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Personal Finance and Economics

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Title: Personal Finance and Economics


1
Personal Finance and Economics
  • Chapter 20

2
Managing Your Money
  • Section 1

3
Consumer Rights
  • Consumers have rights, or protections, in the
    free enterprise system.
  • A consumer is someone who buys a good or service.

4
Two Types of Income
  • Consumers have two types of income to spend
  • Disposable Income money left after taxes are
    paid
  • Discretionary Income money left after bills are
    paid and after all necessities have been bought
    and paid for

5
Protecting Consumer Rights
  • Consumerism a movement to educate buyers about
    the purchases they make and to demand better and
    safer products from manufacturers
  • Laws (ex. Pure Food and Drug Act)
  • Private groups (Better Business Bureau)

6
Consumer Bill of Rights
  • Right to a safe product
  • Right to be informed
  • Right to choose
  • Right to be heard
  • Right to redress

7
Consumer Responsibilities
  • Consumers have responsibilities as well as
    rights.

8
Smart Buying Strategies
  • Gather information
  • Use advertising carefully
  • Determine the best value
  • Comparison shopping is a buying strategy to get
    best buy for the money
  • Look at brand name and generic items
  • Balance costs and benefits

9
Other Responsibilities
  • Initiate problem-solving process for faulty goods
    or services
  • Keep warranty information
  • A Warranty is the promise made by a manufacturer
    or a seller to repair or replace a product within
    a certain time period if it is faulty
  • Respect rights of producers and sellers
  • Report problems to government when a settlement
    cannot be reached

10
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.

11
Making Buying Decisions
  • 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

12
Planning and Budgeting
  • Section 2

13
Making a Budget and Sticking To It!
  • A budget is a record of money earned and spent to
    help you match expenses to income.

14
Basic Budgeting Terms
  • Income is money received from labor, business, or
    property
  • Expenses is money spent on goods and services
  • Balance leftover money
  • Surplus More income than expenses (good)
  • Deficit More expenses than income (bad)

15
How To Make A Budget
  • List what you spend.
  • Record what you earn.
  • Analyze the data.
  • Try to have surplus.
  • Monitor spending.

16
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.

17
Credit
  • Credit is money borrowed to pay for a good or
    service
  • Credit allows consumers to receive a good or
    service and pay for it later.

18
Recognizing Credit Terms
  • A lender gives money to a borrower.
  • A lender charges interest, expressed as the
    annual percentage rate (APR).
  • APR is the annual cost of credit expressed as a
    percentage of the amount borrowed
  • A credit rating evaluates how well the borrower
    will repay the loan.
  • The borrower may pledge collateral for the loan.
  • Collateral is property or valuable item serving
    as security for a loan

19
Sources of Credit
  • Usually require down payment
  • Banks, savings and loans, credit unions, finance
    companies offer credit
  • Most commoncredit cards
  • Can charge high interest rates

20
Benefits of Credit
  • Allows you to get what you want sooner
  • Teaches financial discipline

21
Drawbacks to Credit
  • Spending more than you can afford
  • Bankruptcy is the inability to pay debts
  • Poor credit rating

22
Your Responsibility As A Borrower
  • Have a plan to make payments
  • Use budget skills
  • Understand credit agreement

23
Saving and Investing
  • Section 3

24
Saving For The Future
  • To save is to set aside income for later use.

25
Why Save?
  • Money for large purchases
  • Emergency aid
  • Luxuries
  • Benefits the whole economy

26
Saving Regularly
  • Automatic deposits into savings accounts
  • Budgeting for savings
  • Earning interest by saving through financial
    institutions
  • Interest is the payment people receive when they
    lend money or allow someone else to use their
    money

27
Deciding About Your Saving
  • Trade-offs
  • Less to spend today
  • More to spend tomorrow

28
Types of Savings
  • Many ways exist for people to save portions of
    their incomes.

29
Savings Accounts
  • Savings accounts
  • Earn low interest on principal
  • Financial institutions loan the money to others

30
Checking Accounts
  • Checking Accounts
  • Money for purchases
  • Must keep careful records
  • Debit cards allow paperless money transfer

31
Money Market Accounts
  • Money Market Accounts
  • Allows you to write checks, like a checking
    account
  • Pays interest like a savings account

32
Certificates of Deposit
  • Certificates of Deposit
  • Type of time deposit
  • Agreement to leave money in financial institution
    for a set amount of time

33
Investments
  • Making wise investments in a variety of stocks
    and bonds is an important part of achieving
    long-term financial goals.
  • Investing in stocks and bonds leads to higher
    returns than other types of savings.
  • Returns is the profit earned through investing

34
Stocks
  • Shares of stock provide partial ownership in a
    company
  • A stock is an ownership share of a corporation
  • Stock prices may go up or down, based on company
    performance.
  • Investors may earn dividends.
  • Dividend is the payment of a portion of a
    companys earnings
  • Higher possible return, but at greater risk

35
Bonds
  • A bond is a contract to repay borrowed money with
    interest at a specific time in the future
  • Loans money to company or government
  • Pays set rate of interest over several years
  • U.S. government bonds are a very safe investment.

36
Mutual Funds
  • Mutual Funds are pools of money from many people
    who are invested in a selection of individual
    stocks and bonds chosen by financial experts.
  • Pools money to invest in different stocks and
    bonds
  • Chosen by financial experts
  • Less risk than investment in individual stocks

37
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38
Achieving Your Financial Goals
  • Section 4

39
What Kind Of Spender Are You?
  • Careful spenders avoid pitfalls, such as impulse
    buying, on their way to meeting their financial
    goals.
  • Impulse buying is purchasing an item on the spot
    because of an emotional rather than planned
    decision
  • Setting financial goals can help you spend money
    wisely.
  • Evaluate your spending to help you meet financial
    goals.

40
Impulse Buying
  • 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.

41
Your Goals and Your Buying Decisions
  • The buying decisions you make can have a major
    impact on your life and career choices.
  • Consider goals when buying items.

42
Now or Later?
  • 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)

43
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44
Chapter Summary
45
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.

46
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

47
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.

48
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.

49
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.
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