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Personal Finance: Module 1 Lesson 5
What Affects the Journey?
What Affects the Journey? • Slide 2
“Lions, and tigers,
and bears! Oh, my!”
Dorothy, The Wizard of OZ
What Affects the Journey? • Slide 3
Introduction to Purchasing Power
 Disposable
income (also known as net or takehome pay) is the money remaining after taxes
withholdings and other deductions are subtracted.
 Discretionary
income is the money remaining
after ALL other essential needs have been met!

Consumers spend this money on
non-essentials or “wants”.

Discretionary spending
impacts the economy!
What Affects the Journey? • Slide 4
Introduction to inflation
Inflation is an economic
term that describes a
continuous rise in the
average prices of goods
and services.
What Affects the Journey? • Slide 5
How Consumers See Inflation

As the value of money (value of the
U.S. dollar) decreases, prices increase.

This in turn decreases your purchasing
power (the quantity you are able to
purchase).
MeasuringWorth.Com
Compute the Relative Value
What Affects the Journey? • Slide 6
Inflation Illustrations
Average Single Movie Ticket
1990
$4.22
2011
$7.93
Average Full-time Postsecondary Costs
1990
$10,620
2011
$18,133
Median Household Income
1990
$29,943
2011
$50,054
What Affects the Journey? • Slide 7
Real Income
 Real
income is our earned income growing or
shrinking as it adjusts to just how much true
purchasing power has been affected by inflation and
higher prices.
Example: If your
earnings have grown
10%, but the inflation
rate is 4%, then your
real income growth will
only be 6%!
What Affects the Journey? • Slide 8
Inflation Resources
Video:
Explanation of Inflation
Links and Activities:
Historical Inflation Rates
Inflation: What It Is, Where It Comes From,
and How It Can Bite You
What Affects the Journey? • Slide 9
The consumer notices inflation
when…
The overall amount of goods and services
consumers expect to be able to purchase
(known as demand) is more than the overall
amount of goods and
services that can actually
be produced (called
supply).
What Affects the Journey? • Slide 10
Money Supply

The amount of money available in the economy is called the
money supply.
The economy usually grows when consumers have
more job security and see their incomes increasing!

The Federal Reserve (FED) is in charge of monitoring the
money supply and inflation rate.
If the inflation rate drops too low, the FED will often take
action to increase the growth of the money supply.
If the inflation rate gets too high, the FED will often take
action to decrease the growth of the money supply.
What Affects the Journey? • Slide 11
How is inflation measured?
Consumer Price Index (CPI) – is used to measure inflation by keeping
track of increasing and decreasing prices for certain kinds of consumer
goods and services.
Formula for CPI:
CPI YR 2 – CPI YR 1 x 100 = Inflation rate
CPI YR 1
Example: If a certain collection or “market basket”
of goods and services cost $50 last year
but today costs $53, the inflation rate is 6%.
$53 - $50 x 100 = 6%
$50
What Affects the Journey? • Slide 12
CPI Resources
Links and Activities
Consumer Price Index Frequently Asked Questions
CPI Inflation Calculator
How Much Does It Cost Now?
Video
What is the Consumer Price Index?
What Affects the Journey? • Slide 13
Example of Inflation
Terrance has $25 to take a date to the movies. Just a
few months ago that was enough for two tickets
@$7.50 each two sodas and a
large popcorn!
Not tonight…
inflation got there before he did!
What Affects the Journey? • Slide 14
Example of inflation
…the price of a ticket has increased to $9.50; a
medium popcorn is now $4.00! Why, he can’t even buy
a small drink to share because it’s gone up to $2.50!
Now his $25 just doesn’t go as far…
What Affects the Journey? • Slide 15
Example of Inflation

How would you react to the increase in ticket prices?

How will the decrease in consumer demand
affect the movie theater?

What can the
theater do to keep
business?

What happens if
none of these options
work?
What Affects the Journey? • Slide 16
The Effects of Decreased
Consumer Spending

A continued decrease in consumer
spending can result in…
-- decrease in sales and products
-- job loss and layoffs

If consumer spending continues
to decrease, it can contribute to an
extended period of slow or zero
economic growth, known as a
recession.
What Affects the Journey? • Slide 17
U.S. Unemployment Rate
or “Jobless Rate”

Unemployment/unemployed – when a person is
without a job, but is available for work and actively
looking for work.

Unemployment Rate – the
number of citizens unemployed
expressed as a percentage
of the total workforce.
What Affects the Journey? • Slide 18
“
The biggest determinant of whether you're
going to be unemployed or not is education
level. People with a bachelor's degree or
higher--their unemployment rate tends to be
half of the average. Without a high school
diploma--double the average.
”
John Slenker, Labor Market Analyst – New York State Department of Labor
International Business Times, September 15, 2011
Bureau of Labor Statistics
Employment status by educational attainment
What Affects the Journey? • Slide 19
Cost of Living

How much it truly costs to live comfortably
in different cities, states, regions and even
other countries

Where you live directly affects
your purchasing power!
How to calculate cost of living
Cost of Living Calculator
Cost of Living Wizard
What Affects the Journey? • Slide 20
Financial Education for
College Access and Success
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