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CHAPTER 11
Consumer Responsibilities
and Protections
11.1 Consumer Choice
11.2 Use Credit Responsibly
11.3 Consumer Protection
11.1 CONSUMER CHOICE
Learning Objectives
LO1 Understand the importance of setting
personal financial goals.
LO2 Describe how making wise spending
choices helps you achieve your goals.
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Key Terms
 consumer
 personal finance
 budget
 comparison shopping
 rational consumer choice
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Personal Financial Goals
 Anyone who uses a good or service is a
consumer.
 People consume within the limits of their
resources.
 People allocate scarce resources when they
make consumer choices that are intended to
maximize the satisfaction they achieve in their
lives.
 To achieve the greatest satisfaction in your
life, you need a plan.
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Personal Financial Goals
(continued)
 Your plan should state the things you most
want to achieve and explain the steps you
intend to take to achieve them.
 Most of these steps will require you to spend
money.
 You should be sure to include a financial plan
within your general life plan.
 Personal finance involves the way you plan
to spend or save your income.
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Set Financial Goals
 Choosing what you want most and setting
goals is the first step in creating a financial
plan.
 Short-term goals are things you hope to
accomplish within a year or less.
 Long-term goals take longer than one year
to achieve, while your most important life
goals can take decades to reach.
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Strategies for Achieving Your
Financial Goals
 Questions to ask
 Seek expert advice
 Ask other people
 Shop at reputable businesses
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Make Wise Consumer Decisions
 When you choose how to spend your
income, you should be sure that your
decision is based on reason and logic rather
than on emotion or impulse.
 Making wise spending decisions can take
you a long way along the path to achieving
your most important life goals.
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Budget Your Income
 Budget—a consumer’s plan showing the
sources and uses of income
 Budget worksheets
 Keep your budget up to date
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One-Month Budget Worksheet for a
Typical Student
Figure 11.1
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Comparison Shopping
 Comparison shopping—the act of
reviewing products and prices offered by
different businesses for similar products
before making a purchase decision
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Rational Consumer Choice
 Rational consumer choice—a choice to buy
or not to buy a product so that your
satisfaction is the greatest possible per
dollar spent
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11.2 USE CREDIT RESPONSIBLY
Learning Objectives
LO1 Understand whether to use cash or credit to
pay for purchases.
LO2 Name the two sources of consumer credit.
LO3 Describe how lenders decide who qualifies
for credit.
LO4 Explain how you can avoid credit problems.
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Key Terms




consumer loan
consumer sales credit
secured loan
unsecured loan




creditworthiness
credit history
credit rating
credit scoring
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Paying for Your Purchases
 Will that be cash or charge?
 Benefits and costs of paying cash
 Benefits and costs of using credit
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Popularity of U.S. Consumer
Payment Systems: 2005 vs. 2015
Figure 11.2
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Sources of Consumer Credit
 Consumer loan—borrowing money to be
repaid in regular installments over time
 Consumer sales credit—amounts charged
to an account that involves variable
payments over time
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Consumer Loans
 Secured loan—loan for which property is
pledged to back its repayment
 Unsecured loan—loan for which no specific
property is pledged by the borrower that
can be used to satisfy the debt if payments
are not made
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Consumer Sales Credit
 Credit-card fees
 Interest on credit-card debt
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Creditworthiness
 The term creditworthiness refers to the
measure of your dependability to repay a
loan.
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The Three Cs of Credit
 Lenders typically consider three factors
when they evaluate creditworthiness.
 Character is a measure of a consumer’s
financial responsibility.
 Capacity is a measure of a consumer’s ability to
repay a debt on time.
 Capital is a measure of the value of things a
consumer owns that could be sold or cashed in
to repay a loan.
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Credit-Reporting Agencies
 Credit-reporting agencies (or credit
bureaus) gather, maintain, and share
financial information about almost every
adult in the United States.
 Three primary credit-reporting agencies:
 Equifax
 Experian
 TransUnion
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Credit-Reporting Agencies
(continued)
 Credit history—a person’s record of paying
bills and debts over time
 Credit rating—the measure of a person’s
creditworthiness
 Credit scoring—a system that assigns a
number, or score, to each consumer
indicating whether this person is a good or
bad credit risk
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Accessing Your Credit File
 Legal rights
 Online access
 Annual review
 Corrections
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Avoid Credit Problems
 Use credit wisely
 Establish a positive credit history
 Repair a damaged credit rating
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11.3 CONSUMER PROTECTION
Learning Objectives
LO1 Explain why consumers sometimes may need
the government to protect them from
defective or dangerous products.
LO2 Understand how to protect yourself as a
consumer.
LO3 Know how to prevent identity theft and what
to do if your identity is stolen.
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Key Terms
 Food and Drug Administration (FDA)
 Federal Trade Commission (FTC)
 cease and desist order
 Consumer Product Safety Commission
(CPSC)
 Environmental Protection Agency (EPA)
 identity theft
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Government Efforts to Protect
Consumers
 Most consumers rely on manufacturers to
be responsible and on the government to
set quality and safety standards to protect
them from harm.
 The government intervenes in the market
in an effort to protect consumers from
dishonest or careless producers.
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The Pure Food And Drug Act
 The Pure Food and Drug Act (1906)
 Food, Drug, and Cosmetic Act (1938)
 Food and Drug Administration (FDA)—
federal agency that sets standards for foods
and drugs produced or sold in the United
States
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The Federal Trade Commission
 Federal Trade Commission Act (1914)
 Federal Trade Commission (FTC)—government
agency that ensures that businesses compete and
market their products fairly and honestly
 Enforces antitrust laws.
 Sets standards for product packaging and labeling and
honesty in advertising.
 Cease and desist order is an FTC-issued directive to
stop a firm making a false or misleading advertising
claim.
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The Consumer Product Safety
Commission
 Consumer Product Safety Commission
(CPSC)—federal agency created to protect
consumers from dangerous products they
might purchase or use
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Number of CPSC-Ordered Recalls
During the Month of April, 2000–2011
Figure 11.3
Source: CPSC website: http://www.cpsc.gov/CPSCPUB/PREREL/prerelmar11.html, May 5, 2011.
© 2013 Cengage Learning. All Rights Reserved.
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The Environmental Protection
Agency
 Environmental Protection Agency (EPA]—
federal agency that interprets and enforces
laws passed by Congress that involve the
environment
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Other Government Protections
 Other federal agencies
 Many other federal agencies are responsible for
protecting consumers in other ways.
 These agencies are designed to provide a degree
of safety to consumers they could not reasonably
be expected to achieve on their own.
 State and local protection
 All state and many local governments also have
agencies that are responsible for protecting
consumers.
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Take Responsibility for Your
Protection
 Consumer rights and responsibilities
 Use common sense
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Dealing with Identity Theft
 Identity theft—a crime in which one
person fraudulently uses another’s identity
to obtain credit or to access financial
accounts
 Protect yourself from identity theft
 Know what to do if your identity is stolen
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CHAPTER 11