PERSONAL
FINANCE AND
ECONOMICS
Chapter 20
Managing Your Money
Section 1
Consumer Rights
Consumers have rights,
or protections, in the free
enterprise system.
 A consumer is someone
who buys a good or
service.

Two Types of Income

Consumers have two types of
income to spend:
– Disposable Income: money
left after taxes are paid
–
Discretionary Income:
money left after bills are
paid and after all
necessities have been
bought and paid for
Protecting Consumer Rights

Consumerism: a movement to
educate buyers about the
purchases they make and to
demand better and safer
products from manufacturers
– Laws (ex. Pure Food and
Drug Act)
–
Private groups (Better
Business Bureau)
Consumer Bill of Rights
–
Right to a safe product
–
Right to be informed
–
Right to choose
–
Right to be heard
–
Right to redress
Consumer Responsibilities

Consumers
have
responsibilities
as well as
rights.
Smart Buying Strategies
–
Gather information
–
Use advertising carefully
–
Determine the best value
–
Comparison shopping is a buying strategy to get
best buy for the money
–
Look at brand name and generic items
–
Balance costs and benefits
Other Responsibilities
–
–
–
–
–
Initiate problem-solving process for faulty goods
or services
Keep warranty information
A Warranty is the promise made by a
manufacturer or a seller to repair or replace a
product within a certain time period if it is faulty
Respect rights of producers and sellers
Report problems to government when a
settlement cannot be reached
Making Buying Decisions

Buying a product or
service costs more than
money; it also costs the
time it takes to make
the purchase and the
opportunity cost of not
buying something else.
Making Buying Decisions


Many factors are involved in
consumers’ buying decisions.
Steps:
– Decide whether to buy an
item or not
–
–
Invest time obtaining
product information
Balance opportunity cost
Planning and Budgeting
Section 2
Making a Budget and Sticking To It!

A budget is a record
of money earned and
spent to help you
match expenses to
income.
Basic Budgeting Terms
–
–
–
–
–
Income is money received
from labor, business, or
property
Expenses is money spent on
goods and services
Balance: leftover money
Surplus: More income than
expenses (good)
Deficit: More expenses than
income (bad)
How To Make A Budget
List what you spend.
 Record what you earn.
 Analyze the data.
 Try to have surplus.
 Monitor spending.

Credit

Credit can be a
valuable item in your
financial toolbox;
however, as with all
tools, you have to
know how to use it
correctly.
Credit
Credit is money
borrowed to pay for
a good or service
 Credit allows
consumers to receive
a good or service and
pay for it later.

Recognizing Credit Terms
–
–
–
–
–
–
A lender gives money to a borrower.
A lender charges interest, expressed as the annual
percentage rate (APR).
APR is the annual cost of credit expressed as a
percentage of the amount borrowed
A credit rating evaluates how well the borrower will
repay the loan.
The borrower may pledge collateral for the loan.
Collateral is property or valuable item serving as
security for a loan
Sources of Credit
–
–
–
–
Usually require down
payment
Banks, savings and loans,
credit unions, finance
companies offer credit
Most common—credit
cards
Can charge high interest
rates
Benefits of Credit


Allows you to get
what you want
sooner
Teaches financial
discipline
Drawbacks to Credit



Spending more
than you can
afford
Bankruptcy is the
inability to pay
debts
Poor credit rating
Your Responsibility As A Borrower
–
–
–
Have a plan to make
payments
Use budget skills
Understand credit
agreement
Saving and Investing
Section 3
Saving For The Future

To save is to set
aside income for
later use.
Why Save?
–
Money for large
purchases
–
Emergency aid
–
Luxuries
–
Benefits the whole
economy
Saving Regularly
–
–
–
–
Automatic deposits into
savings accounts
Budgeting for savings
Earning interest by saving
through financial institutions
Interest is the payment people
receive when they lend money
or allow someone else to use
their money
Deciding About Your Saving
–
Trade-offs:
Less
to spend
today
More
to spend
tomorrow
Types of Savings

Many ways exist for
people to save
portions of their
incomes.
Savings Accounts

Savings accounts
– Earn low interest on
principal
–
Financial institutions
loan the money to
others
Checking Accounts

Checking Accounts
– Money for purchases
–
–
Must keep careful
records
Debit cards allow
paperless money
transfer
Money Market Accounts
–
Money Market Accounts
 Allows
you to write
checks, like a
checking account
 Pays
interest like a
savings account
Certificates of Deposit
–
Certificates of Deposit
 Type
of time deposit
 Agreement
to leave
money in financial
institution for a set
amount of time
Investments
Making wise investments in
a variety of stocks and
bonds is an important part
of achieving long-term
financial goals.
 Investing in stocks and
bonds leads to higher returns
than other types of savings.
 Returns is the profit earned
through investing

Stocks
–
Shares of stock provide partial
ownership in a company
–
A stock is an ownership share of a
corporation
–
Stock prices may go up or down,
based on company performance.
–
Investors may earn dividends.
–
Dividend is the payment of a portion
of a company’s earnings
–
Higher possible return, but at
greater risk
Bonds
–
–
–
–
A bond is a contract to repay
borrowed money with interest
at a specific time in the future
Loans money to company or
government
Pays set rate of interest over
several years
U.S. government bonds are a
very safe investment.
Mutual Funds
–
–
–
–
Mutual Funds are pools of money
from many people who are
invested in a selection of
individual stocks and bonds
chosen by financial experts.
Pools money to invest in different
stocks and bonds
Chosen by financial experts
Less risk than investment in
individual stocks
Achieving Your Financial Goals
Section 4
What Kind Of Spender Are You?




Careful spenders avoid pitfalls, such as impulse
buying, on their way to meeting their financial
goals.
Impulse buying is purchasing an item on the spot
because of an emotional rather than planned
decision
Setting financial goals can help you spend money
wisely.
Evaluate your spending to help you meet financial
goals.
Impulse Buying

Beware of impulse buying.
– Try not to buy too quickly
based on emotions.
–
–
Some impulse-buying is
okay. Too much is bad.
Follow guidelines to avoid
too much impulse buying.
Your Goals and Your Buying Decisions
The buying decisions
you make can have a
major impact on your
life and career
choices.
 Consider goals when
buying items.

Now or Later?
Long-term goals can conflict
with short-term goals.
 Must balance long and shortterm goals.
 Long-term planning can
improve finances down the
road (e.g., saving for college
will lead to higher income
later)

Chapter Summary
Buying Strategy


Making consumer decisions
involves deciding the following:
• whether to spend your money
•
what you will purchase
•
how to use your purchase
Comparison shopping involves
making comparisons among
brands, sizes, and stores.
Consumerism

Consumer Rights Include:
 the right to safety
 the
right to be informed
 the
right to choose
 the
right to be heard
 the
right to redress
Budget
•
•
A budget is an organized
plan for spending and
saving money.
What you do with the
information in a budget is
up to you. No one can force
you to spend less and save
more unless you want to.
Credit
•
•
When buying on credit, the
amount you will owe is
equal to the principal plus
interest.
Financial institutions that
provide credit include
commercial banks,
savings and loan
associations, and credit
unions.
Saving and Investing
•
•
•
It is important to get into the habit of
saving.
Individuals have many places to
invest their savings, including savings
accounts and certificates of deposit.
Shares of stock entitle the buyer to a
certain part of the future profits and
assets of the corporation that is
selling the stock.