How do economic conditions affect financial decisions? www.praticalmoneyskills.com

Economic Factors and Financial Decisions Consumer prices changes in how much the dollar is worth Inflation rising prices for goods and services and lower buying power of the dollar Consumer Spending the demand for goods and services, which affects prices and job opportunities Interest Rates the cost of borrowing money. Lower interest rates encourage consumer spending; higher rates encourage saving and less borrowing. Unemployment Rate the number of unemployed people who are willing to work, which affects consumer spending and job opportunities

Economic Influences on Financial Decisions Before you make a decision about money, what do you need to know about our economy? Consumer Prices Inflation Consumer Spending Interest Rates Unemployment Rate Considering the current above factors discuss the following financial dilemma. You don’t have enough money to buy a CD player you want. Should you cash the birthday check that your grandfather gave you? Your parents want you to put that check into a savings account? What current economic conditions should you think about before you make this decision?

Risk that can affect financial decisions Personal Risk your decision can affect your well-being. Your actions may result in inconvenience, embarrassment or safety and health concerns. Inflation Risk inflation involves rising prices, meaning you will be able to buy less for your money. If you will wait to buy an item later, it may cost more. Interest- Rate Risk interest is the money you pay to borrow money. Banks also pay you interest when you deposit your money there. Interest rates can change, affecting the cost for you to borrow money and the money your savings earn. Income Risk your income can change for a variety of reasons. When people buy fewer goods, other’s may lose their jobs. You can get laid off without much notice or your job can be transferred and you don’t want to move.

Risk Factors and Financial Decisions Let’s consider the following risk factors: Personal Risk Inflation Risk Interest-rate Risk Income Risk You have worked hard over the past year and earned about half of the money that you’ll need to buy a used car. Should you put your money in a savings account? Should you keep working until you’ve saved the full amount? Should you take out a loan and buy the car now? What risks might there be?

Family Values Affect Our Financial Decisions Giving & donating – what are your families values about giving money to charity. Saving – what are you families values about saving money. Spending – what are your families values about spending money, about living within your means. Credit – what are your families values about using credit cards.

What financial decision would your family like choose? The family room TV has stopped working. Your parents have been saving for a new one but the one they really want will cost another $1000 more than they already have in savings. What are they most likely to do? Wait until they have saved the additional $1000 and the buy the TV they want. Purchase a TV that fits the current budget they have in savings. Purchase the TV they want and use a credit card to cover the additional $1000 needed.

More Family Financial Decisions Your family gives regularly to a local charity or their church. One of your parents gets their hours reduced at work. Your parents are most likely to: Stop giving to their charity or church. Reduce spending on entertainment or dining out and continue to give the same amount of money to their charity or church. Reduce the amount they give to their charity or church but still continue to give some.