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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. 2 © 2013 Cengage Learning. All Rights Reserved. CHAPTER 11 Key Terms consumer personal finance budget comparison shopping rational consumer choice 3 © 2013 Cengage Learning. All Rights Reserved. CHAPTER 11 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. 4 © 2013 Cengage Learning. All Rights Reserved. CHAPTER 11 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. 5 © 2013 Cengage Learning. All Rights Reserved. CHAPTER 11 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. 6 © 2013 Cengage Learning. All Rights Reserved. CHAPTER 11 Strategies for Achieving Your Financial Goals Questions to ask Seek expert advice Ask other people Shop at reputable businesses 7 © 2013 Cengage Learning. All Rights Reserved. CHAPTER 11 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. 8 © 2013 Cengage Learning. All Rights Reserved. CHAPTER 11 Budget Your Income Budget—a consumer’s plan showing the sources and uses of income Budget worksheets Keep your budget up to date 9 © 2013 Cengage Learning. All Rights Reserved. CHAPTER 11 One-Month Budget Worksheet for a Typical Student Figure 11.1 10 © 2013 Cengage Learning. All Rights Reserved. CHAPTER 11 Comparison Shopping Comparison shopping—the act of reviewing products and prices offered by different businesses for similar products before making a purchase decision 11 © 2013 Cengage Learning. All Rights Reserved. CHAPTER 11 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 12 © 2013 Cengage Learning. All Rights Reserved. CHAPTER 11 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. 13 © 2013 Cengage Learning. All Rights Reserved. CHAPTER 11 Key Terms consumer loan consumer sales credit secured loan unsecured loan creditworthiness credit history credit rating credit scoring 14 © 2013 Cengage Learning. All Rights Reserved. CHAPTER 11 Paying for Your Purchases Will that be cash or charge? Benefits and costs of paying cash Benefits and costs of using credit 15 © 2013 Cengage Learning. All Rights Reserved. CHAPTER 11 Popularity of U.S. Consumer Payment Systems: 2005 vs. 2015 Figure 11.2 16 © 2013 Cengage Learning. All Rights Reserved. CHAPTER 11 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 17 © 2013 Cengage Learning. All Rights Reserved. CHAPTER 11 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 18 © 2013 Cengage Learning. All Rights Reserved. CHAPTER 11 Consumer Sales Credit Credit-card fees Interest on credit-card debt 19 © 2013 Cengage Learning. All Rights Reserved. CHAPTER 11 Creditworthiness The term creditworthiness refers to the measure of your dependability to repay a loan. 20 © 2013 Cengage Learning. All Rights Reserved. CHAPTER 11 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. 21 © 2013 Cengage Learning. All Rights Reserved. CHAPTER 11 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 22 © 2013 Cengage Learning. All Rights Reserved. CHAPTER 11 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 23 © 2013 Cengage Learning. All Rights Reserved. CHAPTER 11 Accessing Your Credit File Legal rights Online access Annual review Corrections 24 © 2013 Cengage Learning. All Rights Reserved. CHAPTER 11 Avoid Credit Problems Use credit wisely Establish a positive credit history Repair a damaged credit rating 25 © 2013 Cengage Learning. All Rights Reserved. CHAPTER 11 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. 26 © 2013 Cengage Learning. All Rights Reserved. CHAPTER 11 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 27 © 2013 Cengage Learning. All Rights Reserved. CHAPTER 11 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. 28 © 2013 Cengage Learning. All Rights Reserved. CHAPTER 11 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 29 © 2013 Cengage Learning. All Rights Reserved. CHAPTER 11 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. 30 © 2013 Cengage Learning. All Rights Reserved. CHAPTER 11 The Consumer Product Safety Commission Consumer Product Safety Commission (CPSC)—federal agency created to protect consumers from dangerous products they might purchase or use 31 © 2013 Cengage Learning. All Rights Reserved. CHAPTER 11 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. 32 CHAPTER 11 The Environmental Protection Agency Environmental Protection Agency (EPA]— federal agency that interprets and enforces laws passed by Congress that involve the environment 33 © 2013 Cengage Learning. All Rights Reserved. CHAPTER 11 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. 34 © 2013 Cengage Learning. All Rights Reserved. CHAPTER 11 Take Responsibility for Your Protection Consumer rights and responsibilities Use common sense 35 © 2013 Cengage Learning. All Rights Reserved. CHAPTER 11 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 36 © 2013 Cengage Learning. All Rights Reserved. CHAPTER 11