Financial Financial DecisionsDecisions

Basic Economic PrinciplesBasic Economic Principles

People choose because of limited resources People choose because of limited resources People’s choices involve costs People’s choices involve costs People respond to incentives in predictable People respond to incentives in predictable

ways ways People create economic systems that People create economic systems that

influence individual choices and incentivesinfluence individual choices and incentives People gain when they trade voluntarily People gain when they trade voluntarily People’s choices have consequences that lie People’s choices have consequences that lie

in the future in the future

The Decision-Making The Decision-Making ProcessProcess

Identify the problem

Gather information and list possible

alternatives

Consider consequences of each alternative

Select the best course of action

Evaluate the results

Needs and WantsNeeds and Wants

Why Do Needs and Wants Why Do Needs and Wants MatterMatter

Will help you decide what to spend Will help you decide what to spend and not spend your money on:and not spend your money on:

Factors that canFactors that canInfluence a Decision Influence a Decision

A.A. ValuesValuesA fundamental belief or practice about what is A fundamental belief or practice about what is desirable, worthwhile, and important to an individualdesirable, worthwhile, and important to an individual

B. B. PeersPeersPeople you knowPeople you knowPressure for positive or negative behaviorsPressure for positive or negative behaviors

C. C. HabitsHabitsYou are accustomed to doing it this wayYou are accustomed to doing it this way

D. D. FeelingsFeelings (love, anger, frustration, ambivalence, (love, anger, frustration, ambivalence, rejection)rejection)

If you If you dodo make a certain decision make a certain decision If you If you don’tdon’t make a certain decision make a certain decision

E. E. FamilyFamily Your family’s preferenceYour family’s preference Decisions other family members have madeDecisions other family members have made

F. F. Risks and consequencesRisks and consequences What (or how much) you stand to winWhat (or how much) you stand to win What (or how much) you stand to loseWhat (or how much) you stand to lose

G. G. AgeAge MinorMinor AdultAdult

Factors that canFactors that canInfluence a Decision Influence a Decision

Common Decision-Making Common Decision-Making StrategiesStrategies

SpontaneitySpontaneityChoosing the first option that comes to mind; giving Choosing the first option that comes to mind; giving little or no consideration to the consequences of the little or no consideration to the consequences of the choice.choice.

ComplianceComplianceGoing along with family, school, work, or peer Going along with family, school, work, or peer expectations.expectations.

ProcrastinationProcrastinationPostponing thought and action until options are Postponing thought and action until options are limited.limited.

Common Decision-Making Common Decision-Making StrategiesStrategies

AgonizingAgonizingAccumulating so much information that analyzing the Accumulating so much information that analyzing the options becomes overwhelming.options becomes overwhelming.

IntentionIntentionChoosing an option that will be both intellectually and Choosing an option that will be both intellectually and emotionally satisfying.emotionally satisfying.

DesireDesireChoosing the option that might achieve the best result, Choosing the option that might achieve the best result, regardless of the risk involved.regardless of the risk involved.

AvoidanceAvoidanceChoosing the option that is most likely to avoid the Choosing the option that is most likely to avoid the

worst possible result.worst possible result.

SecuritySecurityChoosing the option that will bring some success, Choosing the option that will bring some success,

offend the fewest people, and pose the least risk.offend the fewest people, and pose the least risk.

SynthesisSynthesisChoosing the option that has a good chance to Choosing the option that has a good chance to

succeed and which you like the best.succeed and which you like the best.

Common Decision-Making Common Decision-Making StrategiesStrategies

T-ChartT-ChartPros Cons

Using a T-chart to list pros and cons related to decisions can help make

the decision making process simple.

Choosing Brand Name Jeans Choosing Brand Name Jeans Over No-Name JeansOver No-Name JeansProsPros ConsCons

Better Fit Cost More

Popular people will notice me.

I will look just like everyone

else.Feel better

about myself.I can only afford one

pair.

Time Value of MoneyTime Value of Money

Time value of moneyTime value of money can be used to measure can be used to measure financial opportunity costs using interest calculations.financial opportunity costs using interest calculations.

For exampleFor example: spending $1,000 from a savings account : spending $1,000 from a savings account paying 4% a year means an opportunity cost of $40 in lost paying 4% a year means an opportunity cost of $40 in lost interest.interest.

Calculations: $1,000 x .04 (4%) x 1 year = $40Calculations: $1,000 x .04 (4%) x 1 year = $40

Over 10 years, that $40 a year (saved at 4%) would have a Over 10 years, that $40 a year (saved at 4%) would have a value of $480 when taking into account compound value of $480 when taking into account compound interest.interest.

Forms of Peer Pressure as it Forms of Peer Pressure as it Relates to Purchasing DecisionsRelates to Purchasing DecisionsSocial pressure by members of one’s peer group to take a Social pressure by members of one’s peer group to take a

certain action, adopt certain values, or otherwise conform in certain action, adopt certain values, or otherwise conform in order to be accepted.order to be accepted.

FriendsFriends NewspapersNewspapers MagazinesMagazines Telephone Telephone

DirectoriesDirectories

Direct MailDirect Mail CommercialsCommercials CatalogsCatalogs Radio Radio

AdvertisementsAdvertisements

Emotional Factors Emotional Factors Related to Peer Related to Peer

PressurePressure GossipGossip AcceptanceAcceptance DisapprovalDisapproval InsecuritiesInsecurities Boyfriend/Boyfriend/

GirlfriendGirlfriend SarcasmSarcasm

FearFear ClubsClubs AthleticsAthletics CliquesCliques Rich/PoorRich/Poor

ScarcityScarcity

Scarcity is the concept of finite Scarcity is the concept of finite resources in a world of infinite needs resources in a world of infinite needs and wants. Economics assumes and wants. Economics assumes people are greedy and always have people are greedy and always have needs and wants. However, there is needs and wants. However, there is only a certain amount of most goods. only a certain amount of most goods. Therefore, people are forced to Therefore, people are forced to choose among their needs and choose among their needs and wants.wants.

Marketing, Advertising & Marketing, Advertising & Sales StrategiesSales Strategies

People who sell products and People who sell products and services are fishing for customers.services are fishing for customers.

They lure them in with sales, They lure them in with sales, coupons, and other enticements. coupons, and other enticements.

Unlike fish, consumers can benefit Unlike fish, consumers can benefit in this situation – if they know in this situation – if they know how to take advantage of special how to take advantage of special purchasing opportunities.purchasing opportunities.

Examples of Marketing, Examples of Marketing, Advertising & Sales Advertising & Sales

StrategiesStrategies Clearance SalesClearance Sales Holiday SalesHoliday Sales CouponsCoupons RebatesRebates SweepstakesSweepstakes ContestsContests Sales PeopleSales People

Attractive DécorAttractive Décor Background MusicBackground Music Items purchased Items purchased

most often are in most often are in back of store back of store (bread/milk)(bread/milk)

Most profitable Most profitable items are given items are given prominent positionsprominent positions

ActivityActivity

Decision Making T ChartDecision Making T Chart