Download Understand responsible earning, spending, saving, and borrowing.

Understand responsible earning,
spending, saving, and borrowing.
Objective 1.01
Essential Questions:
What are four basic economic activities of
consumers?
What does it mean to be responsible when
earning, spending, saving, and borrowing?
4 Basic Economic Activities of
Consumers
• There are four basic economic activities of
consumers --- earning, spending, saving, and
borrowing. When these activities are handled
responsibly, individuals are more likely to
achieve financial security and personal
satisfaction.
Earning
• Gaining money by working, owning a
business, or receiving investment returns.
• Money gained from earning is called earnings.
• A person’s career choices, ability to find
employment, and ability to advance determine his
or her expected earnings and standard of living.
Factors affecting career choices, ability to find
employment, and ability to advance are shown in
boxes below.
Career
Choices
 Type of
career/job
 Place of
employment
+
Ability to Find
Employment





Education level
Employability skills
Prior job performance
Economic conditions
Workplace trends and
opportunities
+
Ability to Advance





Type of career/job
Education level
Job performance
Economic conditions
Workplace trends and
opportunities
Earnings
Standard
of Living
Responsible Earning
• Responsible earning involves realizing that
career choices greatly affect lifetime earnings
and standard of living and considering these
factors when making career choices.
Spending
• Using money to purchase goods and services.
The way a person spends money determines
the value received and influences the
economy.
• Each purchase contributes to the demand for
the product or service purchased.
Law of Scarcity
• An economic system cannot produce all goods
and services that consumers want, and most
consumers do not have the resources to
purchase everything they want.
• Choices must be made about how limited
resources (time, money) are used.
Trade-offs and Opportunity Costs
• When making a choice, other alternatives
must be sacrificed.
• The highest-valued alternative that must be
given up when a choice is made is the
opportunity cost of the choice.
• The choice of one item while giving up
another is called a trade-off.
Responsible Spending
• Responsible spending includes researching
and planning purchases in advance and
making wise choices in light of opportunity
costs and trade-offs that apply.
Saving
• Putting aside money for later use.
• Money may be “saved” in a bank account or in
a wallet.
• The form of savings used determines the
financial return.
“Later Uses” for Savings
•
•
•
•
•
Emergencies
Recurring expenses
Future purchases
Financial goals
Retirement
Benefits of Saving
•
•
•
•
•
Provide money for future purchases
Can be used to earn income
Produce a healthy economy
Increase personal financial security
Provide growth opportunities for business
ventures
Responsible Saving
• Responsible saving means forming the habit of
saving regularly and finding forms of saving
that yield high returns.
Borrowing
• Obtaining money, goods, or services at present in
exchange for the promise of future payment . . .
“Buy now, pay later.”
– Borrowing means spending future income and
includes buying on credit.
– Having “good credit” depends on one’s willingness
and ability to pay back what is owed when it is due.
– Credit purchases are more costly than cash purchases
if not paid back quickly.
– The wise use of credit can help some individuals raise
their standard of living by extending their buying
power.
Examples of Borrowing
•
•
•
•
•
Buying with a credit card
Buying on installment
Payday loans
Cash advances
Layaway purchases
Reasons for Borrowing
•
•
•
•
•
Major purchases
Emergencies
Convenience
Prepare for future goals
Take advantage of good sales/offers
Responsible Borrowing
• Responsible borrowing means borrowing only
what can be paid back when due.