THE ECONOMY AND YOU Chapter 8

LEARNING OBJECTIVES  Explain how economic factors impact financial decisions  Understand how demographic changes will impact your future  Analyze how events in the national and global economy might affect you

OBJECTIVE 1 Explain how economic factors impact financial decisions

ECONOMICS AND THE ECONOMY ECONOMICS  The study of choices  People can’t have everything they want so they must decided what they will seek, how they will seek it and what they will do without  It impacts financial decisions by affecting certain decisions you may make, such as what to invest in THE ECONOMY  The system in which individuals, businesses, governments, and the world interact as a whole

HOW THE ECONOMY IS BROKEN DOWN MACROECONOMICS  Deals with broad issues that impact the economy as a whole  Countrywide  Global MICROECONOMICS  Focuses on the study of individual choices or decisions made by smaller units  Individual households  Single companies

OBJECTIVE 2 Understand how demographic changes will impact your future

DEMOGRAPHICS  DEMOGRAPHICS is the study human populations 1.Race 2.Gender 3.Age 4.Level of education  Demographics helps predict certain needs in advance  Example: If grade school enrollment is increasing, eventually high school enrollment will, too. A plan will need to be made for that, more classrooms, more teachers, etc.

Silent GenerationBaby BoomersGeneration X Generation XY CuspGeneration YGeneration Z 1925 – – – and on “MTV Generation” “Echo Boomers” “Millennials” “Homelanders” “Vista Generation” NAMES USED TO DESCRIBE MAJOR DEMOGRAPHIC GROUPS OR TRENDS

THE “GRAYING OF AMERICA”  WHAT IT IS: the number of older people in the US is increasing at a faster rate that that of other age groups  WHY IS IT HAPPENING? The baby boom which was a period of very high birthrates after WWII  Baby boomers represent 1/3 of the workforce today and will all start retiring soon  Baby Boomers will be retiring soon and it may affect what job choice you make

IMMIGRATION  Immigration changes have produced some important demographic changes in the US  It’s altering the makeup of the population and creating new job opportunities  Hispanic Americans are rapidly growing share in the population  Jobs that cater to the needs of Hispanic Americans will be in high demand (companies will want employees who speak Spanish)  Younger people may seek a career or make investments in industries that serve the changing population

DEMOGRAPHIC TRENDS THAT WILL AFFECT THE US IN UPCOMING YEARS 1.The retirement of the members of the Baby Boom 2.The entry of members of Generation Y into the workforce 3.The growing population of Hispanic- Americans

SOCIAL SECURITY  When the United States government first established the Social Security Fund, there were MANY people paying into the system and FEW people drawing money out.  WHAT THAT MEANS TO YOU: 1.Your FICA taxes may increase 2.Your future Social Security benefits may decrease 3.You may have to be responsible for funding most OR all of your own retirement

OBJECTIVE 3 Analyze how events in the national and global economy might affect you

GDP  GDP = Gross Domestic Product  DEFINITION: the total dollar amount of all final goods and services purchased within the nation’s borders in a given year  Looking at the GDP and how it changes over time helps show the strength of the economy (how the government measures economic activity)  Primary indicator used to gauge the health of a country’s economy  When the GDP is higher from one year to the next, it means businesses and individuals are selling more goods and services and the economy is growing  When the GDP is lower, it means fewer goods and services are being sold and the economy is shrinking

RECESSION V. DEPRESSION RECESSION  A period of time in which the economy is shrinking  GDP decreased  FEWER goods being sold and HIGHER levels of unemployment  “Great Recession” was 2007 – 2009 In the Business Cycle:  Lowest point of recession = TROUGH  Highest point of recovery = PEAK DEPRESSION  A severe recession  Risk of job loss is the greatest because many businesses are forced to lay off workers *Business Cycle: one full period of economic growth followed by a period of recession*

INFLATION AND PURCHASING POWER  INFLATION = a sustained increase in the general level of prices (things get more expensive)  REDUCES the value of your money  The purchasing power of your money goes down – examples: gas prices, movie tickets, education, etc.  How do you measure inflation?  Economists look up prices on a set of 300 goods/services in a “market basket” of goods  Market basket includes: clothing, groceries, electronics, haircuts, medical care, and education  This price data is then used to construct the consumer price index or (CPI = the formal measure of inflation that tells whether things overall are more expensive now than in the past)  With inflation, $20 will not buy you the same amount of things it did the year before

GLOBALIZATION  GLOBAL ECONOMY – the world in which economies of all countries interact and depend on each other because the world is shrinking  Top 3 Exports/Imports for US = Canada, Mexico, and China  In 2011, the US imported the highest value of goods from China  Companies close American factories and open new factories abroad because they can pay those employees lower wages and that country has more relaxed pollution controls than the US  Recognize what skills are in demand in America that CAN NOT be outsourced  Plumbers, electricians, mechanics, health-care-related jobs  As opposed to technical support, which can be outsourced

PROTECTING YOURSELF FROM INFLATION  Receiving regular increase in paychecks  Employers give their employees a standard “cost of living” increase which softens the impact of inflation  Hold some of your wealth in assets that tend to increase in value by more than the rate of inflation (example: real estate – which is risky)