consumer econ test 2

living wage

the minimum wage someone needs to survive in a certain area. covers basic expenses.

needs and wants

even satisfying needs and wants now will influence future needs and wants. We all have physiological needs that must be met, but our preferences dictate what is acceptable or not.

psychological influences

emotional responses: fear, anger, depression, love. organic motives: internal body conditions( pregnancy cravings). emergency motives: emotions aroused by environmental circumstances requiring immediate response. objective motives: addressing issues that do not require immediate attention.

enviornmental influences

natural resources provides wealth to a person or nation, climate those in cold areas want heat; those in hot areas want air conditioning. occupation/income: some jobs have more prestige than other. some jobs allow for purchasing power than others. Real income: amount that can be purchased through income. Psychic income: amount of satisfaction from that income.

sociological influences

people are products of their culture and social groupings, including family. desire for achievement, desire, youthfulness. preference in music, food, clothing
people also desire acceptance, one way to obtain acceptance is to imitate those from whom we want to be accepted. social norms and ads direct su to emulate desirable reference groups of society ( rich, beautiful, popular and famous)

values

Relatively permanent beliefs about what is desirable. Priorities in life including things we strive after. Principals that guide our behavior. Foundations behind our choices and behaviors. Our values can sometimes help us to differentiate between needs and wants. Chose alternatives that best match these values. Despite our values guiding us, it is not always easy to differentiate between needs and wants.

differentiate between needs and wants

another approach is to sleep overnight or weight 3 days before making a purchase. compare costs between alternatives. determine what you need as a bare minimum to survive. evaluate the difference in costs for various alternatives. ask if more expensive alternatives justify the extra costs. each person has to decide what is a need a want or a luxury. everyone has different values, preferences

increased income or decreased spending

its not what you make its what you keep. financial freedom i more often the result of decreased spending than increased income, financial problems are usually behavior problems rather than money problems. you should live within your means, identify behaviors that prevent you from living within your means, find ways to reduce spending, especially if income is difficult to increase.

identify your latte factor

develop a balanced spending plan and track your opening behaviors, each month develop a spending plan that accounts for your entire income and all expenses, make monthly adjustments to your spending plan based on your actual behaviors. use this info to track your latte factors. behaviors that can be reduced or cut to save money.

measure your financial health progress

find out where you are currently and measure your progress over time. determine your net worth, the difference between your assets and your liabilities. updating your net with allies you to examine hoe your financial condition changes over time. update your net worth at least once a year. a persons net worth will increase over time. net worth does not equal your self worth, the contributions we make in our lives are more important than what we consume or accumulate. many young adults will have a negative net worth but it will increase over time.

murphy law

Refers to if something bad can happen it will happen. Emergencies and unexpected expenses will happen, and they can destroy our spending plans.

tips for saving money

When deciding whether to but something, remind yourself, you do not need everything right now, sleep on it or wait 2-3 days before buying it, what are some other things you can do with that money.

saving money on bigger purchases

when possible try to use cash when purchasing appliances, furniture, cars,etc. avoid rent to own, easy payment plans, credit card interest or loan interest (when possible). save in advance for purchases, estimate the total cost( plus tax) estimate the monthly payment, save that amount

ca payments

if you are unable to save your car payment for several months before you purchase you will be able to make the payments after you purchase? a new car loses 20-25% of its value to moment you drive it off the lot. insurance is intended to protect people from a catastrophic loss due to an unexpected event, such as an accident,illness, natural disaster, etc. comparison shop for the best rates, bundle multiple insurance policies with the same company, increase your deductibles( the amount you must pay before insurance pays. pay in full rather than monthly ( 6 months or a year)

tips to save money on utility bills

join a family plan on cell phones, try to bundle when possible (such as cable with internet), avoid unnecessary bundles, such as those requiring land lines, consider cutting internet and or cable completley, adjust the thermostat ( at night, when you leave home put on a sweater) take shorter showers, turn water off when brushing your teeth (water), wash dishes by hand rather than running the dishwasher (water gas and electricity)

tips to save money on grocery shopping

eat more at home than eating out. drink water at restaurants instead of soda or tea. use a shopping list, it is estimated that one half of purchases are impulse buys. keep a notepad in the kitchen to add items to your list. buy a second of commonly used items (mustard) so you can purchase a replacement when on sale. buy a few extra items when they are on sale. create a meal menu each week including several options when " not in the mood". avoid shopping when you are hungry, depressed, etc. go shopping less frequently (once a week). use discount cards, coupons, buy items you know will be cheaper at another store, buy in bulk when possible and on sale ( non perishable), use price matching when possible. shop at all a dollar store. compare prices online, buy gently used clothing from a second hand store, swap clothes with family or friends.

more tips to save money

trade services (babysit in exchange for a haircut) shop at garage or estate sales, buy things from pawn shops (never sell things to pawn shops), shop clearance sales (especially end of season items), don't buy something just because it is on sale. you never save money buying things you do not need or use. use online sources, use craigslist, do a google search, sign up for free newsletters that promote saving money.

income and expense statements

may also be called a balance sheet or cash flow statement. a record of all income and expenses covering a specific period of time in th east, such as the previous month or year. (mesures past financial experiences), expenses are greater than income= deficit. excess expenses are covered by credit/debit or taking ,homey out of savings/ivestments. income is greater than expenses= surplus. excess money is available to save or invest.

net worth

assets-liabilities. provides a snapshot of current financial statement. when people experience deficits their net worth tends to decrease

credit

Using borrowed money to purchase goods and services now, while later repaying the borrowed money with interest.

four types of credit

revolving credit-use with most credit cards. balances can carry over from month to month. max credit limit applies. if balance is not paid in full each month interest begins accruing at the time of any new purchases.
charge cards- balences must be paid in full each month. maximum credit limit applies
service credit-services are provided with the agreement customers will pay their bill each time. services include rent, utilities, cell phone, gym membership
installment credit-home mortgages, car ones, student loans, creditors loan a specific amount of money to purchase or pay for something, generally the purchased item serves as collateral ( if can't make payments it can be repossessed) borrowers pay back amount plus interest over a set period of time ( 1 year, 5 years, etc)

why is credit important

most people rely on credit to make major purchases (house or car), pay for school (student loans)
Credit histories and scored may determine if someone is hired for a job, can rent an apartment, can obtain a loan or credit card, is charged higher or lower interest rates for credit obtained.

what is a credit history

is a persons experience with credit. Credit histories are compiled primarily by three credit bureaus, equinox, experience, transunion.
each credit bureau maintains a persons credit history in the form of a credit report, provides this information to creditors upon request, does not approve or give credit.

credit report

gives a comprehensive list of companies that have issued credit. the total amount owned on each type of credit issued. a history of payments, including theater payments were made on time and the amount paid. public records,

soft inquires

creditors request access to limited credit information. creditors do not need permission to review someones credit information. inquires occur: as part of a background check, to pre approve someone for credit card offers, when someone checks own credit information, inquires may or may not appear on credit reports

hard inquires

creditors request fulla cess to credit info. creditors must obtain permission ti review someones credit report, creditors must have legitimate reason to review someones credit report, inquires lower credit scores, inquires remain on credit report for two years.

obtaining credit report

by law everyone is entiltled to review each of their credit reports once every 12 months for free. authorized by the fair credit reporting act. checking your credit report helps to check for mistakes, personal identity theft.

credit score

a numerical summary of a persons credit history, used by creditors to determine a persons level of future credit risk.
more than 40 different credit scores may exist.
vanatagescore- (used by 10% of lenders) a joint effort by the three credit bureaus.
FICO- (90% of lenders) monitored by fair credit bureau.
scores based
payment history-35%
amount owed-30%
length of credit history-15%
new credit-10%
types of credit used-10%

how to obtain own free credit scores

Most are only available by credit scores. credit karma, creditscores- these provide estimates only, have to provide them with social security code, discover card includes a free FICO score on statements.

benefits of good credit scores

credit decisions are to be non discriminatory
people obtain loans faster
credit mistakes count for less
more credit is available
interest rates and total costs are lower

good credit and home loan

many first time homebuyers apply for a house mortgage loan backed by the federal housing administration
FICO loans require a credit score of at least 520. but many banks require higher fido credit score to qualify for loans, wells fargo requires at least a 640. chase bank is subprime lending.

how to establish credit

Open a bank account at a local bank. opening an account will not establish credit but it helps you to develop relationships that may turn into other opportunities to build credit.
Review differences in account types and fees charged. Be responsible with any accounts opened. rent an apartment, telephone service in your name. if you have a cosigner and don't pay your bills the co signer is responsible for those bills. you can request your rent payments be reported to credit bureaus. pay all bills on time.

how to establish credit cont.

lenders like to see stability. try to remain employed at the same company for a period of time. moving to a different job frequently or having a long periods of unemployment may hurt your chances of getting credit.
try to apply for a basic credit card.
secured credit cards: a deposit is required prior to using the card. credit is limited to the amount on deposit, higher interest rates are often applied.
apply for a small loan (student loan,car loan)

repairing credit

Check your credit reports see if it contains inaccurate information (dispute and keep all documentation).
identify what is hurting your credit.
if late on payments make current. contact lender and see if they will work with you.
reduce the amount of debt you owe, consider credit counseling throguh non profit organizations
repairing credit takes time.

credit repair companies

you can do for free what many companies will charge you to do. know your rights with credit card companies, your legal rights in a written contract that details the services they will perform. your right to can cel any services within 3 days, how long it will take to get results, total cost you will pay, any guarantees.

general tips on credit

-They are required by law to tell you why you are not approved for credit. can view credit score for free after.
-Be responsible with any credit obtained (pay all bills on time, try not to charge more than 20-30% of your credit card limit).
-Be patient
-Owner of lost or stolen credit card is only responsible for 50 dollars of unauthorized charges if reported in the first 30 days.

warning signs of debt

debt should not exceed more than 36% of your gross monthly income
- debt up to 42% of income should be a warning sign
- 49% of income needs immediate, drastic attention
-more than 50% of income requires professional help

the debt cycle

-start with little debt
-continue to take on more debt ( make minimum payments, while interest costs increase, consolidate debts into single loan but existing behaviors lead to more debt, existing balances prevent obtaining new credit cards)
-suffer the consequences of debt ( monthly payments become overwhelming, people lose freedom, self respect, debt collection begins, repossession/foreclosure, in extreme circumstances some people commit suiside because of overwhelming debt)

debt collection

*if facing debt collection it is important to know your rights
-ask in writing for verification that the debt is yours or to stop calling
Debt collectors are not allowed to:
-discuss debt with your friends, family neighbors, or employers
-lie about debt
-give false info to credit agencies or courts
-call you at work
-use unfair practices
-harass or threaten you

peoples belief about debt

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strategies to become debt free

Debt consolidation- Smaller loans combined into a single larger loan.
ADVANTAGE: often lowers interest rate and monthly payment, single vs. multiple payments, home equity loan interest can be tax deductible. DISADVANTAGE: may not address behavioral issues that led to problem, may have expensive loan fees, if debt is not paid back a person may lose their home.
Debt negotiation- Creditors may be willing to settle debt. ADVANTAGES: may lower total amount owned, may reduce interest rate, may accept lower monthly payments. DISADVANTAGES: may require level months of non payment before creditor is willing to negotiate. creditors may require a lump sum payment (entire agreed upon amount must be paid at once)
bankruptcy- should be considered a last resort. chapter 7: assets are sold and creditors are paid from the proceeds of that sale. most debt is wiped out
chapter 13: a repayment plan is established. person can keep items but must pay for them and are payed each month to a trustee who pays them to the creditors
debt may not be erased by bankrupcy. ADVANTAGES: frees a person of most debt. may postpone foreclosure, may lower monthly payments, person may be able to keep some property. DISADVANTGES: ASECURED DEBT CAN STILL BE TAKEN, bankruptcy lasts on credit report for up to 10 years, cosigners are still legally responsible to reply debt
debt avalanche/ debt snowball

better strategy to become debt free

*Remember debt may be both a financial and a behavioral problem, recognize one has a debt problem or is developing a problem.
-stop taking on any new debt
-Make a list of all bills.
-Look for a way to reduce debt quickly, if possible, sell something.
-Take a part time job.
-Pay more than the minimum balance each month if possible.
strategy: pay off one debt and use these same payments to pay off the next debt until debt free

debt snowball / avalanche

snowball: pay off debt with the lowest balance first
provides motivation to pay off debt
dave ramsey encourages this
avalanche:
pay off debt with highest interest rate first
this saves more money over time

powerpay

is a valuable tool that calculates how long it will take to pay off debt using various strategies
normal payments
debt snowball approach
debt avalanche approach

keys in becoming debt free

Becoming debt free requires:
understanding where you want to be in the future
discipline
sacrifice
the rewards of being debt free include
flexibility
less stress
opportunity to save and invest these payments

ways to become wealthy

win it
marry it
inherit it
sue for it
budget for it
save and invest it
saving and investing puts money to work for you as passive income(interest) rather than working for it (wages) aka (active income)

savings vs investing

*Saving: money is kept safe (low risk) and has high liquidity (easily assessable).
money is usually insured by the federal deposit insurance cooperation (FDIC)-up to 250,000 per account
returns interest are usually low
takes a short to intermediate term perspective
ex: savings accounts,money market account, certificates of deposit
low risk, easily assessable
*Investing: money faces greater risk and less liquify (investments are sold to access money)
investments are rarely insured by the FDIC
returns are potentially higher
returns are taxed at a lower tax rate
takes an intermediate to long term perspective
ex: stocks, mutual funds, real estate
higher risk,less assemble, returns usually higher

why do people save and invest

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why people don't save

encouraged consumerism(there is always something needed or wanted)
short term perspective(living in the moment)
fear of risk(don't want to lose money)
lack of financial knowledge
procrastination( ill start saving later)
living paycheck to paycheck/ too much debt(I don't have enough money to invest)

finding money to save and invest

*many people are living paycheck to paycheck which makes finding money to save or invest difficult
- recognize that decreased spending is often more effective than increased income
-prioritize saving as part of a spending plan
-establish an emergency fund
-measure progress over time
-pay off existing debt and use those debt payments for saving and investing
-live on bare minimum for a few months
-get a part time job
- break spending habit
-participate in employers retirement plan

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