1. Economic Influences on Decision Making
Before you make decisions about money, you must understand how economic factors may impact personal and financial decisions and the risks related to personal and financial decisions

2. We know Life is about CHOICES…
and that it is good to weigh the pros and cons of pursuing a particular course of action.
Using careful analysis, people can determine if advantages outweighs the disadvantages and a decision can be made.
When we consider our choices we need to look at our resources.
Resources are:
Time
Money
Effort

3. Personal Opportunity Costs
Involve time, health or energy. Time spent studying means lost time to hang out or work. But this trade off will improve your learning, grades and therefore your opportunities
Financial Opportunity Costs
Involve monetary values of decisions. ie – purchasing an item with your savings means you no longer gain interest on those funds.
Opportunity Costs
What a person gives up when a decision is made. The cost, also called a trade-off, may involve one or more of your resources (time money and effort)

6. Consider the Resource Cost & the Personal and Financial Opportunity Costs
Going to the movies
Quitting your job and go to college
Spending time on Saturday with Grandma
Deciding not to study for a test
Purchasing a TV with a loan from your parents
Spending $1000 out of your bank account
Opportunity Cost Calculated (1. 35 min)

7. The time value of money (TVM) is the idea that money available at the present time is worth more than the same amount in the future due to its potential earning capacity.
This core principle of finance states money can earn interest, therefore any amount of money is worth more the sooner it is received.
Time Value of Money 1.35 min

8. Measuring financial opportunity costs using Interest Calculations
Spending $1000 from a savings account paying 4% a year means an opportunity cost of…
$40 of lost interest!
Calculation
$1000 x .04 (4%) x 1yr= $40
Over 10 yrs, that $40 a year saved at 4% would have a value of over $480 due to compound interest

9. Principal
Interest
Simple Interest
Compound Interest
Year 1
$ 1,000.00 4% $
$ 1,040.04
Year 2 $
$ 1,081.68
Year 3 $
$ 1,124.99
Year 4 $
$ 1,170.03
Year 5 $
$ 1,216.87
Year 6 $
$ 1,265.58
Year 7 $
$ 1,316.25
Year 8 $
$ 1,368.94
Year 9 $
$ 1,423.74
Year 10 $
$ 1,480.72
Year 11 $
$ 1,539.99
Year 12 $
$ 1,601.63
Year 13 $
$ 1,665.74
Year 14 $
$ 1,732.41
Year 15 $
$ 1,801.74

11. Changing economic factors influence the decisions we make.
Sometimes we don’t consider economic influences when making decisions.
Trends in the economy may influence our decisions to
Save
Invest
Spend
Borrow
ie: Higher interest Rates make saving more attractive.

12. Before making decisions about MONEY you must understand how economic factors impact personal & financial decisions.
Consumer prices
Changes in the buying power of the dollar, inflation
Consumer spending
Demand for goods and services
Gross Domestic Product (GDP)
Total value of good and services produced within the country
Housing Starts
The number of new homes being built
Interest Rates
The cost of borrowing money
Money Supply
Funds available for spending in the economy
Stock Market Index
Indicates general trends in the value of stocks (Dow Jones Avg., NASDAQ, TSE 300)
Unemployment
The number of people without employment who are willing to work

13. Consumer Actions are affected by Economic Conditions.
Higher prices result in more expensive goods and services, and lower buying power of the dollar.
Increases in consumer spending for certain goods and services result in additional jobs in those industries.
A growing GDP usually indicates expanded economic growth in a country.
Increased home building usually leads to more job opportunities and expanded consumer spending.

14. Lower interest rates encourage consumer spending; higher rates are likely to encourage saving and discourage borrowing.
A larger money supply will usually result in lower interest rates. A smaller money supply will likely result in higher interest rates and reduced consumer spending.
Higher stock prices usually indicate confidence in the economy and strong business conditions for jobs and consumer spending.
High unemployment reduces consumer spending and results in fewer job opportunities.

15. Possible Influences on personal and financial decisions
Economic Factor
Recent Trend
Possible Influences on personal and financial decisions
Consumer prices
Consumer spending
Gross Domestic Product (GDP)
Housing Starts
Interest Rates
Money Supply
Stock Market Index
Unemployment

16. Risks Associated with Financial Decision Making
Making choices about money can be risky. There are common risks that you should think about related to personal and financial decision making.
Changing jobs or reduced spending by consumers can result in a lower income or loss of one’s employment. Career changes or job loss can result in a lower income and reduced buying power
Income Risk
Rising prices cause lower buying power. Buying an item later may mean a high price.
Inflation Risk

17. Changing interest rates affect your costs (when borrowing) and your benefits (when saving or investing)
Interest-rate risk
Certain types of savings, guaranteed investment certificates (GICs), and investments (real estate) may be difficult to cash quickly
Liquidity Risk
Factors that create a less than desirable situation. Risk may be in the form of inconvenience, embarrassment, safety or health concerns.
Personal Risks