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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.