1. 8 | 1 Chapter 4: Consumer Purchasing Section 4.1 Consumer Purchasing  Today’s Agenda: 1.What influences your buying decisions? 2.Examine a research-based approach to buying 3.Strategies for making wise buying decisions  Goal: Learning how to use various techniques to get the best value for your money!

2. 8 | 2 Economic Factors Social Factors Personal Factors Figure 4.1 How might each of these factors affect our purchases? Why do we buy what we buy?

3. 8 | 3  Convenience  Cash vs. Credit  Price vs. Quality  Online Purchasing Forces us to think about priorities, consequences. How do You shop?

4. 8 | 4 Before Phase 1: Before You Shop, Ask…  What do I really need?  What information will help me?  Do I know enough to make an informed decision? What does pre-shopping research involve?

5. 8 | 5 1. Identify Your Needs – WANTS vs. NEEDS Have an open mind; think about ALL of your options 2. Gather Information – Brands? Costs? Options/Features? Consequences – Where can you find reliable information? – Do you spend enough time? Too much time? 3. Know the Marketplace Knowledge = POWER Common consumer myths Figure 4.3

6. 8 | 6 Phase 2: Weighing the Alternatives There are usually lots of options! Consider all of them! 1.Compare Features (what is important to you?) –Design? Quality? Performance? LOOK? 2.Compare Prices – Does Price = Quality? – Commodities 3.Compare Vendors –Go to different stores, look online –When is this especially useful?

7. 8 | 7 Phase 3: Making the Purchase 1.Negotiate the Price 2.Decide on Credit or Cash – Costs? – Benefits? 3.Know the Real Price – Does the listed price include everything? Phase 4: After the Purchase 1.Rethink your purchase 2.Did you make the right choice? Why evaluate?

8. 8 | 8 1.Time Your Purchases Law of supply and demand 2.Select a Store Benefits vs. Limitations Alternative = Direct Selling 3.Compare Brands Generic vs. National Brands? Figure 4.4 How can competition among stores / brands benefit consumers? Can you tell the difference?

9. 8 | 9 Impulse Buying can ruin a budget! Try a 2-day cool-down period Pg. 100 4.Examine Labels Cool Advertising Nutrition info/Open dating 5.Compare Prices Unit Pricing Is bigger always better? $45 $9

10. 8 | 10 Unit = VolumeUnit = Weight

11. 8 | 11 21-24 points: Way to go, savvy shopper! Don’t forget to treat yourself occasionally! 16-20 points: You sometimes make choices that cost more… but you already know that! Less than 16 points: Study this chapter before doing any more shopping!

12. 8 | 12 consequences! A Research-based approach is beneficial… sometimes! Savvy shoppers get more for their money… always! Read 4.1 pages 90-103

13. 8 | 13 Supplement to Chapter 4 Purchasing a Vehicle  Today’s Agenda:  Learn what it means to “LEASE” a vehicle  Goals: Understand how a lease works & how it compares to buying a vehicle Recognize the factors that affect the cost of a lease Identify the advantages / disadvantages of leasing

14. 8 | 14 Review Our Car “Purchase” Terminology: –The 3 prices you found –Consumer reviews, fuel economy, depreciation MSRP TMV Invoice Price

15. 8 | 15 What happens to the value of my car over time? RESIDUAL VALUE The value of my car at any given point in time is it’s “RESIDUAL VALUE” MSRP = $18,350

16. 8 | 16 Let’s BUY it! 2011 Mazda3 i Sport Advertised Price: $16,338 Add tax, license, registration: = $18,000 Borrow $18,000 over 3 years @ 7% Guess I need a loan!

17. 8 | 17 $233

18. 8 | 18 What does it mean to “LEASE” this car for 3 years? I will “rent” this car… it will depreciate as I drive it. Value after 3 years? When my lease is up, I simply return vehicle to dealership.

19. 8 | 19 In a LEASE, you only pay for what you use: Car is worth 60% of its original MSRP at this point: 60% of $18,350 = $11,010 $11,010 $7,340 DEPRECIATION RESIDUAL $18,350 You pay for the DEPRECIATION!

20. 8 | 20 You pay depreciation + sales tax (on this amount) + interest (for borrowing ) ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ $600 $450 $7,340 $8390 36 payments What is my monthly cost to lease this vehicle for 3 years?

21. 8 | 21 Let’s look at the “BUY” option again… After 3 years I have paid $18,000 and the car is MINE. After 7 years, Residual value is $3000 If I sell for $3000 after 7 years, what was my overall cost? $18,000 paid - $3,000 received = $15,000 (or $178 per month)

22. 8 | 22 LEASING… The good and the bad: Advantages:  Lower monthly payment  Save on sales tax  Always under warranty  Afford nicer car Disadvantages:  Restrictions on mileage  No equity (ownership)  Charges for excess “wear”  Always a payment!

23. 8 | 23 CONCLUSIONS… Leasing can be confusing! Cost to lease depends on a car’s depreciation Leasing is wise in certain situations… –Decide if it is right for YOU! Long-Term: Buying is Cheaper Middle (4-5 yrs): Even Short-Term: Leasing Wins

24. 8 | 24 Information = Power Smart shoppers do their homework! beforeWhy gather information before interacting with sellers???? Remember: sellers are highly skilled; not objective The key to successful negotiating: enough knowledge and accurate information

25. 8 | 25 1.Pre-Shopping Research Determine your affordability (look at budget) Need vs. want: buy used; buy new; lease; bus! => Gather info on what is available – all options! 2.Weigh alternatives Narrow down options based on what is important to YOU: => Safety, features, fuel efficiency, warranty?

26. 8 | 26 Once you have: determined your affordability narrowed down your top choices, Examine your financing options: If you are taking out a car loan, what 2 factors will affect your monthly payments? 1.Interest rate: –Check with local bank/credit union –Know your credit score! –Is manufacturer or dealer offering any special financing deals? 2.Term: how many months to pay off loan –Trend: longer-term financing--what does this do?

27. 8 | 27 More online research: –Available rebates / incentives? –Reviews? –Comparable vehicles / feature comparisons? –Depreciation? Do you have a vehicle to trade-in? Find out its value BEFORE! Negotiating your trade-in Obtain a firm commitment on a trade-in allowance Sell the vehicle yourself if the allowance is too low

28. 8 | 28 Mon: Finish Car Buying Tue: 10QQ + Start Chpt 7  Hwk: SKIM 202-208 Wed: Chpt 7  Hwk: Read 209-227 by Fri Thur: Chpt 7 Fri: Finish 7 Mon 4/4: Test part I Tue 4/5: Test part II

29. 8 | 29 Get Organized? 3 Basic Options to Consider: Sheet One: New Car Buy Negotiate one thing at a time. With many other variables (new car price, trade-in, rebates, options, interest rate) the dealer can APPEAR to be cooperative on one aspect and make up the difference elsewhere! –MSRP vs. Invoice Price vs. TMV –What do each of these mean?

30. 8 | 30 Sheet Two: Used Car Buy Remember: Late model used car with low mileage = practically “new” ! Research pricing: www.edmunds.comwww.edmunds.com -Trade-In vs. Dealer Retail vs. Private Party -What do each of these mean? Most research, including inventory searches, can be done online / in newspapers Sheet Three: Leasing a Vehicle What is an automobile lease? Read handout

31. 8 | 31 Leasing Terminology 1.Capitalized Cost [Cap Cost]  Negotiated price of vehicle 2.Cap Cost Reduction  Down payment, trade-in, or rebate that will reduce the amount being financed 3.Adjusted Cap Cost  Cap cost – cap cost reductions: the actual amount being financed 4.Residual Value  The projected value of the vehicle at the end of the lease 5.Money Factor  Similar to APR to finance vehicle (multiply by 2400 to compare) 6.Price of Vehicle – Residual Value = Depreciation DEPRECIATED VALUE = $7,000 RESIDUAL VALUE = $13,000

32. 8 | 32 Leasing Advantages: More car for the money because lower monthly payments Best when depreciation is low (residual value is high) Cheaper in the short-run Leasing Disadvantages: At the end of lease you don’t own the car Usually more expensive in the long-run Mileage allowance 7. Open-end lease vs. Closed-end leases 8. Excess mileage charges 9. Acquisition fee 10. Disposition fee 11. Early termination fee In general, be cautious about leasing: It is complicated. Remember: Knowledge = Power

33. 8 | 33 The Top 3 Mistakes In Big-Ticket Purchases 1.Believing that the seller is an unbiased source of information for price, financial terms, and trade-in value. 2.Telling a seller what you can afford to pay so the seller can avoid disclosing the lowest price or telling a seller your expectations for a monthly payment. 3.Failing to do research on your own before you go shopping and talk to salespeople.