Personal Decision Making MYPF 20 11/18/2018 Personal Decision Making 20.1 Making Better Decisions 20.2 Spending Habits Chapter 20

Lesson 20.1 Making Better Decisions GOALS Apply the decision-making process to solve consumer problems. Explain economic needs and wants that influence consumer decision making. Chapter 20

The Decision-Making Process Step 1: Define the problem Step 2: Obtain accurate information Step 3: Compare choices Step 4: Make a decision Step 5: Take action Step 6: Reevaluate Chapter 20

Step 1: Define the Problem The first step in the decision-making process is to define the problem or a goal you wish to achieve. Once it is identified, you can look for ways to resolve it in a manner that fits your financial resources now and in the future. Because your resources are limited, you may have to make a tradeoff, which involves giving up one option in exchange for another. Chapter 20

Step 2: Obtain Accurate Information List all alternative solutions and the cost of each. Do not consider sunk costs. A sunk cost is an expense that occurred in the past for which money was spent and cannot be recovered. Chapter 20

Step 3: Compare Choices When you make choices, they often involve getting something in return for giving up something else (tradeoff). The tradeoff results in an opportunity cost, which is the value of your next best choice—what you are giving up. Chapter 20

Step 4: Make a Decision The decision you make will be based on careful consideration of the problem, thorough information gathering, and analysis of that information. The wise decision in any situation is the one that best meets your needs, is within your budget, and gives you the most value for your dollar investment. Chapter 20

Step 5: Take Action Take action to implement your chosen solution. Because you have made a thorough analysis of choices for solving your problem, you can be sure that you have made the best decision you could with the available information. Chapter 20

Step 6: Reevaluate After several months have passed, revisit your decision. Are you happy with the choice you made? If not, what could you do differently next time to make a better decision? Should you do something different now? If your needs have changed or your initial decision isn’t working out, go through the decision-making process again to decide whether to make a change. Chapter 20

Economic Wants and Needs Basic needs are the items necessary for maintaining physical life. Life-enhancing wants are items beyond basic needs that add to your quality of life. Chapter 20

Individual Wants Values Personal preferences Income Leisure time Personal preferences or tastes are your likes and dislikes. Income Leisure time Chapter 20

Collective Values Collective values are things that are important to society as a whole. Society also influences our values, goals, and choices because it demands social responsibility from its citizens. Chapter 20

Collective Values Legal protection Employment Progress (continued) Legal protection Employment Progress Innovations are new ideas, products, or services that bring about changes in the way we live. Quality of environment Public goods Public goods are the goods and services provided by government to its citizens. Chapter 20

Lesson 20.2 Spending Habits GOALS List and describe factors that influence spending decisions. Explain how to plan for major purchases. Analyze marketing strategies that influence spending decisions. Chapter 20

Factors that Influence Spending Personal Factors Personal resources Position in life Customs, background, and religion A custom is a long-established practice that takes on the force of an unwritten law. Values and goals Chapter 20

Factors that Influence Spending (continued) Outside Factors The economy The economy refers to all activities related to production and distribution of goods and services in a geographic area. Technological advances The environment Social pressures Chapter 20

Planning Major Purchases Questions to ask before making a purchase: 1. Why do I want this product? 2. How long will this product last? 3. What substitutes are available and at what cost? 4. By postponing this purchase, is it likely that I will choose not to buy it later? 5. What types of additional costs are involved, such as supplies, maintenance, insurance, and financial risks? 6. What is the opportunity cost of this purchase? 7. What is the total cost of this product? Chapter 20

Planning Major Purchases (continued) Cash or credit? Research before buying Quality and price Chapter 20

Marketing Strategies Influence Spending Advertising Pricing Sales Promotional techniques Chapter 20

Advertising Product advertising Advertising intended to convince consumers to buy a specific good or service is called product advertising. A target market is a specific consumer group to which the advertisements are designed to appeal. Chapter 20

Advertising Company advertising Industry advertising (continued) Company advertising Advertising intended to promote the image of a store, company, or retail chain is known as company advertising. Industry advertising Advertising intended to promote a general product group without regard to where these products are purchased is called industry advertising. Chapter 20

Pricing The price of merchandise depends on several factors. Some of the factors that determine the price of a product include: Supply and demand The cost of raw materials and labor Competitive pressures Seller’s need to make a reasonable profit Chapter 20

Pricing Examples of pricing devices used to persuade consumers to buy: (continued) Examples of pricing devices used to persuade consumers to buy: Odd-number pricing is the practice of setting prices at uneven amounts rather than whole dollars to make them seem lower. Discounts are often available for buying in large quantities. Chapter 20

Sales Stores advertise end-of-month sales, holiday sales, anniversary sales, clearance sales, inventory sales, and so on. A loss leader is an item of merchandise marked down to an unusually low price, sometimes below the store’s cost. The store may actually lose money on every sale of this item because the cost of producing the item is higher than the sale price. However, the loss leader is used to get customers into the store in the hope that they will buy other products as well. Chapter 20

Promotional Techniques Displays Contests and games Coupons Frequent-buyer and customer-loyalty cards Packaging Sampling Micromarketing Micromarketing is a marketing strategy designed to target specific people or small groups who are likely to want certain products. Chapter 20