Topic 6:
Understand and
work out the true
cost of spending
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Checklist for Topic 6
By the end of this topic, you will be able to:
 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.
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 understand the term ‘value for money’;
Cost of Purchases
Everything that we buy has a cost. In the UK, most items
have a price label and we expect to pay the price stated.
to pay the price on the label and we can negotiate.
We can buy both goods and services:
• goods are things that we can physically hold,
such as a CD, DVD, mobile phone, or clothes;
• services are items for which we pay that help us,
such as a mobile phone network, a current
account, or a haircut.
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There are some purchases for which we expect not to have
Cost of Purchases
We usually have a good idea how much these
things are going to cost through experience.
be less than £50 and we know that a CD can
range from a couple of pounds to over £20. We
also learn through experience that the cost of
things like clothes can vary enormously: for
example, jeans can cost anywhere between £10
and £300 – or even more.
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For example, we know that a haircut is likely to
Activity 6A
Discuss the type of goods for which you
would expect to negotiate on price.
• Are there other countries that you may
have visited where it is usual to ‘haggle’
over the price?
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• How easy is it to negotiate?
Activity 6A
You may have talked about buying cars, or
sale. You may have been on holidays to
places where it is normal to haggle, even
for everyday items, such as clothes and
food.
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items on a market stall or at a car boot
Value for Money
‘Value for money’ means that we feel that we
have bought. It does not necessarily mean that
we have bought the cheapest, because the
cheapest could be the poorest quality and the
item might fall apart.
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have paid a fair price for the product that we
Value for Money
Value for money means different things to
compromise on quality to get an item more
cheaply; others prefer to pay more for a
better product, but may still consider that
product to be value for money.
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different people. Some people are happy to
Activity 6B
Discuss some recent things that you have
• Did you think they were value for money?
• What helps you to judge whether the
price that you have paid is value for
money?
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bought.
Activity 6B
We judge whether the price is value for money
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.
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based on our experience of other similar products
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
• ‘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.
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whole family of four, would this be good value for money?
Case Study 1
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.
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You also have to ask yourself whether
Price Comparison
Buying clothes
• visit several shops and look at the prices in each -
• 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
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comparing prices.
Price Comparison
However, if you had to spend money on bus
these shops, you have to take this cost into
account when deciding which is the
cheapest.
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fares or petrol to be able to visit all of
Case Study 2
It is your friend’s birthday and she wants a
particular CD as a present from you. The CD
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?
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that she wants is £12.99 in the local music
Case Study 2
So, by going to the out-of-town
• £10.99 + £3 = £13.99
Therefore it will be cheaper for you to buy
it in the local music store!
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supermarket, the CD will cost you:
Price Comparison Websites
• Websites that take away all of the walking
around between shops;
let you have a summary of the best ones;
• These websites can be used for goods and
services; however, not all providers of a goods or
service are actually on these sites.
• Therefore you may not always get the best price
or see every product that is available.
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• They collect the prices from other websites and
Activity 6C
• See how many price comparison sites you can name.
• Use an internet search engine to find products such
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.
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as ‘mobile phones’ or ‘sports clothes’, or ‘DVDs’, or a
Making sure that we pay
the best price
• Research;
• Internet;
• ‘Pounding the pavements’;
• Look at catalogues.
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Shopping around
Case Study 3
If you want to buy a sandwich for lunch from a
local shop, you might not mind spending 10p more in
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.
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one shop than another for the same quality of
Shop Discounts & Offers
There are other good ways of getting things for a lower price.
• A discount means that the seller takes off a percentage of
the price.
• Might be because you
• have bought a lot;
• are a good, regular customer;
• are a Student
• are Staff
• have a card account/loyalty card
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Discounts
Shop Discounts & Offers
Bulk-buy discount
• A bulk-buy discount means that the product is
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).
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cheaper if you buy more of it.
Shop Discounts & Offers
Collect ‘money-off’ coupons
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
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• collect coupons from leaflets, newspapers and
Shop Discounts & Offers
Loyalty cards
• Lots of stores have their own loyalty cards
• Use these points to get discounts off your bill or you
can exchange them for free gifts.
For example, Nectar is a loyalty card that has links with
Sainsbury’s, Argos, Barclaycard and American Express.
You collect points and you can get money off holidays,
and other goods and services.
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• Give you points on everything you buy
Shop Discounts & Offers
Free gifts
place an order for more than a certain value.
Note: The gift might be just what you want
and this will reduce the price of what you buy –
but make sure that you do want the items that
you order and the gift.
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• A lot of catalogues offer free gifts when you
Case Study 4
• It means that the shop or retailer
is knocking off 10 per cent of the
normal price to attract more
customers.
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What does ‘10% off’ mean?
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
be?
Discount
• 10% x £150 = £15
The microwave oven will cost: £150 − £15 = £135
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today’ offer, what will the discount and new price
Activity 6d
A supermarket is offering 20 per cent off all
fizzy drinks. Calculate the price that you would
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)
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have to pay for the following.
Activity 6d
a)
Cola
20% x £1.25 = 25p off
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
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Discounted price: £1.25 – 25p = £1
Case Study 5
One tin of cat food is 30p. But if
the price is £3.How much do you
save by buying 12 instead of only
one?
• 30p x 12 = £3.60
you save 60p
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you were to buy a box of 12 tins,
Case Study 6
You want to buy three books, the prices of which
are £13, £6 and £8. The shop is offering ‘three
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!
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for the price of two’ (you will pay only for two of
Case Study 6
The average price per book would
then be:
£21 ÷ 3 = £7
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Note:
Case Study 7
‘Buy one get one free’ offers really
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
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mean that the item is half-price. For
• 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).
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Buying the Label
Buying the Label
• Paying extra for a well-known name or label – not
always good value for money
• 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
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• Not looking only at the price - also looking at
Buying the Label
• Examples of Labels
• Rolex
• Apple
• Thornton’s Easter Egg
• Starbucks
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• Armani
Activity 6e
Complete the table to show whether
represent value for money and what
you think you are paying for in each
case.
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you think the following items
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Activity 6e
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Activity 6e
Opportunity Cost
Sometimes, you have to give up one
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.
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thing to get another and, when it
Opportunity Cost
So, if you choose to go out, then the
opportunity cost of this decision is the £25
you will save whatever money you would have
spent if you had gone out). If you decide to
work, then the opportunity cost is the value to
you of going out with your friends (which is
harder to measure).
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earnings (plus, if you do decide to do the shift,
Question
You have planned to go out this evening, but you
have just been offered an extra shift at work
• ‘it depends’ on with whom you were going out and
how much you would like the extra money.
Note: The opportunity cost is the value of the item
given up.
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that will earn you £25. What do you do?
Activity 6f
You have given £50 as a birthday present
and cannot decide how to spend it. The
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?
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choice is a new pair of trousers (you are
Activity 6f
The opportunity cost of buying the trousers is that you
will be cold at the bus stop. Is the new pair of
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?
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fashionable trousers (and are the admiring looks and
Taxes on Spending
In the UK, as in most other countries, the
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.
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government charges a tax on the goods and
Value added tax (VAT)
The main expenditure tax in the UK is value added tax
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.
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(VAT), VAT is charged on most good and services.
Value added tax (VAT)
• Reduced rate – 5%
This is the rate charged on domestic fuel (gas,
• 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.
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electricity, etc.)
Case 7 - Calculating VAT
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.
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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.
Duties
Some items, such as petrol, cigarettes and alcohol,
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.
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are subject to another type of government tax
Question
Why do you think that the government wants us
alcohol?
• Effects on the environment
• A non-renewable source of energy
• Bad for our health – costs more for
government in healthcare provision!
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to buy less petrol, fewer cigarettes and less
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Insurance Premium Tax
(IPT)
When people buy insurance (for their house, car,
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.
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pet or holiday), they pay a ‘premium’. This is the
Case 8
6% x £220 = £13.20
So her total premium is:
£220 + £13.20 = £233.20
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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.
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Hidden Charges
If you are shopping online or over the telephone,
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.
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the price that you see on the label is sometimes
Activity 6g
Discuss any purchases that you have made by
telephone, online, or through catalogues. Were
by the total cost?
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there any extra charges and were you surprised
Hidden Charges
Addition charge usually include:
• Postage & packing
• service charges
• customs charges (import duty - if you buy
something from abroad)
• online shopping returns
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• booking fees
Activity 6h
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Amazon’s returns policy reads as follows:
Activity 6h
a) When will Amazon refund the postage?
shoes?
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b) Why does Amazon not charge for the return of
Activity 6h
a) Amazon will refund postage if the item is
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).
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damaged, defective or incorrect.
Activity 6i
Discuss the types of item that you buy
• Is there a risk of having to return them?
• What sort of clothes or shoes might you
buy online?
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online.