6Financial CompetenceFinancial planning helps you reach important goals and financial security over your lifetimeFinancial security is the ability to meet essential needs without taking on more debt than you can repayFinancial literacy is possessing and applying financial knowledge to make informed and responsible financial choices
7Financial Competence (Continued) Management is using your resources to achieve predetermined objectivesManagement involves:Identifying resourcesSetting goalsMaking decisionsSolving problemsEvaluating the results
8Choices Goods are tangible items that can be purchased Services are intangible activities that another person usually performs for a fee (haircut)Needs are necessitiesPhysical needs (food, clothing, shelter)Psychological needs (safety, security, love, acceptance, approval, and success)Wants are things you would like but they are not essential
9Values Values are your beliefs about what is important and desirable A value system is the overall structure of values and goals that guides your behavior
10EthicsEthics are the moral principles or beliefs that direct a person’s behaviorEthical behavior is important in personal relationships and in business and governmentHonesty, fairness reliability, respect, courage, tolerance, civility, and compassionUnethical behavior is usually considered wrong and is sometimes illegal
11Goals A goal is an objective you want to attain “To be” goals are related to personality and character (smart, reliable, career goals, etc.)“To do” goals are things you want to accomplish (play piano, go to college, clean your closet, etc.)“To have” goals continually change (new clothes, new car, new phone, etc.)
12Timing of Goals Short-term goals take less than a year to achieve Medium-term goals may take one to three years to achieveLong-term goals may take several years to achieve
13Did You Know?Your goals today will probably be different from your goals in the next few yearsIt is important to have a plan to review your goals on a regular basis
14Evaluating Goals Is the goal realistic and possible? Can you break big goals into smaller pieces?Can you measure your progress?What will the goal cost in time, money, and effort?Will you still want the goal by the time you are able to reach it?
15Interdependent and Conflicting Goals An interdependent goal is one goal you have to achieve in order to reach another goalConflicting goals cannot all be achieved; you must decide which of the goals is more important to youWhen your goals conflict, your priorities and values will help you choose wisely
16PrioritiesA priority is a value or goal that is given more importance than other values and goalsYou set your priorities by ranking goals in their order of importanceMoney and financial matters can have a major impact on the choices you make in the marketplace and in your financial life
17Standards of Quality and Excellence A standard is an established measure of quality, value, or quantityYou set standards for the way you want to live, what you want to do, and what you want to buyYour standards depend on your values and goals
18Resources Resources are tools you can use to reach goals Human resources are internal (knowledge, experience, skills, motivation, etc.)Nonhuman resources are external (money, time, equipment)Resources are scarce; by planning you can make the most of themResources are manageableResources are related to one another
19In Your OpinionWhich of your resources are plentiful and which are scarce?Can you combine several resources for more effective use of each?How can you use your human resources to make up for what you are missing?
20Review 1.1What is the process of organizing and using your resources to achieve predetermined objectives?ManagementWhat is the difference between goods and services?Goods are tangible itemsServices are intangible activities
21Managing Your Personal Finances Section 1.2Managing Your Personal Finances
22ObjectivesDiscuss the various factors that influence financial decisions.Apply management principles to achieve your important goals.
24Making Financial Decisions We make financial decisions:Out of habit (shopping in the same stores)On impulse (spending money without considering whether you can afford to)By failing to act (being broke when you need money because you failed to save)
25Cost-Benefit Analysis A cost-benefit analysis is weighing the costs against the benefits of an action, purchase or financial decisionExample: you are taking a vacation and must decide whether to fly or drive to the destinationFlying costs $350 more than driving, but saves eight hours of driving timeIs the benefit of saving eight hours worth $350?
26Marginal AnalysisMarginal analysis measures the added benefit, versus the added cost, of one more unit of a productMarginal benefit is the change in total benefit of using one additional unitMarginal cost is the change in total cost of using one more unit
27In Your OpinionSuppose you buy a banana for $1. It tastes so good, you buy a second, and a third.Will the second banana bring as much satisfaction as the first?Will the third banana be even less satisfying?Would you be willing to pay more for the first banana than the second, and more for the second than the third?Eventually there is no marginal benefit and you stop eating because you are full.
28Trade-Offs and Opportunity Costs A trade-off is the choice you give up when you make one choice over anotherIf you buy a new cell phone, the tradeoff is the other ways you could have used that moneyThe opportunity cost is the value of the option you gave upIt can be measured in dollars, time, or enjoyment
29Common Sense Rule Do not spend more than you can afford Your financial future is in your handsSpend less than you makeBorrow no more than you can repayLive within your means
30Systematic Decision-Making Systematic decision-making is a process of choosing a course of action after evaluating information and the costs and benefits of alternative actionsDefine the decision to be madeExplore all alternativesChoose the best alternativeAct on your decisionEvaluate your solution or decision
32Managing Resources to Reach Goals Management involves more than making decisionsManagement is a three part process:PlanningActingEvaluating
33Planning The planning phase of management involves: What goals do you want to achieve?What obstacles stand between you and your goals? What must you overcome?What resources can you use to overcome the obstacles and reach your goals?
34ActionThe success of putting your resources to work to overcome obstacles that stand between you and your goals depends on determination and flexibilityDetermination keeps you focused on the final goalFlexibility helps you adjust to new and unexpected situations
35EvaluationEvaluation is a continuous process used to assess your progress through all stages of the management process:Evaluating plansEvaluating actionsEvaluating results
41Career CornerThe average high school graduate can expect to earn just over one million dollars in a lifetimeCollege graduates can expect to earn more than two million dollars in a lifetime
42Your Financial FutureImportant factors that will influence your financial life now and in the future include:Economic conditionsSocial forcesTechnological forcesGovernment actionGlobalization
43Did You Know? Did you know that economics is a science? It deals with examining how goods and services are produced, sold, and usedEconomics focuses on how people, governments, and businesses make choices about how to use their limited resources to satisfy their unlimited needs and wants
44Economic ConditionsEconomic conditions – the state of the economy at a given timeRecession – period of slow or no economic growth (consumers spend less, businesses cut back leading to rising unemployment)Inflation – period of rising prices (buying power is reduced, consumers cannot buy or save as much)
45Did You Know?When interest rates rise, consumers tend to spend less money. Why?When interest rates go down, people tend to spend more. Why?
46DemographicsDemographics is the statistical characteristics of the population such as:Vital statistics of records of births, deaths, marriagesSocial statistics of age, sex, race, geographic distributions and growth ratesSocial-economic statistics of education levels, income levels, employment, religion, etc.
47Demographic Trends Couples are marrying and having children later The percentage of single-parent families is growingThe average age of the population is growingSkilled workers are in greater demandMore young adults are living at home with their parentsThe number of unmarried adults is increasing
48CultureCulture is the beliefs, behaviors, and other characteristics common among members of a group or societyCulture and ethnic traditions affect many everyday choices and routines in a family:Role each partner plays in the familyWho makes financial/spending/management decisionsWhether both partners workHow the family uses credit
49TechnologyTechnology is the application of science and research to human life and environmentBuying goods onlineLatest information about products, services, and issues from around the worldMoney management software to perform financial tasks (banking, bill paying, investing, etc.)Brings more and cheaper goods/services to consumers and creates jobs in many new fields
50Government The fiscal and monetary policies of a government affect: Prices and wagesAvailability and cost of creditJob opportunities and employment trendsGrowthInternational trade
51Government (Continued) Government entitlement and public assistance programs account for over 60 percent of the federal budgetMedicaidMedicareSocial Security
52GlobalizationGlobalization refers to worldwide markets, links and communicationsOur financial and consumer interests are linked to world trade and international economicsGlobalization give us access to news, goods and services through worldwide marketsGlobal business competition brings price and quality advantages for consumers
53Review 1.3What is the study of the statistical characteristics of the population?DemographicsWhat is a period of slow or no economic growth?Recession