1. Personal Finance: Module 1 Lesson 5 What Affects the Journey?

2. “Lions, and tigers, and bears! Oh, my!” Dorothy, The Wizard of OZ What Affects the Journey? Slide 2

3. What Affects the Journey? Slide 3 Introduction to Purchasing Power  Disposable income (also known as net or take- home pay) is the money remaining after taxes withholdings and other deductions are subtracted.  Discretionary income is the money remaining after ALL other essential needs have been met!  Consumers spend this money on non-essentials or “wants”.  Discretionary spending impacts the economy!

4. Introduction to inflation Inflation is an economic term that describes a continuous rise in the average prices of goods and services. What Affects the Journey? Slide 4

5. How Consumers See Inflation  As the value of money (value of the U.S. dollar) decreases, prices increase.  This in turn decreases your purchasing power (the quantity you are able to purchase). MeasuringWorth.Com Compute the Relative Value What Affects the Journey? Slide 5

6. Inflation Illustrations Average Single Movie Ticket 1990$4.22 2011$7.93 Average Full-time Postsecondary Costs 1990$10,620 2011$18,133 Median Household Income 1990$29,943 2011$50,054 What Affects the Journey? Slide 6

7.  Real income is our earned income growing or shrinking as it adjusts to just how much true purchasing power has been affected by inflation and higher prices. Example: If your earnings have grown 10%, but the inflation rate is 4%, then your real income growth will only be 6%! Real Income What Affects the Journey? Slide 7

8. Inflation Resources What Affects the Journey? Slide 8 Video: Explanation of Inflation Links and Activities: Historical Inflation Rates Inflation: What It Is, Where It Comes From, and How It Can Bite You

9. The overall amount of goods and services consumers expect to be able to purchase (known as demand) is more than the overall amount of goods and services that can actually be produced (called supply). The consumer notices inflation when… What Affects the Journey? Slide 9

10. Money Supply  The amount of money available in the economy is called the money supply. The economy usually grows when consumers have more job security and see their incomes increasing!  The Federal Reserve (FED) is in charge of monitoring the money supply and inflation rate. If the inflation rate drops too low, the FED will often take action to increase the growth of the money supply. If the inflation rate gets too high, the FED will often take action to decrease the growth of the money supply. What Affects the Journey? Slide 10

11. How is inflation measured? Consumer Price Index (CPI) – is used to measure inflation by keeping track of increasing and decreasing prices for certain kinds of consumer goods and services. Formula for CPI: CPI YR 2 – CPI YR 1 x 100 = Inflation rate CPI YR 1 Example: If a certain collection or “market basket” of goods and services cost $50 last year but today costs $53, the inflation rate is 6%. $53 - $50 x 100 = 6% $50 What Affects the Journey? Slide 11

12. CPI Resources What Affects the Journey? Slide 12 Links and Activities Consumer Price Index Frequently Asked Questions CPI Inflation Calculator How Much Does It Cost Now? Video What is the Consumer Price Index?

13. Example of Inflation Terrance has $25 to take a date to the movies. Just a few months ago that was enough for two tickets @$7.50 each two sodas and a large popcorn! Not tonight… inflation got there before he did! What Affects the Journey? Slide 13

14. What Affects the Journey? Slide 14 Example of inflation …the price of a ticket has increased to $9.50; a medium popcorn is now $4.00! Why, he can’t even buy a small drink to share because it’s gone up to $2.50! Now his $25 just doesn’t go as far…

15. Example of Inflation What Affects the Journey? Slide 15  How would you react to the increase in ticket prices?  How will the decrease in consumer demand affect the movie theater?  What can the theater do to keep business?  What happens if none of these options work?

16. The Effects of Decreased Consumer Spending  A continued decrease in consumer spending can result in… -- decrease in sales and products -- job loss and layoffs  If consumer spending continues to decrease, it can contribute to an extended period of slow or zero economic growth, known as a recession. What Affects the Journey? Slide 16

17.  Unemployment/unemployed – when a person is without a job, but is available for work and actively looking for work.  Unemployment Rate – the number of citizens unemployed expressed as a percentage of the total workforce. U.S. Unemployment Rate or “Jobless Rate” What Affects the Journey? Slide 17

18. What Affects the Journey? Slide 18 The biggest determinant of whether you're going to be unemployed or not is education level. People with a bachelor's degree or higher--their unemployment rate tends to be half of the average. Without a high school diploma--double the average. John Slenker, Labor Market Analyst – New York State Department of Labor International Business Times, September 15, 2011 Bureau of Labor Statistics Employment status by educational attainment “ ”

19. What Affects the Journey? Slide 19 Cost of Living  How much it truly costs to live comfortably in different cities, states, regions and even other countries  Where you live directly affects your purchasing power ! How to calculate cost of living Cost of Living CalculatorCost of Living Calculator Cost of Living WizardCost of Living Wizard

20. Financial Education for College Access and Success For this project, the PR/Award Number is V215W100015 and the Department of Education is the funding agency. This information is provided for the reader's convenience. Tennessee and the U.S. Department of Education are not responsible for controlling or guaranteeing the accuracy, relevance, timeliness, or completeness of this information. Further, the inclusion of information or Web site address does not reflect the importance of the organization, nor is it intended to endorse any views expressed or products or services offered. What Affects the Journey? Slide 20