Studied by 2 peopleValues
Core beliefs or practices in your life that are desirable or important to you.
Where do we get our values? How do they influence our spending habits?
Our values are derived from our environment. i.e. our parents, teachers, friends, religious and political leaders.
We spend our money on things that are important to us. Our values shape what we perceive as needs and wants.
Need
Require something because it is essential or very important.
Want
Things that are unnecessary, bu desired, which increase the quality of one’s life.
Hierarchy of Needs
Motivational theory in psychology comprising a five-tier model of human needs.
Tier 1: Physiological Needs- food, water, shelter, sleep, clothing, air, reproduction.
Tier 2: Safety Needs: personal employment, security, resources, health, property.
Tier 3: Love and Belonging- friendship, family, intimacy, sense of connection.
Tier 4: Esteem- respect, self esteem, status, recognition, strength, freedom.
Tier 5: Self-Actualization- desire to become the most that one can be.
Supply and Demand
The amount of goods and services that are available compared to the amount of people that want to buy them.
The Law of Supply
Law that states that as a price of a good or service increases, the quantity of goods or services that suppliers offer will increase, and vice versa.
The Law of Demand
A higher price for a good or service, leads people to demand a smaller quantity of that good or service.
Low Supply + High Demand =
High Prices
High Supply + Low Demand =
Low Prices
Scarcity
An economic principle stating that because of limited resources choices must be made between what people want and need.
Opportunity Cost
Refers to what a person gives up when a decision is made.
The 4 Pillars of Free Enterprise
Private property rights, the price system, competition, and entrepreneurship
Free Enterprise
An economic system that permits the conduct of business with minimal government intervention.
Economics
Based on the production, distribution, and consumption of goods and services.
Economic Systems
The method used by society to produce, distribute, and consume goods and services.
3 Economic Questions
* All economic systems must answer these questions.
What goods and services should be produced?
How should these goods and services be produced?
Who consumes these goods and services?
Traditional Economy
Relies on habit or custom to decide what to produce, how to produce it, and who to distribute it to. A society where economic decisions are guided by customs.
Command Economy
The central government makes all of the decisions about the production and consumption of goods and services. An economy in which production, investment, prices, and incomes are determined centrally by the government.
Market Economy
An economic system in which production and prices are determined by unrestricted competition between privately owned businesses. Economic decisions are made by individuals and are based on exchange or trade.
Free Market
An economic system that permits the conduct of business with minimal government intervention.
Mixed Economy
A system that combines tradition and the free market with limited government intervention. A balance of needs and wants are met by the government and in the marketplace.
Consumer Prices
Changes in the buying power of the dollar; inflation.
Consumer Spending
Demands for goods and services.
Gross Domestic Product
The total value of goods and services produced within a country.
Recession
Two successive quarters of decline in the gross domestic product (GPD).
Housing Starts
The number of new homes being built.
Interest Rates
The cost of borrowing money.
Money Supply
Funds available for spending in the economy.
Stock Market Index
Indicates general trends in the value of U.S. stocks such as the Dow Jones Averages or the S&P 500.
Unemployment
The number of people without employment of work.
Factors That Affect Decision Making
Consumer Prices, Consumer Spending, GDP, Housing Starts, Interest Rates, Money Supply, Stock Market Index
Personal Risk
Factors that create a less than desirable situation. May be in the form of inconvenience, embarrassment, or safety of health.
Inflation Risk
Rising prices cause lower buying power. Buying an item later may mean higher prices.
Income Risk
Changing jobs can result in a lower income or loss of employment.
Liquidity Risk
Certain types of savings and investments may be difficult to convert to cash quickly.
Potential Risks of Decision Making
Personal Finance, Inflation Risk, Income Risk, Liquidity Risk.
Spontaneity
Choosing the first option that comes to mind without thinking about the consequences.
Compliance
Going along with others expectations for your decisions.
Procrastination
Postponing action until options are limited.
Desire
Choosing the option that might achieve the best result regardless of the risk involved.
Security
Choosing the option that will bring some success, offend the fewest people, and pose the least risk.
Agonizing
Accumulating as much info as possible to the point where trying to analyze is overwhelming.
Intention
When your heart and your mind agree.
Decision Making Strategies
Spontaneity, Compliance, Procrastination, Desire, Security, Agonizing, Intention.
What is a Decision?
The process of considering and analyzing information in order to make a choice.
What are the two types of decision?
Routine: made on a day-to-day basis and don’t require a lot of thought, can even become habitual.
Major: have long-term effects on life, and are made with careful consideration.
6 Steps in the Decision Making Process (DECIDE)
Define your goal.
Establish your criteria.
Choose two or three good options.
Identify the pros and cons.
Decide what’s best.
Evaluate the results.
Pressures of Purchasing Decisions
Friends, Advertising, the Internet, Direct Mail, Radio, Celebrities, Gossip, Acceptance, Disapproval, Insecurity, Clubs/Athletes, Significant Others.
SMART Goals
Specific
Measurable
Attainable
Realistic
Time-Bound
Financial Planning
A thinking process that helps achieve goals. A blue print or plan for managing all components of money.
Components of a Financial Plan
Goals, Net Worth, Budget, Income and Expense Records, Insurance Plans, Savings Plans.
5 Steps to Financial Planning
Set SMART goals.
Analyze Information
Create a Plan
Implement the Plan
Monitor and Modify the Plan
An example of a self employed person would be…
A trades person, builder, plumber, mobile hair dresser.
A shift worker…
Works an 8 hour shift within a 24-hour period.
A salaried employee…
Gets paid by the month with a twelfth of their annual salary.
Money received from stocks and shares is called…
DIVIDENDS
What is the money received from a deceased person and their estates called?
INHERITANCE
What tax is paid on a deceased estate?
Inheritance Tax
What is a Resume?
A document that provides information about you to a potential employer.
What goes in the education portion of your resume?
The name of your school.
When crediting a resume it is important to use…
Perfect punctuation and grammar.
Once you have created a resume, how often should you update it?
Every time something changes in your work experience, or if you learn something new.
Resumes are like…
Advertisements of yourself.
What is the purpose of a resume?
To get a job interview.
If you don’t have any work experience, what could you list in your resume?
Activities, Achievements, Skills
Gross Pay
The total amount of earnings BEFORE any deductions are taken out.
Net Pay
The total amount of earnings AFTER deductions have been taken out.
What percentage of gross pay is deducted for social security?
6.2%
What percentage of gross pay is deducted for Medicare?
1.45%
How many credits do you need to receive full retirement benefits for retirement age (67)?
40 credits
Which tax form is used to provide information about your previous years pay and deductions from that year?
W2 Form
Who is responsible for providing you with a W2 form?
Your employer.
Which tax form is used to tell your employer the amount of allowances you will be claiming?
W4 Form
When is a W4 filled out?
When you are first hired and start a job.
Which tax form provides you with information on how much you have earned in an interest in your savings tools such as savings accounts?
1099 INT
Who provides you with your 1099 INT?
Your bank.
Which tax form must you use if you make more than $100,000 per year?
1040
When is tax day?
April 15th
What do you call a learning program that allows you to earn money while you learn on the job?
An apprenticeship
A 2-year degree that typically takes place after High School. Usually at a Community College or technical school.
Associate’s Degree
A degree that first requires a Bachelor’s Degree that allows learners to focus on a specialty in a certain area.
Master’s Degree
How long is a typical Bachelor’s Degree?
4 years
What program allows learners to pay to focus on acquiring a specific skill while learning hands on?
Trade/Vocational School
Earned Income
Wages, Salaries, and Tips.
Unearned Income
Income that has not been worked for such as interest dividends or gambling winnings.
Payroll Taxes
Taxes that have been withheld from an employee’s wages or salary.
Salary
The fixed rate of pay for a week, month, or year.
Wages
Pay based on the number of hours worked.
What are the 4 common taxes to come out of your payroll?
Federal Income Tax
State Income Tax
Medicare Tax
Social Security Tax
Who is considered a dependent on a W4?
You, your spouse, your child.
What government department collects personal income tax?
The IRS (Internal Revenue Service)
True or False: Unearned income is reported on your tax form and taxes must be paid on them
TRUE
What is a bank?
A financial institution licensed to receive deposits and make loans.
The FDIC is…
An independent federal agency insuring deposits in the U.S. banks in the event of a bank failure.
What is a Checking Account?
A deposit account held at a financial institution.
What is a Debit Card?
A payment card that deducts money directly from a consumer’s checking account to pay for the purchase.
What is a Bounced Check?
A check that cannot be processed because the account holder has non-sufficient funds. Banks bounce or return these checks.
Principal
The original sum of money borrowed in a loan or put in an investment.
What is Saving?
The portion of your current income not spent on consumption.
Note
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