5 Making Smart Decisions GoodheartWillcox Co Inc Chapter

5 Making Smart Decisions © Goodheart-Willcox Co. , Inc.

Chapter Objectives • Explain how needs, wants, values, goals, and standards serve as guides to consumer decisions. • Identify personal goals to guide your decisions. • Prioritize your goals. • Identify the resources available to you. © Goodheart-Willcox Co. , Inc. continued

Chapter Objectives • Plan the use of resources available to you. • Use the decision-making process. • Apply management principles to help you achieve important goals. © Goodheart-Willcox Co. , Inc.

Personal Side of Consumer Choices • Developing management skills can help you achieve goals • Management involves – identifying resources – setting goals – making decisions – solving problems – evaluating results © Goodheart-Willcox Co. , Inc.

Importance of Needs and Wants • Knowing your needs and wants can help determine how you use resources © Goodheart-Willcox Co. , Inc.

Importance of Values • Values – govern and direct your life – influence decisions, actions, and behavior – differ among people – can change over time • The things you value become part of your value system © Goodheart-Willcox Co. , Inc.

Importance of Ethics • Ethics conform to accepted standards of right and wrong • Individuals, businesses, and governments are expected to behave ethically • Unethical behavior is wrong, even illegal © Goodheart-Willcox Co. , Inc.

Importance of Goals • Goals are related to values – “To be” goals relate to character and personality – “To do” goals relate to accomplishments – “To have” goals relate to possessions and purchases © Goodheart-Willcox Co. , Inc.

Timing of Goals • Short-term goal—can be reached within a year • Medium-term goal—may take one to three years to reach • Long-term goal—takes longer than three years to reach © Goodheart-Willcox Co. , Inc.

Evaluating Goals • List each goal and rank it according to its importance • Is it realistic and possible? © Goodheart-Willcox Co. , Inc. continued

Evaluating Goals • Can you break it up into smaller goals? • Can progress be measured? • What will it cost in time, money, and effort? • Will you still want the goal when you reach it? © Goodheart-Willcox Co. , Inc.

Interdependent and Conflicting Goals • Interdependent goals—one must be achieved to reach the other • Conflicting goals—one must be given up to achieve the other • Your priorities and values can help you choose between conflicting goals © Goodheart-Willcox Co. , Inc.

Establishing Priorities • Goals listed in priority order help you direct your time, energy, and money • You make a priority judgment when you decide one thing is more important than another © Goodheart-Willcox Co. , Inc.

Standards of Quality and Excellence • Standards grow out of goals and values • People set standards for – how they want to live – what they want to do – the goods and services they want to buy © Goodheart-Willcox Co. , Inc.

Identifying Resources • Resources are the tools needed to reach goals © Goodheart-Willcox Co. , Inc. continued

Identifying Resources • Human resources • Nonhuman resources include – skills – energy – knowledge – motivation © Goodheart-Willcox Co. , Inc. – money – time – capital – natural resources – public resources continued

Identifying Resources • Practicing good resource management means remembering that – resources are scarce – resources are manageable – resources are related to one another © Goodheart-Willcox Co. , Inc.

Making Financial Decisions • Making good decisions requires careful thought and planning © Goodheart-Willcox Co. , Inc. continued

Making Financial Decisions • People often make bad decisions by – acting out of habit – acting on impulse – failing to act © Goodheart-Willcox Co. , Inc. continued

Making Financial Decisions • Tools of financial decision making include – cost-benefit principle – marginal analysis – commonsense rule – systematic decision making © Goodheart-Willcox Co. , Inc.

Cost-Benefit Principle • Examine the benefits and costs of a decision and act only if the benefits are at least as great as the costs • The cost-benefit principle applies to economic decisions of individuals, businesses, and governments © Goodheart-Willcox Co. , Inc.

Marginal Analysis • Examine the added benefit, versus the added cost, of one more unit of an item or an experience © Goodheart-Willcox Co. , Inc. continued

Marginal Analysis • Marginal benefit: change in total benefit of using one additional unit • Marginal cost: change in total cost of using one additional unit • The marginal benefit of using each additional unit of something tends to decrease as the quantity used increases © Goodheart-Willcox Co. , Inc.

A Commonsense Rule • Do not spend more than you can afford • Live within your means © Goodheart-Willcox Co. , Inc.

In Your Opinion • Why do you think it is difficult for some people to live within their means? © Goodheart-Willcox Co. , Inc.

Systematic Decision Making • Systematic decision-making process involves five steps 1. Define the problem 2. Explore all alternatives 3. Choose the best alternative 4. Act on your decision 5. Evaluate your decision © Goodheart-Willcox Co. , Inc.

Managing Resources to Reach Goals • Management involves more than making decisions and solving problems • Management is a three-part process – Planning phase – Action phase – Evaluation phase © Goodheart-Willcox Co. , Inc.

Planning Phase • Involves identifying goals, obstacles, and resources – What do you want to achieve? – What stands between you and your goals? – What can you use to reach your goals? © Goodheart-Willcox Co. , Inc.

Action Phase • Depends on two personal qualities: – Determination – Flexibility • Involves putting your resources to work to overcome obstacles to your goals, such as the next slide shows © Goodheart-Willcox Co. , Inc. continued

Action Phase © Goodheart-Willcox Co. , Inc.

Evaluation Phase • Assess your progress • Determine better ways of using resources to reach goals • Decide what worked and what did not work • Remember that evaluation is ongoing © Goodheart-Willcox Co. , Inc. continued

Evaluation Phase © Goodheart-Willcox Co. , Inc.

Central Ideas of the Chapter • Careful decisions and wise use of resources can help you achieve your financial goals. • Reviewing the success or failure of past decisions helps you make better decisions. © Goodheart-Willcox Co. , Inc.

Glossary of Key Terms Back • cost-benefit principle. The idea that an action should be taken or a purchase made only if the benefits are at least as great as the costs. • decision-making process. A method of choosing a course of action after evaluating information and weighing the costs and benefits of alternative actions and their consequences. © Goodheart-Willcox Co. , Inc.

Glossary of Key Terms Back • ethic. A moral principle or belief that directs a person’s actions. • goal. An objective a person wants to attain. • management. The process of organizing and utilizing resources to accomplish predetermined objectives. • marginal benefit. The change in total benefit of using one additional unit. © Goodheart-Willcox Co. , Inc.

Glossary of Key Terms Back • marginal cost. The change in total cost of using one more unit. • priority. A goal or value that is given more importance than other goals or values. • standard. An established measure of quantity, value, quality, or excellence. © Goodheart-Willcox Co. , Inc.

Glossary of Key Terms Back • values. Beliefs and principles about what is important or desirable. • value system. A system that guides a person’s behavior and provides a sense of direction in his or her life. © Goodheart-Willcox Co. , Inc.