CHAPTER 7 Buying Decisions 7 1 Designing a

CHAPTER 7 Buying Decisions 7 -1 Designing a Buying Plan 7 -2 Getting Started with Credit 7 -3 Computing the Costs of Credit © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

7 -1 Designing a Buying Plan Learning Objectives 7 -1. 1 Discuss the consequences of being financially responsible and financially irresponsible. 7 -1. 2 Design a buying plan and discuss how it is evaluated, financed, and implemented. © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 2

How Can You Be a Responsible Shopper? ● Systematic decision making • The process of making choices that reflect goals by considering all of the pros and cons along with the costs ● Financial responsibility • Being able to meet your financial goals through planned earning, spending, and saving © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 3

How Can You Be a Responsible Shopper? (continued) ● Financial irresponsibility • Failing to live up to your financial obligations to meet your goals and needs • Living beyond your means. • Your spending exceeds your income! © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 4

What Is a Buying Plan? ● Buying plan • An organized method for making good buying decisions ● Creating a Buying Plan • Five Step Process © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 5

Buying Plan Define your Spending Goal ● Item selected should meet your needs and wants. ● Consider relationship to your goals ● Consider your opportunity costs – your resources may become limited and you may have to forego other purchases. © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 6

Buying Plan Choose the Item to Buy ● Once your spending is defined, choose the item that will meet your goal. ● New or Used ● High Quality ● High, Medium, Low Cost ● Option to Rent © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 7

Buying Plan Define Purchase Criteria ● Standards or rules by which something can be judged. ● Criteria • Desired Features • Functions • Quality © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 8

Buying Plan Set a Timeline ● How soon to make purchase. ● Timeline sets the time frame for making decision. ● May depend on an upcoming activity • Buying dress for prom/graduation. • Wait till item goes on sale. • May decide to not make purchase. © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 9

Buying Plan Set a Spending Limit ● The maximum amount you are willing to pay. ● Setting a spending limit, you will not be tempted to spend than you actually have. © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 10

Buying Plan © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or

Implementing The Plan ● Implementing a Buying Plan • Comparison Shopping • Rebate: A refund of part of the purchase price of an item • Extended warranty: Additional coverage that you can buy to pay for repairs or replacements needed beyond the original warranty period • Payment Methods © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 12

Implementing The Plan • Payment Methods • Cash/Check – prevents overspending • Debit Card • Credit Card – protection if item is damaged/fails, or dispute the charge • Alternative Financing – major purchase for car/home • Layaway – principal payments over time while product is stored at retailer © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 13

Implementing The Plan • Making the Purchase • Check item to ensure in good shape • Is the box sealed? • If box is resealed, take item out and inspect condition. • Keep receipt if item needs to be returned. © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 14

Implementing The Plan ● Evaluating the Purchase • • • Satisfaction with purchase? Did I follow spending plan? Did I get value? Does product/service meet needs/wants? Could I have made a better selection? Would I purchase product if I had to do it all over again? © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 15

7 -2 Getting Started with Credit Learning Objectives 7 -2. 1 Compare the types of credit. 7 -2. 2 List and explain the advantages and disadvantages of credit. © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 16

What Types of Credit Can Consumers Get? ● Credit • The ability to borrow money and pay it back later ● Debt • Money that must be repaid ● Credit card • A plastic card linked to a credit account that can be used to make purchases © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 17

What Types of Credit Can Consumers Get? (continued) ● Credit Card (continued) • Store account: A credit account that allows you to charge items or services only at that store or with that merchant • Revolving credit: An account on which the account holder can charge repeatedly up to a maximum limit © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 18

What Types of Credit Can Consumers Get? (continued) ● Charge cards • A form of credit card for which the cardholder must pay the balance in full by the due date ● Consumer loans • Direct loans of cash made to a consumer at a fixed interest rate for a set period of time © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 19

What Types of Credit Can Consumers Get? (continued) ● Consumer Loans (continued) • Installment credit: To finance the purchase of a single high-priced item through a series of equal payments made over a set period of time • Collateral: Property that can be used as security for a loan ● Line of credit • A preapproved loan amount that a debtor can borrow as needed with no collateral © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 20

What Types of Credit Can Consumers Get? (continued) ● Service credit • The ability to receive services and pay for them later © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 21

What Are the Advantages and Disadvantages of Credit? ● Advantages of Credit • • • Increased purchasing power Security Convenience Leverage Benefits © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 22

What Are the Advantages and Disadvantages of Credit? (continued) ● Disadvantages of Credit • • Finance charge Reduction of future buying power Overspending Identity theft © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 23

7 -3 Computing the Costs of Credit Learning Objectives 7 -3. 1 Explain the various costs of credit. 7 -3. 2 Discuss methods used for calculating interest. © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 24

What Are the Costs of Credit? ● Finance charge • The total dollar amount of all interest and fees you pay for the use of credit ● Minimum payment • The amount you are required to pay each month on a credit account © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 25

Credit Card Statement (partial) © 2017 Cengage Learning®. May not be scanned, copied or

What Are the Costs of Credit? (continued) ● Interest Rate • Fixed interest rate: An interest rate that is set and does not change from month to month • Variable interest rate: An interest rate that goes up and down with inflation and other economic conditions © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 27

What Are the Costs of Credit? (continued) ● Fees • Balance transfer: Moving a balance from one credit card account to another • Cash advance: Money borrowed against your credit card account • Penalty: A fee charged for violating a term of the credit agreement © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 28

How Is Interest Computed on Credit? ● Grace period • The amount of time you have to pay your current credit card balance in full to avoid paying interest ● Billing cycle • The period of time between credit card billings ● Adjusted Balance Method ● Previous Balance Method ● Average Daily Balance Method © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 29