1. Consumer Responsibilities and Protections 11.1 11.1Consumer Choice 11.2 11.2Use Credit Responsibly 11.3 11.3Consumer Protection CHAPTER 11

2. © 2013 Cengage Learning. All Rights Reserved. Learning Objectives LO1Understand the importance of setting personal financial goals. LO2Describe how making wise spending choices helps you achieve your goals. CHAPTER 11 2 11.1CONSUMER CHOICE

3. © 2013 Cengage Learning. All Rights Reserved. Key Terms  consumer  personal finance  budget  comparison shopping  rational consumer choice 3 CHAPTER 11

4. © 2013 Cengage Learning. All Rights Reserved. Personal Financial Goals  Anyone who uses a good or service is a consumer.  People consume within the limits of their resources.  People allocate scarce resources when they make consumer choices that are intended to maximize the satisfaction they achieve in their lives.  To achieve the greatest satisfaction in your life, you need a plan. CHAPTER 11 4

5. © 2013 Cengage Learning. All Rights Reserved. Personal Financial Goals  Your plan should state the things you most want to achieve and explain the steps you intend to take to achieve them.  Most of these steps will require you to spend money.  You should be sure to include a financial plan within your general life plan.  Personal finance involves the way you plan to spend or save your income. CHAPTER 11 5 (continued)

6. © 2013 Cengage Learning. All Rights Reserved. Set Financial Goals  Choosing what you want most and setting goals is the first step in creating a financial plan.  Short-term goals are things you hope to accomplish within a year or less.  Long-term goals take longer than one year to achieve, while your most important life goals can take decades to reach. CHAPTER 11 6

7. © 2013 Cengage Learning. All Rights Reserved. Strategies for Achieving Your Financial Goals  Questions to ask  Seek expert advice  Ask other people  Shop at reputable businesses CHAPTER 11 7

8. © 2013 Cengage Learning. All Rights Reserved. Make Wise Consumer Decisions  When you choose how to spend your income, you should be sure that your decision is based on reason and logic rather than on emotion or impulse.  Making wise spending decisions can take you a long way along the path to achieving your most important life goals. CHAPTER 11 8

9. © 2013 Cengage Learning. All Rights Reserved. Budget Your Income  Budget—a consumer’s plan showing the sources and uses of income  Budget worksheets  Keep your budget up to date CHAPTER 11 9

10. © 2013 Cengage Learning. All Rights Reserved. One-Month Budget Worksheet for a Typical Student CHAPTER 11 10 Figure 11.1

11. © 2013 Cengage Learning. All Rights Reserved. Comparison Shopping  Comparison shopping—the act of reviewing products and prices offered by different businesses for similar products before making a purchase decision CHAPTER 11 11

12. © 2013 Cengage Learning. All Rights Reserved. Rational Consumer Choice  Rational consumer choice—a choice to buy or not to buy a product so that your satisfaction is the greatest possible per dollar spent CHAPTER 11 12

13. © 2013 Cengage Learning. All Rights Reserved. Learning Objectives LO1Understand whether to use cash or credit to pay for purchases. LO2Name the two sources of consumer credit. LO3Describe how lenders decide who qualifies for credit. LO4Explain how you can avoid credit problems. CHAPTER 11 13 11.2USE CREDIT RESPONSIBLY

14. © 2013 Cengage Learning. All Rights Reserved. Key Terms  consumer loan  consumer sales credit  secured loan  unsecured loan  creditworthiness  credit history  credit rating  credit scoring CHAPTER 11 14

15. © 2013 Cengage Learning. All Rights Reserved. Paying for Your Purchases  Will that be cash or charge?  Benefits and costs of paying cash  Benefits and costs of using credit CHAPTER 11 15

16. © 2013 Cengage Learning. All Rights Reserved. Popularity of U.S. Consumer Payment Systems: 2005 vs. 2015 CHAPTER 11 16 Figure 11.2

17. © 2013 Cengage Learning. All Rights Reserved. Sources of Consumer Credit  Consumer loan—borrowing money to be repaid in regular installments over time  Consumer sales credit—amounts charged to an account that involves variable payments over time CHAPTER 11 17

18. © 2013 Cengage Learning. All Rights Reserved. Consumer Loans  Secured loan—loan for which property is pledged to back its repayment  Unsecured loan—loan for which no specific property is pledged by the borrower that can be used to satisfy the debt if payments are not made CHAPTER 11 18

19. © 2013 Cengage Learning. All Rights Reserved. Consumer Sales Credit  Credit-card fees  Interest on credit-card debt CHAPTER 11 19

20. © 2013 Cengage Learning. All Rights Reserved. Creditworthiness  The term creditworthiness refers to the measure of your dependability to repay a loan. CHAPTER 11 20

21. © 2013 Cengage Learning. All Rights Reserved. The Three Cs of Credit  Lenders typically consider three factors when they evaluate creditworthiness.  Character is a measure of a consumer’s financial responsibility.  Capacity is a measure of a consumer’s ability to repay a debt on time.  Capital is a measure of the value of things a consumer owns that could be sold or cashed in to repay a loan. CHAPTER 11 21

22. © 2013 Cengage Learning. All Rights Reserved. Credit-Reporting Agencies  Credit-reporting agencies (or credit bureaus) gather, maintain, and share financial information about almost every adult in the United States.  Three primary credit-reporting agencies:  Equifax  Experian  TransUnion CHAPTER 11 22

23. © 2013 Cengage Learning. All Rights Reserved. Credit-Reporting Agencies  Credit history—a person’s record of paying bills and debts over time  Credit rating—the measure of a person’s creditworthiness  Credit scoring—a system that assigns a number, or score, to each consumer indicating whether this person is a good or bad credit risk CHAPTER 11 23 (continued)

24. © 2013 Cengage Learning. All Rights Reserved. Accessing Your Credit File  Legal rights  Online access  Annual review  Corrections CHAPTER 11 24

25. © 2013 Cengage Learning. All Rights Reserved. Avoid Credit Problems  Use credit wisely  Establish a positive credit history  Repair a damaged credit rating CHAPTER 11 25

26. © 2013 Cengage Learning. All Rights Reserved. Learning Objectives LO1Explain why consumers sometimes may need the government to protect them from defective or dangerous products. LO2Understand how to protect yourself as a consumer. LO3Know how to prevent identity theft and what to do if your identity is stolen. CHAPTER 11 26 11.3CONSUMER PROTECTION

27. © 2013 Cengage Learning. All Rights Reserved. Key Terms  Food and Drug Administration (FDA)  Federal Trade Commission (FTC)  cease and desist order  Consumer Product Safety Commission (CPSC)  Environmental Protection Agency (EPA)  identity theft 27 CHAPTER 11

28. © 2013 Cengage Learning. All Rights Reserved. Government Efforts to Protect Consumers  Most consumers rely on manufacturers to be responsible and on the government to set quality and safety standards to protect them from harm.  The government intervenes in the market in an effort to protect consumers from dishonest or careless producers. CHAPTER 11 28

29. © 2013 Cengage Learning. All Rights Reserved. The Pure Food And Drug Act  The Pure Food and Drug Act (1906)  Food, Drug, and Cosmetic Act (1938)  Food and Drug Administration (FDA)— federal agency that sets standards for foods and drugs produced or sold in the United States CHAPTER 11 29

30. © 2013 Cengage Learning. All Rights Reserved. The Federal Trade Commission  Federal Trade Commission Act (1914)  Federal Trade Commission (FTC)—government agency that ensures that businesses compete and market their products fairly and honestly  Enforces antitrust laws.  Sets standards for product packaging and labeling and honesty in advertising.  Cease and desist order is an FTC-issued directive to stop a firm making a false or misleading advertising claim. CHAPTER 11 30

31. © 2013 Cengage Learning. All Rights Reserved. The Consumer Product Safety Commission  Consumer Product Safety Commission (CPSC)—federal agency created to protect consumers from dangerous products they might purchase or use CHAPTER 11 31

32. © 2013 Cengage Learning. All Rights Reserved. Number of CPSC-Ordered Recalls During the Month of April, 2000–2011 CHAPTER 11 32 Figure 11.3 Source: CPSC website: http://www.cpsc.gov/CPSCPUB/PREREL/prerelmar11.html, May 5, 2011.

33. © 2013 Cengage Learning. All Rights Reserved. The Environmental Protection Agency  Environmental Protection Agency (EPA]— federal agency that interprets and enforces laws passed by Congress that involve the environment CHAPTER 11 33

34. © 2013 Cengage Learning. All Rights Reserved. Other Government Protections  Other federal agencies  Many other federal agencies are responsible for protecting consumers in other ways.  These agencies are designed to provide a degree of safety to consumers they could not reasonably be expected to achieve on their own.  State and local protection  All state and many local governments also have agencies that are responsible for protecting consumers. CHAPTER 11 34

35. © 2013 Cengage Learning. All Rights Reserved. Take Responsibility for Your Protection  Consumer rights and responsibilities  Use common sense CHAPTER 11 35

36. © 2013 Cengage Learning. All Rights Reserved. Dealing with Identity Theft  Identity theft—a crime in which one person fraudulently uses another’s identity to obtain credit or to access financial accounts  Protect yourself from identity theft  Know what to do if your identity is stolen CHAPTER 11 36