3Types of incomeDisposable income – income that is remaining for a person to spend or saveDiscretionary Income – money income a person has left to spend on extras after necessities have been bought.
4Many factors influence our choices IncomeScarcityTimeOpportunity Cost – what we are giving up
5Take College for example It costs a lot of money to goNot everyone gets in and even if you do you aren’t quaranteed to finish your degree or get a job in your field.It takes a great deal of time and effortYou have to give up lots of things you could have been doing instead.AND FOR WHAT?????
6College Graduates Make More Money! Amount of EducationMalesFemalesNo high school diploma19,80210,613High School Graduate27,52715,972Some College35,02320,602Bachelor’s Degree55,18834,292Professional Degree88,21644, 748
7Rational ChoicesChoosing the alternative that has the greatest value from among comparable quality products.The best choice for you given the optionsGenerates the greatest value compared to other options.
8AdvertisingCompetitive – attempts to persuade consumers that a product is different from and to superior to any other productInformative – benefits consumers by providing useful information.Bait and Switch – ad that attracts consumers by advertising a very low priced item but tries to sell you a high priced item at the store, saying the sale item is poor quality.
9Comparison ShoppingPositivesNegativesLower pricesCan find lower pricesCan ask for price matching to get lower prices at local storesBetter Quality ProductsTakes a lot of timeWhat are some things that should be considered when comparison shopping?- the value of your time spend comparing should not be greater than the value that you save comparing.
10Which type of advertising is beneficial to consumers A. Bait and SwitchB. CompetitiveC. Informative
11Chapter 4 – Going into Debt Objective:Students will understand the role of credit in their personal and financial lives.Students will be able to understand how to use credit and find their credit scores.
12What is Credit?Receiving funds to buy goods or services in the present with the promise to pay for them in the future.
13Why do people use Credit? To make large purchased that they can’t save enough money to pay for.A homeA carTo make purchases now, so that they don’t have to wait to buy the good or service.TelevisionClothing
14How do you decided if you should use credit or not? Ask yourself. Do you really need the item? Can you wait to purchase it until a later time?What would I have to give up to pay cash for this item?Will the satisfaction that I get from the item be greater or less than the interest I will pay on the item?Have I compared enough credit options to make the best credit decision, if I decide to use credit?Can I afford to use credit now?
15I would use credit to purchase a? A. PlaystationB. ClothesC. CarD. Groceries
16Price of using credit Principal – amount originally borrowed in loan. Interest – amount the borrower must pay for the use of someone else’s funds.
17Installment vs Revolving Credit Make monthly payments for a specified number of months until the purchase is paid in full.HomeCarSome large ticket store itemsContinue adding interest to the principle based on a remaining balance each month.Allows to you make additional purchases on the account before other items are paid off.Department store cardsCredit Cards
18True or FalseInstallment credit would be used to purchase a few household items from sears.
19When to use installment credit Durable goods – goods that last for longer than 3 years. Usually have a higher value and require the use of credit to make the purchase.Mortgage – installment debt for the ownership of a house or land.
20Paying a MortgageThe average home owner pays more than double for their home if they choose to pay only the installment payment over a period of a 30 year loan.My house, that I bought for 149, will end up costing us over 300, if we pay just the installment and live in it for 30 years.If you can afford to make even 1 extra house payment per year, you will save yourself about 50, on interest.
21When to use revolving credit Never… if you don’t need to or can’t afford to pay if off quickly.When you need to make a purchase, but the good or service should be paid off in a relatively short amount of time.The longer it takes you to pay off your debt the more money you will spend in interest.
22True or FalseRevolving credit isn’t bad if you pay it off in full each month.
24Commercial BanksBanks whose main function is to accept deposits, lends funds, and transfer funds between banks, individuals, and businesses.
25Savings and Loan Associations Depository institutions that accept deposits and loan funds.Mortgage loansFinance commercial auto companiesUsually have a slightly lower interest rate than commercial banks.
26Savings BanksDepository institutions set up for small savers who were overlooked by commercial banks.MortgagesAuto LoansPersonal LoansHave some saving and checking accounts
27Credit UnionsDepository institutions owned and operated by its members to provide savings accounts and low interest loans.Offer auto and personal loans, but only large ones offer mortgage loans.Typically have higher interest rates on savings accounts and lower interest rates on loans.
28Finance CompaniesCompanies that take the contract for installment debt from stores and adds a collection fee for collecting the debt.Collection agencies
29Consumer Finance Company A big financial NO NO!!Makes loans directly to consumers at ridiculously high interest rates.PayDay Loans (Payroll advances) – people can get small loans to cover expenses until they get paid, the catch is that when they do get paid a large percentage of the paycheck will go to pay the loan fee (as much as 30%). This can cause people to get trapped into taking our many loans to keep up with the debt, and may end up paying whole paychecks in fees.
30The best place to get credit is… A. Credit UnionB. Consumer Finance CompanyC. Local StoreD. Visa, Mastercard, Discover
31What is a Payday Loan?Pay Day Loans (Payroll advances) – people can get small loans to cover expenses until they get paid, the catch is that when they do get paid a large percentage of the paycheck will go to pay the loan fee (as much as 30%). This can cause people to get trapped into taking our many loans to keep up with the debt, and may end up paying whole paychecks in fees.
33Charge AccountCredit extended to a customer allowing them to purchase goods or services at that particular company and to pay for them later.Sears, Kay Jewelers, Victoria’s Secret
34Types of Charge Accounts Regular Charge Account – a purchase is made and a bill is sent, at the end of the month. If the bill is paid in full no interest is charged, if not paid if full by the due date, interest will be charged on the full bill!!Revolving Charge Account – allows you to make additional purchases and carry a balance on the bill.
35Credit CardsCredit device that allows individuals to make purchases at many kinds of stores, restaurants, and other businesses on credit.How is a credit card different from a Debit Card?Debit cards take money directly from a savings or checking account at a bank, thus you are spending money that you already have.When you use your debit card as credit you are still taking money from your account, but you need to sign the receipt rather than enter a pin number.
36True or FalseCredit doesn’t cost me anything if I have good credit.
37The Cost of Credit Finance Charges Annual Percentage Rates Cost of credit expressed in monthly dollars and centsBased on the balance of the bill at any given time of the monthThis time difference may affect how much your finance charge will be.4 different methods are used for computing a finance chargeCost of using credit expressed in a yearly percentage amount.Easy way to detemine which credit cards have the highest interest rate.13 %(card A) is lower than 17% (card B), so card A is charging a lower interest rate than card B
39Credit Bureau – private business that investigates a person to determine the risk involved in lending to that person.Credit Check – Investigation of a person’s income, current debts, personal life, and pat history of borrowing and repaying debt.Credit Rating – rating of the risk involved in lending to a specific person or business
40FICO ScoreScore given to a person based on their credit history. This score is what the three credit rating companies give you to determine if you are worthy of credit.Lenders use this score to help them determine if they want to offer you credit, or how likely you will be to pay back a loan.
41What’s a good FICO score? Credit ScoreCredit RatingExcellentGoodFairPoorUnder 580Very Poor
42What can hurt my credit rating? Making late paymentsHigh debt-to-income ratioHaving many open accountsPrevious BankruptcyUnemploymentLegal Trouble
43How can I build my credit? Use credit to make small purchases and pay them back right away.Make all credit payments on time.May more than the minimum balance.Don’t take out credit at too many locations.
45What happens if I don’t pay? Lender may have to hire collections agencies to retrieve the funds.Lender may have to take a loss on the itemIf this happens they make the money back by increasing the prices of their products to consumersYou will get a negative mark on your credit making it more difficult to use credit in the future.
46True or FalseNothing happens when I don’t pay my bill, I can just pay double next time.
47Taking out a loan Secured Loan – loan that is backed up by collateral Unsecured Loan – loan guaranteed only by a promise to repay it.Cosigner – person who signs a loan contract with the borrower, if the borrower doesn’t have enough credit, and pays the loan back if the borrower doesn’t.
49Pay your highest interest cards off first Pay more than the minimum paymentAnalyze your situationTry to negotiate new terms with creditorsUse government resources to help youSpend less money so that you can afford to make larger payments and don’t add to the debt you already have.
50Best way to stay out of debt is to… A. Pay off high interest cards firstB. Not carry a balance on your creditC. Use credit a lotD. Never use credit for small purchases
52Laws that protect consumers Truth in Lending Act – required creditors to keep consumers informed about the costs and conditions for borrowing.Equal Opportunity Act – can’t be denied credit based on race, religion, marital status, gender, sexual preference, ect.State Usury Laws – restrict the amount of interest that can be charged
53What is bankruptcy?Bankruptcy – being legally declared unable to pay off debts that you owe (some debts and taxes must still be paid).Remains on your credit score for 10 years.May be difficult to get credit during this timeCreditors are never paid when customers declare bankruptcy.
54Answer thisWhat regulation requires lenders to be upfront about their terms?
55Chapter 5 – Buying the Necessities Objective:Students will learn to make smart purchases with their money.- Students will learn to shop for the best deal and purchase only what they can afford.
56Places to Shop Club Warehouse Stores Convenience Stores Store that carries a limited number of brands and items in large quantities.Less expensive than grocery/department storesMore money is tied up in food.Some food may spoil before you eat itConvenience StoresOpen hours a day/ 7 days a weekCarry a limited selectionsHigher prices
57What to look for when buying clothing Durability – ability of an item to last a long timeService Flow – amount of use a person gets from an item and the value they place on its use.StyleCost of CareDry clean only…for example costs money to have cleaned
59You living situation… Rent or Own? Americans spend 1/4 to 1/3 of their income on their home.Most Americans wait to purchase a home until they become more financially stable.It is more difficult to get out of a living situation if you own the home.
60Renting Vs. Owning Renting a Home Owning a Home Short term agreement Slightly less monthly paymentRent my increase at any timeDon’t build equityNever go up in valueLong term agreementHigher monthly paymentSame each month, except for taxes (depending on loan agreement)Builds equity- market value minus mortgage still owedHouses appreciate – go up in value
61Renter need to knows!Lease – long-term agreement describing the terms under which property is rented.Make sure to read carefully!!Security Deposit – funds a renter lets an owner hold in case the rent is not paid or the apartment is damaged.The landlord gets to keep this money if it costs them money to get the apartment into renting condition again.You must give several months notice in many apartments before you move, especially if your lease is not up!
62Read before you sign Avoid Clauses like this… Add these Clauses… Confession of judgment – your landlord can plead guilty for you without your consent.Inability to sue – you give up the right to sue the landlord if you suffer from their negligence.Arbitrary clause – owner can cancel the least because of dissatisfaction with you.Ask for appliances(if not provided)Access apartment recreation facilitiesPainting or other promises by the landlordThe right to cancel your lease if your job changes or relocates youMight have to pay a feeAdd new lighting and fixtures, but keep them when you leave
63Things to consider when buying a home Down PaymentMortgage PaymentsClosing Costs – fees involved in arranging for the change in ownership of a home.Property TaxesSpecialsPointsHomeowners InsuranceMortgage Insurance (it is cheaper to purchase a life insurance plan that will be enough to pay off your mortgage in the event of a death)Utilities and upkeep
64SuggestionsUse a Mortgage calculator to find out what the monthly payments would be on a home in your price range.If the payment is more than 30-35% of your income…the home is too expensive for you to afford.Banks may lend you more than you can afford…if you can’t pay they can forclose on you and you will loose the home and all of the money you have already paid.Research lots of homes in your price range to see if you are getting a good deal.Ask the seller to reduce the price by a few thousand, and ask them to pay the closing costs…many will.
65Choosing a new/used Car New or Used?Depreciation – decline in value over time. New cars depreciate very fast!Registration fees – licensing fee that is annually paid to the state for the right to use the car.Extended WarrantyDo you need it? Can you afford it? Can it be repaid if you sell the car before the warranty expires?
66Continued… Normal Maintenance or Repairs Insurance for the car Gas type and amountCost of parts and labor for this type of carForeign or domesticInsurance for the carLiability or full coverage?Full Coverage – covers everythingLiability – insurance that pays for bodily injury or property damage (for the other drivers car)
67Insurance rates are based on… Type of car you drive (make, model, color)Where you are drivingWhat the car is being used forMarital statusDriving recordGrades in schoolNumber of driversNumber of cars on the policyDefensive Driving