CHAPTER 6
Consumer Purchasing Strategies
and Wise Buying of Motor Vehicles
Or
“I’d Like Some More Things, Please!”
Microsoft Chairman Bill Gates told CNBC that he wished he
were not the richest man in the world. “There is nothing
good that comes out of that,” he said. (Reuters.com)
1
Culture of Consumption
Scandal #6
Clothes
2
“Thanking you for the clothes of
your dead people”
A journalist was on assignment covering cultures
around the world and specifically, how their cultures
relate to and think of our culture. His guide in East
Africa (the affluent part of Central Africa) invited
him to come see the distribution of the clothes from
the dead Americans to the locals. When the
journalist asked the guide why the locals thought the
clothes were from dead Americans, the guide looked
at him oddly and said, “Why would a living person
give away any of their clothes?”
3
Culture of Consumption
Scandal #12
Pets
4
5
A What Therapist?!
How much does a very busy dog
therapist charge for six 1-hour
sessions with you and your dog?
$250
B. $500
C. $1,000
D. $1,500
A.
The correct answer is (D). That is $250 per hour!
Think Viet Nam.
6
How Much is Fido Costing You?
Speaking of dogs, what is the average
yearly cost of owning a dog?*
Less than $500
B. Between $500 and $1,000
C. Between $1,000 and $1,500
D. Over $1,500
A.
The correct answer is (D). Well, of course. Just one series of
therapy sessions cost $1,500! Remember, this is per dog.
The total for Americans is $52 billion and it is rising quickly.
*ASPCA,
American Veterinary Medical Association
“Frugal, Frugal, Frugal”

“I can’t get my
wife to spend
any money!”
Do Not Forget Taxes
 For every $2 spent, you must earn more than $3 –
maybe up to $4 depending on your income bracket
 “A Dollar Saved is Two Dollars Earned”
 From The Wealthy Barber

From The Millionaire Next Door
“How did the wife of a millionaire respond when her husband
gave her $8 million worth of stock in the company he recently
took public? She said, “I appreciate this, I really do.” Then
she smiled, never changing her position at the kitchen table,
where she continued to cut out twenty-five- and fifty-cent-off
food coupons from the week’s supply of newspapers, just as
she had done each week for the past 27 years.”
7
Speaking of Millionaires…
“These people cannot be millionaires! They don’t
look like millionaires, they don’t dress like
millionaires, they don’t eat like millionaires, they
don’t act like millionaires – they don’t even have
millionaire names. Where are the millionaires who
look like millionaires?”
Spoken by the Senior Vice-President of a
trust department of a major bank that had
commissioned a focus group interview of
twenty first-generation millionaires.
8
9
Speaking of Millionaires…
(continued)
There are over 8 million households in America with
a net worth of over one million dollars.






The median age is 57 years old
Most are married and have not divorced
More than 80% are first-generation millionaires
The median income is $131,000 per year
Most invest at least 15% of their income each year
50% have never spent more than
 $399 for a suit
 $140 for a pair of shoes
 $235 for a wrist watch
From The Millionaire Next Door
10
Speaking of Millionaires…
(continued)
The lesson is clear. If you want to become a
millionaire, having a high income is not
important. You must be frugal and invest wisely.
Therein lies the paradox: Do you want to be a millionaire
or do you want to live like a millionaire? All the people
you think are millionaires – fancy cars, flashy clothes –
are really just high-income, high-consumption wage
earners with 10 credit cards run up to the maximum.
The millionaires are the penny-pinchers.
Bizarre, huh?
11
Speaking of Millionaires…
(continued)
But what about “The Lifestyles of the Rich and
Promiscuous” & Don King & Jennifer Spears
& Brittany Lopez? Huh? What about them?
The media loves to showcase the high net worth, high
consumption celebrity figures. The truth is that they
constitute only a small percentage of the millionaires in
the United States.
The media advertisers love them because they encourage
the “Little Folk” to over consume.
12
Speaking of Millionaires…
(continued)
And when you are sitting at home watching TV
feeling sorry for yourself as you compare
yourself to Donald Rump, instead compare
yourself to the citizens of Niger.
Over 60% of the population live on less than $1 per day.
About 41% do not have access to clean water.
Over 90% of the women over the age of 15 are illiterate.
Life expectancy at birth is approximately 44 years.
In fact, about 1.2 billion people around the world (about 1 in 5)
survive on less than $1 a day. (Los Angeles Times)
13
Speaking of Millionaires…
(continued)
So do you still believe that you would live
happily-ever-after if you were a millionaire?
What You Have
Happiness = ––––––––––––––––
What You Want
Simply put, if you never learn to be happy with what you have,
you will never be happy. Your wants will always outweigh what
you have. And even if you do become a millionaire, you will still
face the same day-to-day travails that everyone faces. Your life
will be more comfortable, but there is no guarantee of happiness.
Culture of Consumption
Scandal #23
Batteries
14
15
Disposable or Rechargeable?
Given normal usage, how many
alkaline batteries would be replaced by
one nickel metal-hydride battery?
25
B. 100
C. 500
D. 750
A.
The correct answer is (C). Screw the Energizer Bunny!
Beware of Emotions
16
Shopping can be an addiction
 Many, many people buy things simply trying
to fulfill some unmet childhood desire
 “An addiction is any mood-altering behavior that
the participant is no longer in full control of.”

John Bradshaw

Do not think the advertisers do not know all about
this and other psychological phenomena
“She had forty-seven cashmere sweaters.”
Speaking of Emotions…
Ever wonder why
advertisers use sex to
sell their products?
“You can keep the beer.
But I will take the
bubble-headed, bleached
blonde with the big
kn___kers & the tight
b__t, thank you.”
17
18
Does Advertising Really Work?
Economists estimate that every
hour of TV a person watches
each week increases their annual
spending by about $200.
In 2005, Nielsen Media
Research reported that the
average person watched
approximately 4½ hours of TV a
day, or 31½ hours a week.
At $200 in extra spending for
each hour watched, that means
that the average person spends
an extra $6,300 a year that they
would not have spent if they
didn’t watch TV.
“Television commercials
do not affect me!”
By 2009, the number rose to
almost 5 hours per day.
http://articles.latimes.com/2009/feb/24/business/fi-tvwatching24
http://www.turnoffyourtv.com/commentary/morons/stupid.html
Unhappy People Watch TV -- Happy People Socialize and Read
19
What Factors Motivate You?
Social Factors
Economic Factors
CPI
- inflation
Interest rates
Supply/demand
Brand name
Warranty
Product Quality
Tax rates
Sex
Lifestyles
Consumer
Buying
Influences
Attitudes
Ads/media
Hobbies
Peer
Personal Factors
and age
Marital status
Occupation
Culture
Income
Education
Family
size
group
Housing
type
Ethnic group
Religion
Speaking of Influences…
20
Would someone please tell me why a
Roach handbag is worth $600 more than a
JCPenney’s handbag?
Oh, I am so sorry. “Coach.” For the prices they are
asking, shouldn’t they really call them “First Class?”
And do not even get me started on Lousy Vuitton!
Culture of Consumption
Scandal #73
Light Bulbs
21
22
Incandescent or Fluorescent?
Given normal usage, how many
incandescent bulbs would be replaced
by one fluorescent bulb?
2
B. 4
C. 8
D. 11
A.
The correct answer is (D). Incandescent bulbs give off 90%
of their energy as heat. Fluorescent bulbs are cold.
23
Incandescent or Fluorescent?
Over its lifetime, how much money will
one fluorescent bulb save you in energy
costs at current electricity rates?
A. $25
B. $45
C. $65
D. $110
The correct answer is (B). But energy prices are rising…
Consumer Purchasing Activities
24
Problem identification
Information gathering: costs, options, consequences
 Sources of attribute assessment
 Personal contacts and experience of others
 Business organizations advertising & media
 Independent testing organizations – Consumer
Reports

Price analysis: Are quality and price always related?
 Comparison shopping: Do you take the time to
comparison shop?
Consumer Purchasing Activities
(continued)
all
 Negotiation may be used on some products
cash



Decide on cash or credit
Get all acquisition and installation costs and
conditions in writing
Maintenance and ownership costs may be
associated with some purchases
Complain if you are not satisfied with a purchase
Do you complain if you are not satisfied?
A 2004 to 2007 survey by Consumer Reports shows that more than
90 percent of shoppers who asked for discounts got at least one. The
negotiated price cuts were on a wide range of goods and services,
including furniture, electronics, and medical bills.
25
Practical Purchasing Strategies

Timing purchases
 When is the best time to buy Christmas cards?

Brand comparison versus impulse buying
 Store brands can be low-cost alternatives

Evaluate warranties and service contracts
 Price comparison
 Unit pricing provides a standard of measurement
 Coupons and rebates (partial refund)
 More convenience and ready-to-use products
mean higher prices (Tightwad Gazette – Potatoes)
 “Sale” does not always mean saving money
 In fact…
26
Pretzel Logic
“But
it’s on sale! Think of
how much we will save!”

You may spend less, but you never save
money whenever you buy something; you
always spend money whenever you buy
 Repeat after me:
 “Spending is NEVER Saving!”
 “Spending is NEVER Saving!”
 “Spending is NEVER Saving!”
27
Pretzel Logic
How much did
we save? $37?
We didn’t save
nothin’!
We spent $75!
28
(continued)
Culture of Consumption
29
Scandal #118
Meat
30
Societal Cost of Meat?
How many gallons of fresh water are
used to produce one pound of beef?
100 gallons
B. 500
C. 1,000
D. 5,000
A.
The correct answer is (D).
31
Societal Cost of Meat?
How many people can be fed via
grains with the resources needed to
feed one person with beef?
5 people
B. 10
C. 20
D. 30
A.
The correct answer is (D). Plus, meat ain’t the best thing for
yer health, either.
http://www.nytimes.com/2009/04/28/health/28brod.html?em
32
The Cost of Convenience
(revisited)
5 Ounces of Potatoes
Cost
Potato (10-pound bag)
$0.06
Ore-Ida Frozen French Fries (28 oz bag)
$0.62
Betty Crocker Mashed Potato Mix (13.75 oz box)
$1.09
Ruffle's Potato Chips (17½ oz bag)
$1.78
Pringle’s Potato Chips (6.41 oz tube)
$1.83
McDonald’s French Fries (2 oz serving)
$2.96
Lay’s Fat-Free Olestra Potato Chips (6½ oz bag)
$3.12
PopChips Potato Chips (0.8 oz bag)
$6.19
Sources: Local grocery store (Stump’s), Vons (H Street), McDonald’s
33
Speaking of Food…
2,400 calories
per day
3,600 calories
per day
3,200 calories
per day
Source: United Nations Environment Programme
World average is 2,700
calories per day
34
Speaking of Food…
(continued)
The total daily caloric intake of the
average American has risen by 148
calories per day since 1980. This
amount reflects an extra 15 pounds per
person each year.
-- U.S. Department of Agriculture
Your clothes feeling a little tighter recently? Yeah, me too.
35
Speaking of Food…
8,000 years ago, this
was the image of the
ideal woman.
(continued)
Today, this is the image of
the ideal woman.
36
Speaking of Food…
(continued)
According to a recent study sponsored
by the USDA, how much of the nation’s
food ready to harvest never gets
eaten?
2% to 5%
B. 10% to 15%
C. 20% to 30%
D. 40% to 50%
A.
The correct answer is (D).
37
Speaking of Food…
(continued)
And the average family of four throws
out how many dollars worth of food
each year?
$50 to $75
B. $100 to $150
C. $250 to $300
D. $575 to $600
A.
The correct answer is (D).
Culture of Consumption
38
Scandal #235
Bottled Water
Ads We Would Love to See
39
http://www.democracynow.org/2007/8/1/the_bottled_water_lie_as_soft
40
But It’s Really Not Just Water!
How many plastic water bottles make
their way into landfills or wind up as
litter each year?
5,900,000,000 (almost 5 billion)
B. 12,100,000,000 (a bit over 12 billion)
C. 22,600,000,000 (about 22½ billion)
D. 28,000,000,000 (around 28 billion)
A.
The correct answer is (C). 62 million each day.
http://www.container-recycling.org/media/newsarticles/plastic/2006/5-WMW-DownDrain.htm
But the State of New York says that it is really closer to (D).
Steps in Resolving
Consumer Complaints
41
Return to place of purchase
Contact the company’s main office via telephone
or their web site
Obtain assistance from a consumer agency
 Better Business Bureau web site to file a complaint
on line: http://www.bbb.org
 Local Better Business Bureau




State consumer protection office or agency
Federal agencies
Mediation – parties decide for themselves (non-binding)
Arbitration – third-party decides (binding)
Steps in Resolving
Consumer Complaints
42
(continued)
Take legal action




Small claims court
Class-action suits
Use a lawyer? (can not use one in small claims)
Other legal alternatives
 Legal aid society
 Prepaid legal services
 Research legal questions at www.nolo.com
 Try mediation or arbitration first
Personal Consumer Protection

To protect yourself as a consumer…
 Deal with reputable companies
 Avoid doing any business with or giving any
information to telemarketers / spammers
 www.donotcall.gov
 Avoid signing contracts and other documents you
do not understand
 Compare financing through the seller with other
sources such as credit unions
 Avoid rushing to get a good deal
 Be cautious about offerings that seem too good to
be true – they usually are!
43
Culture of Consumption
44
Scandal #1
http://www.youtube.com/watch?v=Z2mf8DtWWd8&feature=player_embedded
45
CHAPTER 6 Appendix
Buying and Operating
Motor Vehicles
Or
“You Are Not What You Drive!”
46
First, Some Statistics…

Percentages of Short Motor Vehicle Trips…
 49% – Three miles or less
 40% – Two miles or less
 27% – One mile or less

The Average American Uses as Much
Energy As…




3 Japanese
13 Chinese
153 Bangladeshis
499 Ethiopians
“The faster you drive, the more fuel you use. For example, driving at 65 mph,
rather than 55 mph, increases fuel consumption by 20%. Driving at 75 mph,
rather than 65 mph, increases fuel consumption by another 25%.”
http://www.ftc.gov/bcp/edu/pubs/consumer/autos/aut10.shtm
47
Societal Cost of Cars?
For every one gallon of gas you burn,
how much carbon dioxide do you pump
into the atmosphere?
7 pounds
B. 15 pounds
C. 20 pounds
D. 125 pounds
A.
The correct answer is (C). Here is the chemical formula:
C8H12 + O2  H2O + CO2
48
Societal Cost of Cars?
How much of our oil do we import?*
12%
B. 27%
C. 48%
D. 66%
A.
The correct answer is (D). However, we also export 5% so the
net result is 61%.
*Energy
Information Agency (EIA) of the Department of Energy
49
Societal Cost of Cars?
And how much, per person per year,
do we spend on imported oil?
$456
B. $840
C. $1,600
D. $2,240
A.
The correct answer is (C). The summer of 2008, it was D.
(13.15 million barrels/day) * ($100/barrel) * (365 days/year) / (300 million people)
50
Societal Cost of Cars?
Let's see, $1,600 per person per year
multiplied by 300,000,000 people –
That is approximately...
$162,000,000,000 ($162 billion)
B. $292,000,000,000 ($292 billion)
C. $480,000,000,000 ($480 billion)
D. $672,000,000,000 ($672 billion)
A.
The correct answer is (C). This is your money going to foreign oil
producing countries like Saudi Arabia, the folks that really brought
you 9/11. (Psst. It was not Iraq. Don’t tell your Republican friends.)
51
Societal Cost of Cars?
So how many barrels of oil (42 gallons of
crude oil) does each person consume in
the United States each year?
2.5 barrels
B. 12.8
C. 25.4
D. 112.3
A.
The correct answer is (C).
52
Have We Learned Anything Yet?
 Barrels
of Oil Consumed per Person
per Year in the United States
 1970
 1978
 1983
 2000
– 26.3 barrels
– 31.0
– 23.7
– 26.5
We are now down
to around 25.4
For years, public policy makers and environmentalists
speculated on what price per gallon would people finally stop
buying Sport Utility Land Barges. The answer came in 2008.
Once gas rose over $4.50 per gallon, SUV sales plummeted
and people drove less.
53
New or Used Car?


Which do you prefer? Why?
What are the pros and cons?
54
Buying a Used Vehicle

Sources of used vehicles
 New-car dealers
 Used-car dealers
 Private parties

Consult Consumer Reports
 Yearly Buying Guide – Reliability statistics
 Consumer protection for used car buyers
 T’ain’t much!
55
Inspecting a Used Car

Outside the car
 Inside the car
 The engine
 Mechanic’s inspection
 Odometer fraud & crashed, salvage vehicles
 Check carfax.com

The road test
Find an honest mechanic and pay for an inspection!
56
Used Car Price Negotiation

Price information sources
 Edmund’s Used Car Prices or edmunds.com
 NADA Official Used Car Guide
 Kelly Blue Book kbb.com

Consult a friend who is a car enthusiast!
 Better yet, have him or her come with you when
you shop
57
Buying a New Vehicle

Over half of all new vehicle purchases now
involve some Internet interaction
 From gathering information to actual purchasing

Average cost of a new vehicle now exceeds
$28,400 – Ouch!
Do not be swayed by advertising
(source: http://www.ftc.gov/bcp/edu/pubs/consumer/autos/aut11.shtm )

 Check Consumer Reports
 20%
Gone!
 What?!
“You can keep the car. But I
will take the bubble-headed,
bleached blonde with the big
kn___kers & the tight b__t,
thank you.”
58
Selecting Options

Mechanical devices
 Engine size
 Cruise control

Comfort and convenience options
 Air conditioning
 Stereo systems

Aesthetic features
 Special paint
 Mag wheels

Service contract – Do Not Fall For This!
 Unless the car you want has a less than stellar
repair record (Check Consumer Reports)
59
Negotiating the Price

Sticker price (a.k.a. suggested retail price)
 It includes the base price plus the accessories


Invoice price – dealer’s cost
Know the dealer’s cost by consulting...
 Consumer Reports consumerreports.org
 Edmund’s New Car Prices edmunds.com

When is the dealer’s cost not the dealer’s
cost? When the factory’s monthly incentive
check comes in at the end of the month!
60
Determining the Purchase Price

Price bargaining
 Set-price dealers
 Car buying services
 Also called an auto broker

Online car buying
 The sales agreement – Read it!
 Consumer protection for new-car buyers
 Each state has its own lemon laws
61
Financing an Automobile Purchase

Financing sources
 Banks, credit unions, finance companies, or
dealer financing
 Many lenders will preapprove a certain
amount

Consider the length of the loan
 Upside-down equity means that your car is
worth less that what you still owe on the car
loan (a.k.a. negative equity)
62
Leasing a Vehicle

Closed-end versus Open-end lease
 Advantages
 Small cash outflow
 Lower monthly payments than buying
 Lease provides detailed records

Disadvantages
 No ownership interests
 Must meet requirements
 May have additional costs
 Especially for any extra miles!
My advice?
Only lease if you
are sure you have
no intentions of
keeping the car
63
Leasing a Vehicle
(continued)

However, the large number of recent leases
has created an excellent opportunity for
used-car buyers
 Example:
 3-year lease of a $45,000 Sport Utility Tank
 Expected residual value (a.k.a. lease-end value)
of $32,000
 Lessee politely sez, “No, Thanks.”
 You pick up the vehicle from the leasing
company for around $20,000

Better yet, buy an econo-box for $15,000
What Kind of Vehicle?
64
According to our authoritative and
detailed scientific research, we have
found that the larger the motor vehicle,
A.
B.
C.
D.
E.
The smaller the IQ of the driver
The more fragile the ego of the driver
The greater the sense of powerlessness within
and anger toward the society around them
The more microscopic the reproductive organ
All of the above
The correct answer, of course, is (E). My sincerest apologies
to those of you who own a Ford Extinction (not really )
65
Costs of Operating a Car

Fixed Costs
 Depreciation – 65% after 5 years (average)
 That $28,000 car will be worth $9,000 in five years
 Finance charge – Interest on loan
 Insurance
 License, registration & taxes

Variable Costs




Gas and oil
Tires
Maintenance & repairs
Parking and tolls
http://www.aaaexchange.com/Assets/Files/201145734460.DrivingCosts2011.pdf
66
Costs of Operating a Car
(continued)
According to the AAA, what is the
average cost per mile to own and
operate a new car in 2011?
12.5¢ per mile
B. 25.8¢
C. 40.9¢
D. 58.5¢
A.
The correct answer is (D). So at 15,000 miles per year, that’s…
http://www.aaaexchange.com/Assets/Files/201145734460.DrivingCosts2011.pdf
67
Costs of Operating a Car

(continued)
Average of over $8,776* per year per car (58.5¢/mi)
 Many families have two cars
 40 years * $17,552 per year = $702,080!

Jonathon Pond’s study – 1980’s
 Buying a new car every 4 years, versus
 Buying a new car every 10 years and investing the
savings (including the cost of maintenance)
 At the end of 40 years, you would have $350,000
 And those were 1980’s dollars – double it for now
My advice?
Buy a reliable new or used car and run it into the ground!
* Forbes says that the number is closer to $12,000 per year for new cars.
But that is probably because they concentrate on luxury cars.
68
Servicing Your Car


Follow the maintenance schedule in the
manual (?)
Vehicle servicing services
 Car dealers
 Automobile repair shops
 Service stations
 Discount stores

Specialty shops
 Jiffy Lube (?)
 Midas
My advice?
Find an honest
mechanic and stay
loyal to ‘em!
69
Bottom Line on Cars

Get a bicycle! scooter! motorcycle! (Get training)
 I have >56,000 miles on my commuting bicycles
 At 58.5¢ per mile, I have saved over $32,000 in vehicle
costs
 Plus I have saved a tremendous amount in health care
costs
 Before I started riding again, I was a paunchy 30-
something male suffering from Sedentary Lifestyle
Disease (Now I am just paunchy…)
 Do not forget the savings to the environment
 Difficult to estimate but nevertheless do exist

Besides, it is fun to ride past people stuck in
traffic in their cars as they are driving to the gym!
 And it is only going to get worse…