Individual Responsibility and the Economy Unit 1 Mr. Vaccaro Welcome to Economics Individual Responsibility and the Economy Unit 1 Mr. Vaccaro

Studying Economics will help us in our daily lives.

So, what is Economics?

No matter how much money we have, we always want more No matter how much money we have, we always want more.Yes, we always want more.

Why do we always want more? Economists believe in a concept called scarcity. Scarcity is the idea that our resources are limited but our wants and desires are unlimited. Twenty dollars can buy many different goods. Is there only one item you want? Or would you like more?

We have so many options but we must choose. We cannot have everything.

Scarcity To think like an Economist, you must always remember that scarcity exists. You may only have ten dollars in your pocket but you can certainly think of a hundred different ways to spend it.

So, how do we choose?

Economics Can Help As we study Economics, we begin to understand that we must make choices. We begin to understand that we cannot have everything we need or want. We begin to understand that with every choice, there is a cost.

If we choose to live near the ocean, we are more likely to experience flooding.

Every Choice Has Its Cost Economists also teach us that every choice we make has its cost. In other words, every time we get something, we give something else up. There is no such thing as a free lunch.

If we surf the waves, we may break our legs If we surf the waves, we may break our legs. Even fun activities have their costs.

It’s all about making choices and knowing the costs of those choices.

Questions for Reflection Define Economics. Why must people make choices? Define scarcity. Why do our choices cost us? Define cost.

Personal Finance & Economics

Consumer Rights: Income Types Disposable Income Money left after taxes are paid Used for needs Discretionary Income Money after necessities are bought used for wants

Consumer Responsibilities: Smart Buying Strategies Be informed!! Don’t be easily swayed by advertising Engage in COMPARISON SHOPPING Brand name vs. generic Balance costs & benefits of buying used items, mail order, or alternatives, etc.

A Spending Plan will Show you where to cut spending Provide methods for keeping good records of spending Allow you to spend money without feeling guilty Create a way to measure your progress Improve communication with other people

Step 1: Assess Needs Make a realistic list of needs and wants Needs Wants Food Lots of Money Clothing Cell Phone Housing Big TV Transportation New Car Child Care Designer Jeans Insurance Vacations Medicines Boat

Step 2: Set Goals Specific- Clearly state what you want to do Make sure your goals are SMART… Specific- Clearly state what you want to do Measurable- Measure by time and/or money needed Attainable- Make sure your goal is realistic and possible Relevant- Make sure goals fit your needs Time related- Set a definite target day (day/month/ year)

Step 3: Make a Plan Put things in Priority Order- Imagine the actions you need to take to get from where you are now to where you want to be. Goals are dreams with deadlines! Post your goals where you will see them frequently. Find a picture to represent your goals. Make them happen.

Your Plan with Actions Steps to Get There: I will save $25.00 from each weekly paycheck for refrigerator. Steps to Get There: Pack lunches. Borrow movies and CD’s from the library. Shop with a list for everything. Stay out of Express! TARGET DATE: 6 MONTHS

PRIORITIZING GOALS Build an emergency savings of $_____________. Put $50.00 from each paycheck for 5 months. Use OVERTIME or BONUS $$ to build more quickly. Build a retirement account. Put $50.00 (automatic deduction) 401(k) Roth IRA

FIXED / MONTHLY EXPENSES Car Payments Rent or Mortgage Child Care Cable TV Car Insurance

FLEXIBLE / VARIABLE EXPENSES Clothing Food at home away from home Telephone Utilities Gasoline

FLEXIBLE / VARIABLE EXPENSES (cont).. Public Transportation Medical / Dental Recreation Supplies household personal

OCCASIONAL / SEASONAL EXPENSES Car Maintenance / Repairs License Tags Insurance Payments Gifts / Holidays School Taxes Magazine Subscriptions Vacations $500 $100 $600 $800 $0 $200 $2400 / 12 = $200/month

Start the Savings Habit Now! If you save $20 per week, every week for a year, after one year you will have saved $1,040! Keep this up and after five years you will save $5,200, not to mention the interest you will earn!

Cost-Benefit Analysis Process by which business decisions are analyzed. The benefits of a given situation or business-related action are summed, and then the costs associated with taking that action are subtracted. Seinfeld-CBA http://yadayadayadaecon.com/clip/45/

Making a Budget: CREDIT: Terms Borrowing $ to pay now, enjoy now, but repay later Annual percentage rate (APR) Annual cost of credit Credit rating Evaluation of borrower’s ability to repay Collateral Items of value pledged as security on a loan Interest $ paid to lender for allowing use of money by borrower

Making a Budget: CREDIT: Sources Credit Cards Most common Banks, cc companies, stores $ limit set on spending allowance Mortgages Home loans Car loans

Making a Budget: CREDIT: Benefits & Drawbacks Can buy now and pay later… helps to satisfy wants Meeting payment requirements can teach financial discipline BANKRUPTCY !!