1. Topic 6: Understand and work out the true cost of spending ifs Certificate in Personal Finance (CPF5)

2. Checklist for Topic 6 By the end of this topic, you will be able to: understand the term ‘value for money’; understand discounts and special offers; understand why some products are more expensive that other similar ones; understand taxes and hidden charges; & work out the true cost of spending. ifs Certificate in Personal Finance (CPF5)

3. Cost of Purchases ifs Certificate in Personal Finance (CPF5)

4. Cost of Purchases ifs Certificate in Personal Finance (CPF5)

5. Activity 6A Discuss the type of goods for which you would expect to negotiate on price. How easy is it to negotiate? Are there other countries that you may have visited where it is usual to ‘haggle’ over the price? ifs Certificate in Personal Finance (CPF5)

6. Activity 6A You may have talked about buying cars, or items on a market stall or at a car boot sale. You may have been on holidays to places where it is normal to haggle, even for everyday items, such as clothes and food. ifs Certificate in Personal Finance (CPF5)

7. Value for Money ifs Certificate in Personal Finance (CPF5)

8. Value for Money ifs Certificate in Personal Finance (CPF5)

9. Activity 6B Discuss some recent things that you have bought. Did you think they were value for money? What helps you to judge whether the price that you have paid is value for money? ifs Certificate in Personal Finance (CPF5)

10. Activity 6B We judge whether the price is value for money based on our experience of other similar products and by comparing the selling prices at different shops or websites. We are satisfied if we that that we have paid a good and low price for something. Further, if the item were to make us feel good, or if our friends were to admire it, we would also think that we have value for money. ifs Certificate in Personal Finance (CPF5)

11. Case Study 1 If you were to buy a big box of food from a fast-food outlet, including drinks, for £10 and it would feed a whole family of four, would this be good value for money? ‘yes’ if it were to be good-quality, tasty food, with plenty for everyone; ‘no’ if it were to be poor quality, not enough, or taste horrible. Then you would feel that you had wasted your £10, because you might have to eat again when you got home. ifs Certificate in Personal Finance (CPF5)

12. Case Study 1 You also have to ask yourself whether you could all have eaten for £10 by staying at home instead. And you have to take into account whether you enjoyed the experience of eating out and had a good time. ifs Certificate in Personal Finance (CPF5)

13. Price Comparison Buying clothes visit several shops and look at the prices in each - comparing prices. may not be comparing exactly the same product. Buying a DVD of a particular film visit all of the DVD shops and compare the prices may take time, but we are comparing exactly same the product ifs Certificate in Personal Finance (CPF5)

14. Price Comparison ifs Certificate in Personal Finance (CPF5)

15. Case Study 2 It is your friend’s birthday and she wants a particular CD as a present from you. The CD that she wants is £12.99 in the local music store. You are sure that you saw it for £10.99 in the out-of-town supermarket, but the bus fare to get there and back is £3. What will the CD cost you by going to the out-of-town supermarket? ifs Certificate in Personal Finance (CPF5)

16. Case Study 2 So, by going to the out-of-town supermarket, the CD will cost you: £10.99 + £3 = £13.99 Therefore it will be cheaper for you to buy it in the local music store! ifs Certificate in Personal Finance (CPF5)

17. Price Comparison Websites ifs Certificate in Personal Finance (CPF5)

18. Activity 6C See how many price comparison sites you can name. Use an internet search engine to find products such as ‘mobile phones’ or ‘sports clothes’, or ‘DVDs’, or a new stereo system, and see how many more comparison sites are names as ‘sponsored links’. Once you have your list, visit www.pricelocator.co.uk and see how many price comparison sites there are. Visit a few of which you may not have heard. www.pricelocator.co.uk ifs Certificate in Personal Finance (CPF5)

19. Making sure that we pay the best price Shopping around Research; Internet; ‘Pounding the pavements’; Look at catalogues. ifs Certificate in Personal Finance (CPF5)

20. Case Study 3 If you want to buy a sandwich for lunch from a local shop, you might not mind spending 10p more in one shop than another for the same quality of sandwich – although, even here, you will save 50p a week if you buy the cheaper one. If you are saving up to buy a new mobile phone, however, you might be able to save quite a lot by getting some information beforehand. ifs Certificate in Personal Finance (CPF5)

21. Shop Discounts & Offers ifs Certificate in Personal Finance (CPF5)

22. Shop Discounts & Offers Bulk-buy discount A bulk-buy discount means that the product is cheaper if you buy more of it. Special offers A special offer might apply if you buy several items at the same time. Some offer ‘three for the price of two’, others offer ‘buy one get one free’ (BOGOF). ifs Certificate in Personal Finance (CPF5)

23. Shop Discounts & Offers Collect ‘money-off’ coupons collect coupons from leaflets, newspapers and supermarkets some are made by one particular shop - you get the discount only if you buy the item there others you can take to any shop – shop owner claims the money from the manufacturer of the product ifs Certificate in Personal Finance (CPF5)

24. Shop Discounts & Offers ifs Certificate in Personal Finance (CPF5)

25. Shop Discounts & Offers ifs Certificate in Personal Finance (CPF5)

26. Case Study 4 What does ‘10% off’ mean? It means that the shop or retailer is knocking off 10 per cent of the normal price to attract more customers. ifs Certificate in Personal Finance (CPF5)

27. Case Study 4 If the usual price for a microwave oven is £150 and the shop has a ‘10% off all items in the shop today’ offer, what will the discount and new price be? Discount 10% x £150 = £15 The microwave oven will cost: £150 − £15 = £135 ifs Certificate in Personal Finance (CPF5)

28. Activity 6d A supermarket is offering 20 per cent off all fizzy drinks. Calculate the price that you would have to pay for the following. a) Cola (normal price £1.25 for a 2 litre bottle) b)Lemonade (normal price £1.50 for six cans) c)Orange (normal price 85p for 1.5 litre bottle) ifs Certificate in Personal Finance (CPF5)

29. Activity 6d a) Cola 20% x £1.25 = 25p off Discounted price: £1.25 – 25p = £1 b)Lemonade 20% x £1.50 = 30p off Discounted price: £1.50 – 30p = £1.20 c) Orange 20% x 85p = 17p off Discounted price: 85p – 17p = 68p ifs Certificate in Personal Finance (CPF5)

30. Case Study 5 One tin of cat food is 30p. But if you were to buy a box of 12 tins, the price is £3.How much do you save by buying 12 instead of only one? 30p x 12 = £3.60 you save 60p ifs Certificate in Personal Finance (CPF5)

31. Case Study 6 You want to buy three books, the prices of which are £13, £6 and £8. The shop is offering ‘three for the price of two’ (you will pay only for two of them – the two most expensive ones). What will you pay for all the books? You would pay a total of: £13 + £8 = £21 as the £6 book is free! ifs Certificate in Personal Finance (CPF5)

32. Case Study 6 ifs Certificate in Personal Finance (CPF5)

33. Case Study 7 ‘Buy one get one free’ offers really mean that the item is half-price. For example, one deodorant might be £1.28. If you are able to buy one and get one free, this means that you get two cans for £1.28, with each costing: £1.28 ÷ 2 = 64p ifs Certificate in Personal Finance (CPF5)

34. Buying the Label Everything has a label, or a name, telling you which manufacturer made it or which shop sold it. Wide variety of choices – some more expensive than others. Certain labels are better known because the manufacturer or retailer is a bigger, better-known company Because the manufacturer has a reputation for making or selling good-quality items because the items are more desirable (more fashionable). ifs Certificate in Personal Finance (CPF5)

35. Buying the Label Paying extra for a well-known name or label – not always good value for money Not looking only at the price - also looking at how long the item will last how well it does the job for which it is designed. how having that item will make you feel: sometimes, it feels good to treat yourself ifs Certificate in Personal Finance (CPF5)

36. Buying the Label Examples of Labels Armani Rolex Apple Thornton’s Easter Egg Starbucks ifs Certificate in Personal Finance (CPF5)

37. Activity 6e Complete the table to show whether you think the following items represent value for money and what you think you are paying for in each case. ifs Certificate in Personal Finance (CPF5)

38. Activity 6e ifs Certificate in Personal Finance (CPF5)

39. Activity 6e ifs Certificate in Personal Finance (CPF5)

40. Opportunity Cost Sometimes, you have to give up one thing to get another and, when it comes to spending money, you have to work out whether the cost of that item is worth what you have to give up to get it. ifs Certificate in Personal Finance (CPF5)

41. Opportunity Cost ifs Certificate in Personal Finance (CPF5)

42. Question ifs Certificate in Personal Finance (CPF5)

43. Activity 6f You have given £50 as a birthday present and cannot decide how to spend it. The choice is a new pair of trousers (you are going to a party next weekend and want to look good) or a thick winter jacket (it is getting a it cold standing at the bus stop). What are the opportunity costs of each option? ifs Certificate in Personal Finance (CPF5)

44. Activity 6f The opportunity cost of buying the trousers is that you will be cold at the bus stop. Is the new pair of fashionable trousers (and are the admiring looks and comments that you will get at the party) worth it? The opportunity cost of buying the coat is that you will have to wear something old to the party (something that all your friends have seen you wear before), or you may even decide not to go to the party altogether. Is the new warm coat worth it? ifs Certificate in Personal Finance (CPF5)

45. Taxes on Spending In the UK, as in most other countries, the government charges a tax on the goods and services that we buy, so that they cost more. In other words, when we buy a product that has been taxed, we pay the seller’s price plus the tax. ifs Certificate in Personal Finance (CPF5)

46. Value added tax (VAT) The main expenditure tax in the UK is value added tax (VAT), VAT is charged on most good and services. There are three main rates of VAT: Standard rate – 20% This is the rate on the majority of goods and services that we buy, from clothes to electrical equipment, to personal services such as hairdressing or plumbing. ifs Certificate in Personal Finance (CPF5)

47. Value added tax (VAT) Reduced rate – 5% This is the rate charged on domestic fuel (gas, electricity, etc.) Zero rate (O%) This is the rate charged on a range of products considered to be necessities, such as food, children’s clothes and children’s shoes, books, newspapers and magazines VAT is used to help finance many public services. ifs Certificate in Personal Finance (CPF5)

48. Case 7 - Calculating VAT There is a burst pipe in your house and a plumber comes round to fix it. Her bill is £136 plus VAT. Calculate the VAT and total cost. VAT: 20% of £136 = £27.20 The total bill to pay is: £136.00 + £27.20 = £163.20 You will give this money to the plumber, who keeps the £136 for herself and passes the £27.20 to the government. ifs Certificate in Personal Finance (CPF5)

49. Duties Some items, such as petrol, cigarettes and alcohol, are subject to another type of government tax called ‘duty’. The reason that the government charges duty on these items is to discourage us from buying them, or to make them so expensive that we buy less of them. ifs Certificate in Personal Finance (CPF5)

50. Question Why do you think that the government wants us to buy less petrol, fewer cigarettes and less alcohol? Effects on the environment A non-renewable source of energy Bad for our health – costs more for government in healthcare provision! ifs Certificate in Personal Finance (CPF5)

52. Insurance Premium Tax (IPT) When people buy insurance (for their house, car, pet or holiday), they pay a ‘premium’. This is the amount that they pay to the insurance company to cover the risk of theft, fire, illness, lost luggage, etc. The government charges a tax on this premium called insurance premium tax (IPT). For most types of insurance policy, IPT adds 6 per cent to the premium cost. ifs Certificate in Personal Finance (CPF5)

53. Case 8 Samina’s car insurance premium is £220 per year. The insurance premium tax is 6 per cent. Calculate the IPT she will pay and the total cost of her insurance. 6% x £220 = £13.20 So her total premium is: £220 + £13.20 = £233.20 ifs Certificate in Personal Finance (CPF5)

55. Hidden Charges If you are shopping online or over the telephone, the price that you see on the label is sometimes not the total cost of your goods. Before you confirm your order, you need to know the costs that you may have to pay. You should look carefully at the total price, because an item may not be the bargain that it seems to be. ifs Certificate in Personal Finance (CPF5)

56. Activity 6g Discuss any purchases that you have made by telephone, online, or through catalogues. Were there any extra charges and were you surprised by the total cost? ifs Certificate in Personal Finance (CPF5)

57. Hidden Charges Addition charge usually include: Postage & packing booking fees service charges customs charges (import duty - if you buy something from abroad) online shopping returns ifs Certificate in Personal Finance (CPF5)

58. Activity 6h Amazon’s returns policy reads as follows: ifs Certificate in Personal Finance (CPF5)

59. Activity 6h a) When will Amazon refund the postage? b) Why does Amazon not charge for the return of shoes? ifs Certificate in Personal Finance (CPF5)

60. Activity 6h a) Amazon will refund postage if the item is damaged, defective or incorrect. b) Amazon does not charge for the return of shoes because many of them will be labelled with US or EU sizes and if they do not fit properly, this is not entirely the consumer’s fault (they cannot try them on before ordering them). ifs Certificate in Personal Finance (CPF5)

61. Activity 6i Discuss the types of item that you buy online. Is there a risk of having to return them? What sort of clothes or shoes might you buy online? ifs Certificate in Personal Finance (CPF5)