for a good or service annual percentage rate (APR) annual cost of credit expressed as a percentage of the amount borrowed collateral property or valuable item serving as security for a loan bankruptcy inability to pay debts exceed to be or go beyond a limit status a position or rank save to set aside income for a period of time so that it can be used later interest the payment people receive when they lend money or allow someone else to use their money principal the most important return profit earned through investing stock ownership share of a corporation dividend payment of a portion of a company’s earnings bond contract to repay borrowed money with interest at a specific time in the future mutual funds pools of money from many people who are invested in a selection of individual stocks and bonds chosen by financial experts. establish to bring into existence or create fund a sum of money interval a break or period of time between two events impulse buying purchasing an item on the spot because of an emotional rather than planned decision evaluate to assess or find the value of commit to perform or bring about ; to pledge or assign oneself to a particular action eliminate to get rid of To use this Presentation Plus! product: Click the Forward button to go to the next slide. 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