1. Your Role As a Consumer To Spend or Not to Spend!

2. Consumption, Income, & Decision Making Disposable Income: money left after paying all taxes – Usually spent on Basic Necessities – Top 3: 1. Housing, 2. Food, 3. Transportation

3. Consumption, Income, & Decision Making Discretionary Income: money left after paying for all necessities; $$$ saved or spent on luxuries – Examples: Big screen TV, movie, Ferrari!!! – No matter what, there is always a COST!!! – “There is no such thing as a free lunch” – Opportunity Cost: the value of your highest alternative choice that you did not make » Ex. Working vs. Studying

4. Consumption, Income, & Decision Making How Education Affects Income Males Females

5. Buying Principles or Strategies 3 Buying Principles: I.Gather Information II.Evaluate advertising 1.Competitive Advertising: emotional appeal 2.Informative Advertising: gives basic info. about product, e.g. drug commercials 3.Bait & Switch: advertise item at a low price to get you into the store; try to sell higher priced item instead – Illegal

6. Buying Principles or Strategies 3 Buying Principles III.Comparison Shopping: get info. on the types and prices of products available from different stores & companies, e.g. Lofinos vs. Krogers 1.Brand Name vs. Generic Brand Aunt Jemima Syrup vs. Kroger Brand 2.Shopping Exclusively at 1 store – why??? 1.Convenience (right up the street) 2.Like the service – rewards program 3.Takes too much time

7. Americans & Credit What is Credit? Receive money to buy goods & services today with promise to pay for them in the future Principle: original amount borrowed Interest: amount added for the privilege of borrowing

8. Americans & Credit Installment Debt: loan paid back in equal payments over time (including taxes & interest) – Durable Goods: items lasting longer than 3 years Ex. Cars, washing machines, refrigerators – Longer payback periods have lower Payments but higher total Interest

9. Americans & Credit Mortgage: most popular form of installment debt owed on property *Typically paid monthly in equal payments over time When might it be better to have a longer/shorter payback period? – Longer: limited finances (right out of college) – Shorter: More income, make larger payments & pay less total interest

10. Sources of Loans & Credit Financial Institutions (Banks) i.Commercial Banks: accept deposits, loan money, & transfer funds among banks ii.Savings & Loan Associations: accept deposits & loan money for mortgages only iii.Savings Banks: set up to serve small savers iv.Credit Unions: set up by employees of companies; provide savings accounts & low- interest loans only to its members

11. Sources of Loans & Credit Types of Financial Institutions v.Finance Companies: – Serve as debt collectors for stores; usually work with Repo Men – Loan money typically with high interest rates

12. Sources of Loans & Credit Charge Accounts i.Enable a consumer to buy now & pay later just at a particular company ii.Usually have a Credit Limit: maximum amount person can buy with the promise to repay in the future ($500-$1,000) iii.Charge no interest if bill is paid in full at the end of the month

13. Sources of Loans & Credit Credit Cards i.Enable a consumer to buy now & pay later at many stores/companies ii.Have high interest rates iii.Finance Charge: entire cost of borrowing including interest & fees (inactivity fees) iv.Annual Percentage Rate: how much interest you will pay in 1 year (expressed as a percent)

14. Sources of Loans & Credit Debit Card: transfer funds directly from a person’s bank account to the store

15. Applying for Credit Creditworthiness i.Fill out an application ii.A credit bureau will perform a credit check: i.Investigation of a person’s Income, Debt, personal life, past history of borrowing & repaying i.Credit Rating: how risky it is for a bank to lend you money i.Considers income, debt, character, & Collateral: something of value that the bank takes in case the loan is not repaid

16. Applying for Credit ii.Secured Loan: loan with Collateral – something of value that the bank takes in case of non-payment iii.Unsecured Loan: loan without collateral – Usually need a Cosigner: person responsible for paying the loan in the event of non-payment ***In most cases it is better to have bad credit than no credit at all!!!