1. How do economic conditions affect financial decisions?

2. Economic Factors and Financial Decisions
Consumer prices
changes in how much the dollar is worth
Inflation
rising prices for goods and services and lower buying power of the dollar
Consumer Spending
the demand for goods and services, which affects prices and job opportunities
Interest Rates
the cost of borrowing money. Lower interest rates encourage consumer spending; higher rates encourage saving and less borrowing.
Unemployment Rate
the number of unemployed people who are willing to work, which affects consumer spending and job opportunities

3. Economic Influences on Financial Decisions
Before you make a decision about money, what do you need to know about our economy?
Consumer Prices
Inflation
Consumer Spending
Interest Rates
Unemployment Rate
Considering the current above factors discuss the following financial dilemma. You
don’t have enough money to buy a CD player you want. Should you cash the
birthday check that your grandfather gave you? Your parents want you to put that
check into a savings account? What current economic conditions should you think
about before you make this decision?

4. Risk that can affect financial decisions
Personal Risk
your decision can affect your well-being. Your actions may result in inconvenience, embarrassment or safety
and health concerns.
Inflation Risk
inflation involves rising prices, meaning you will be able to buy less for your money. If you will wait to buy an
item later, it may cost more.
Interest- Rate Risk
interest is the money you pay to borrow money. Banks also pay you interest when you deposit your money
there. Interest rates can change, affecting the cost for you to borrow money and the money your savings earn.
Income Risk
your income can change for a variety of reasons. When people buy fewer goods, other’s may lose their jobs.
You can get laid off without much notice or your job can be transferred and you don’t want to move.

5. Risk Factors and Financial Decisions
Let’s consider the following risk factors:
Personal Risk
Inflation Risk
Interest-rate Risk
Income Risk
You have worked hard over the past year and earned about half
of the money that you’ll need to buy a used car.
Should you put your money in a savings account?
Should you keep working until you’ve saved the full amount?
Should you take out a loan and buy the car now?
What risks might there be?

6. Family Values Affect Our Financial Decisions
Giving & donating – what are your families values about giving money to charity.
Saving – what are you families values about saving money.
Spending – what are your families values about spending money, about living within your means.
Credit – what are your families values about using credit cards.

7. What financial decision would your family like choose?
The family room TV has stopped working. Your parents have been saving for a new one but the one they really want will cost another $1000 more than they already have in savings. What are they most likely to do?
Wait until they have saved the additional $1000 and the buy the TV they want.
Purchase a TV that fits the current budget they have in savings.
Purchase the TV they want and use a credit card to cover the additional $1000 needed.

8. More Family Financial Decisions
Your family gives regularly to a local charity or their church. One of your parents gets their hours reduced at work. Your parents are most likely to:
Stop giving to their charity or church.
Reduce spending on entertainment or dining out and continue to give the same amount of money to their charity or church.
Reduce the amount they give to their charity or church but still continue to give some.