Transcript Document

Consumers play an important role in the economic system.
Consumer: any person or group that buys or uses goods
and services to satisfy personal needs and wants.
A person’s role as a consumer depends on his or her
ability to consume. This ability to consume depends on
available income and how much of it a person chooses
to spend now or save for future spending.
Disposable income: the money income a
person has left after all taxes have been paid.
People first spend disposable income on necessities like
food, clothing, and housing. Look at page 60’s chart of consumer
spending.
Discretionary income: Leftover income that can be saved or
spent on extras such as luxury items or entertainment.
Education, occupation, experience, and health all influence a
person’s earning power and thus his/her ability to consume.
Look at the chart on page 61 that shows how education affects income.
Where a person lives can also influence how much a person
earns: city dwellers tend to earn more than those in rural
areas and some regions of the country tend to be higher
also.
Decision making involves three parts:
Scarce resources:
income and time
Opportunity cost
Rational choice
Choosing the alternative that has the greatest
value from among comparable-quality products.
A movement to educate buyers about the purchases they make and to demand better
and safer products from manufacturers
Consumers must be proactive in their buying habits.
1962 President John F. Kennedy—first
protection message to Congress
• The right to safety—protection against goods that are dangerous to life or death
• The right to be informed---information for use not only as protection against fraud but
also as the basis for reasoned choices
• The right to choose---the need for markets to be competitive (have many firms) and
for government to protect consumers in markets where competition does not exist,
such as electronic service
• The right to be heard---the guarantee that consumer interests will be listened to
when laws are being written
President Nixon added a fifth right:
•
The right to redress---the ability to obtain from the manufacturers adequate payment
in money or goods for financial or physical damages caused by their products
Using President Kennedy’s list, Congress passed consumer-protection
legislation.
his "finest achievement" in consumer protection
How did this legislation help consumers?
• Dissatisfied consumers can complain to a store manager or write to the
manufacturer.
• Consumers may take a case to small claims court or hire a lawyer.
• Local citizens’ action groups and local chapters of the Better Business
Bureau help consumers with their rights and complaints.
• There are also many federal bureaus to help consumers.
Read over the list of the federal bureaus on page 74 of your
economics' book.
Receipt of money either directly or indirectly to buy goods and services in
the present with the promise to pay for them in the future.
The amount owed—the debt—is equal to the principal
plus interest.
Principal: amount of money originally borrowed in a loan
Interest: amount of money the borrower must pay for the use of someone
else’s money
Remember this:
Taking out a loan is the same as buying an item on credit. In both cases,
you must pay interest for the use of someone else’s purchasing power.
Anytime your receive credit, you are borrowing funds and going into debt.
Installment Debt
One of the most common types of debt
Type of loan repaid with equal payments, or installments, over a specific
period of time
Most people buy durable goods, or manufactured items that last
longer than three years on an installment plan.
The length of the installment period (time to pay the
debt) is important in determining the size of the
borrower’s monthly payment and the total amount of
interest he/she must pay.
Longer repayment period=smaller monthly payments
Trade-off!
The longer it takes to repay an installment loan, the
greater the total interest the lender charges!
The largest form of installment debt in the United States is the money people owe on
mortgages.
mortgage: installment debt owed on houses, buildings, or land
People buy items on credit because they believe they require these
items immediately.
Many people do not want to postpone purchasing an important
durable good like a car or truck. They would rather buy on credit and
enjoy the use of the item now rather than later.
Another reason for going into debt is to spread the payments over
the life of the item being purchased.
The decision to borrow or use credit involves whether the satisfaction the
borrower gets from the purchases is greater than the interest payments.
What?
Purchase satisfaction > interest payments
Comparing costs
and benefits
Benefit: buy and enjoy the
goods or services now
Costs: interest payments
or lost opportunities to buy
other items.
1. Do I really require this item? Can I postpone purchasing the item until
later?
2. If I pay cash, what will I be giving up that I could buy with this money?
This is an opportunity cost.
3. If I borrow or use credit, will the satisfaction I get from the item I buy be
greater than the interest I must pay? This is also an opportunity cost.
4. Have I done comparison shopping for credit? Look for the best
loan or credit deal including the lowest interest rate if not paying cash.
5. Can I afford to borrow or use credit now?
Answer the following on another piece of paper to turn in during class
tomorrow.
1. What are the advantages of repaying installment debt over a long period of time?
2. Why do people go into debt?
3. Go to this website and take a reality check.
http://www.jumpstart.org/reality-check.html
There are two major types of credit—using credit cards and
borrowing money directly from a financial institution.
Types of Financial Institutions:
*An important element in money management is choosing the correct financial institution
to meet an individual’s needs. Financial institutions are businesses which offer
multiple services in banking and finance.
*The services customers receive may include savings and checking accounts, loans,
investments, and financial counseling.
*The benefits consumers gain by using financial institutions includes convenience, cost
savings, safety, and security.
*It can be in the consumer’s best interest to research financial institutions and to use one
institution for all their financial needs.
*The advantages to choosing one institution include building a relationship, the
simplicity of having all accounts in one place, and possibly lower interest rates on loans.
Financial institutions are more willing to offer loans with lower interest rates to loyal
customers.
Different types of financial institutions are available.
􀂃Depository institutions offer banking services and loans to individuals and businesses.
o Although they can be referred to as banks in general, each is a distinct type of
institution.
o Depository institutions include:
Commercial banks – also known as full-service banks because they offer the
wide variety of services and products available including checking and savings accounts,
loans, credit cards, investments, and advice; operate under state and federal laws;
usually the largest banks; insured by the FDIC.
Savings & loan associations (S & Ls) – focus on providing loans and
mortgages to customers who hold a savings account; insured by the SAIF; generally pay
a higher interest rate than commercial banks; provide interest earning checking
accounts.
Credit unions – a non-profit cooperative institution owned by its members;
members usually have a common bond; insured by the NCUA; usually charge
lower fees and loan rates and offer higher interest rates than commercial
banks and S & Ls; many offer free financial counseling; accounts offered
include share, share draft, and share certificate accounts.
Brokerage firms are licensed institutions which specialize in investing. They
offer money management
plans to buy and sell stocks, bonds, and other cash investment opportunities
through cash management.
What is the definition of a financial institution?
What are four types of financial institutions