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8
CONSUMER PURCHASING STRATEGIES AND LEGAL
PROTECTION
CHAPTER OVERVIEW
While making consumer purchases may not be considered in most financial plans, these choices affect
financial resources available for other purposes. This chapter starts with a discussion of the factors that
influence buying habits. Selected purchasing strategies are then covered, including types of retail stores,
brands, and comparison shopping methods. Next, a systematic approach to making purchase decisions is
presented related to buying, leasing, and operating motor vehicles. The chapter concludes with a
discussion of consumer protection actions and legal alternatives available to individuals.
LO 8-1 Identify strategies for Various economic, social, and personal factors influence daily
effective consumer buying decisions. Overspending and poor money management are
buying frequent causes of overuse of credit and other financial difficulties.
. Timing purchases, comparing stores and brands, using label
information, computing unit prices, and evaluating warranties are
common strategies for effective purchasing.
LO 8-2 Implement a process for A research-based approach to consumer buying involves: (1)
making consumer preshopping activities, such as problem identification and
purchases. information gathering; (2) evaluating alternatives; (3) determining
the purchase price; and (4) postpurchase activities, such as proper
operation and maintenance.
LO 8-3 Identify steps to take to Most consumer problems can be resolved by following these steps:
resolve consumer (1) return to the place of purchase; (2) contact the company’s main
problems. office; (3) obtain assistance from a consumer agency; and (4) take
legal action.
LO 8-4 Evaluate the legal Small claims court, class action suits, and the services of a lawyer
alternatives available to are legal means for handling consumer problems that cannot be
consumers. resolved through communication with the business involved or
through the help of a consumer protection agency.
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Chapter 08 - Consumer Purchasing Strategies and Legal Protection
INTRODUCTORY ACTIVITIES
Ask students to comment on their responses to the “My Life” chapter opening exercise (p. 267).
Point out the learning objectives (p. 267) in an effort to highlight the key points in the chapter.
Ask students to provide examples of purchasing decisions and buying decisions that could affect a
person’s overall financial situation.
Point out the opportunity costs of consumer buying habits that could affect reaching other financial
goals.
Discuss common causes of consumer problems and methods that could be used to resolve these
situations.
CHAPTER 8 OUTLINE
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Chapter 08 - Consumer Purchasing Strategies and Legal Protection
2. Information Gathering
B. Phase 2: Evaluating Alternatives
1. Selecting Vehicle Options
2. Comparing Used Vehicles
3. Leasing a Motor Vehicle
C. Phase 3: Determining Purchase Price
1. Used-Car Price Negotiation
2. Price Bargaining for New Cars
3. Comparing Financing Alternatives
D. Phase 4: Postpurchase Activities
1. Automobile Operation Costs
2. Motor Vehicle Maintenance
3. Automobile Servicing Sources
III. Resolving Consumer Complaints
A. Step 1: Initial Communication
B. Step 2: Communication with the Company
C. Step 3: Consumer Agency Assistance
D. Step 4: Legal Action
IV. Legal Options for Consumers
A. Small Claims Court
B. Class-Action Suits
C. Using a Lawyer
D. Other Legal Alternatives
E. Personal Consumer Protection
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Chapter 08 - Consumer Purchasing Strategies and Legal Protection
I. CONSUMER BUYING ACTIVITIES (p. 268) Use PPT slides 8-2 to 8-5.
Financial Implications of Consumer Decisions (p. 268) Text Highlight: Exhibit 8-1
presents the relationship
Your daily buying habits are affected by a wide between wise buying and
variety of economic, social, and personal factors. financial security.
Opportunity costs of daily buying decisions are
commonly overlooked trade-offs such as:
higher costs when buying on credit
buying poor quality items
buying brands that are difficult to obtain repair
service
buying by mail to save time and money but
having a difficult time returning the item
using time and effort to comparison shop
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Chapter 08 - Consumer Purchasing Strategies and Legal Protection
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Chapter 08 - Consumer Purchasing Strategies and Legal Protection
II. MAKING MAJOR CONSUMER PURCHASES: Use PPT slides 8-11, 8-12, 8-
BUYING MOTOR VEHICLES (p. 275) 18.
Discussion Question: How can
A specific decision-making process can help to make consumers determine if
effective purchases. information from advertising
and other business sources is
Phase 1: Preshopping Activities (p. 275) reliable?
Objective decision making must start with a planned Text Highlight: Exhibit 8-3 (p.
course of action. Define your shopping problem in 276) provides an overview of
terms of a broad perspective. the phases involved in the
research-based approach for
Information is power. The better informed you are, consumer purchasing.
the more likely you are to make the purchasing choice
Current Example: Compulsive
that best serves your interest.
shoppers tend to have some of
The main sources of consumer information are: the following characteristics:
1. personal contacts run up credit card balances
2. business organizations including advertising, miss paying some bills
labels, and sales personnel
make only minimum
3. media information from television, radio, payment on charge
newspapers, and magazines accounts
4. independent testing organizations such as hide purchases from partner
Consumers Union and Underwriters Laboratories throw out clothes that have
5. government agencies never been worn
6. online sources buy something every time a
store is entered
Phase 2: Evaluation of Alternatives (p. 277)
Some individuals may
Each alternative needs to be evaluated on the basis of require professional help
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Chapter 08 - Consumer Purchasing Strategies and Legal Protection
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Chapter 08 - Consumer Purchasing Strategies and Legal Protection
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Chapter 08 - Consumer Purchasing Strategies and Legal Protection
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Chapter 08 - Consumer Purchasing Strategies and Legal Protection
Motor Vehicle Maintenance (p. 282) Text Highlight: Exhibit 8-6 (p. 283)
People who sell, repair, or drive automobiles for a living provides a list of proper motor vehicle
state that regular vehicle care is one of your best maintenance.
investments.
The systems of your car that should be monitored and
maintained on a regular basis are the engine, cooling
system, transmission, brakes, steering mechanism, exhaust
components, and suspension.
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Chapter 08 - Consumer Purchasing Strategies and Legal Protection
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Chapter 08 - Consumer Purchasing Strategies and Legal Protection
III. RESOLVING CONSUMER COMPLAINTS (p. Use PPT slides 8-19 and 8-20.
284) Text Highlight: Exhibit 8-8 (p.
288) provides an overview of
Every business transaction is a potential problem. the process for resolving
Most customer difficulties are the result of defective consumer complaints.
products, low quality, short product lives, unexpected
Text Highlight: Exhibit 8-9 (p.
costs, and poor repairs. 287) suggests a format for a
You will probably never be completely satisfied with complaint e-mail/letter when
every purchase you make. The process for resolving contacting a business or
differences has four phases: consumer agency.
1. Initial communication Supplementary Resource:
2. Communication with the company Have students access the
Consumer Resource Handbook
3. Consumer agency assistance at http://publications.usa.gov/
4. Legal action. Supplementary Example:
Mediation is involvement of an impartial third party Federal law allows a person
who tries to resolve a difference between a customer three business days to cancel a
contract for $25 or more if the
and a business through discussion and negotiation.
agreement was signed away
Arbitration is the settlement of a difference by a from the seller’s regular place of
third party—the arbitrator—whose decision is legally business. This “cooling-off” law
binding. does not apply to purchases
made at a retail business in a
Many state, local, and federal government agencies fixed location or for transactions
are available to assist consumers; see Appendix B. made by mail or phone. The
cancellation right also applies to
home-equity loans, health club
memberships, and discount
buying clubs, no matter where
the contract is signed. Many
states have a cooling-off period
when buying timeshare vacation
property, while others also cover
campground memberships.
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Chapter 08 - Consumer Purchasing Strategies and Legal Protection
IV. LEGAL OPTIONS FOR CONSUMERS (p. 288) Use PPT slide 8-21.
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Chapter 08 - Consumer Purchasing Strategies and Legal Protection
CONCLUDING ACTIVITIES
Point out the chapter summary (p. 293) and key terms in the text margin.
Use the “My Life Stage” feature (p. 292) to highlight the main financial planning activities from the
chapter for various ages and life situations.
Discuss selected end-of-chapter Financial Planning Problems, Financial Planning Activities, and Life
Situation Case.
Use Chapter Quiz in the Instructor’s Manual.
Use the “Your Personal Financial Planner in Action” (pp. 296-297) activities to encourage students to
plan and implement various personal financial decisions.
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Chapter 08 - Consumer Purchasing Strategies and Legal Protection
CHAPTER 8 QUIZ
TRUE-FALSE
_____1. The first element in a purchasing decision is gathering information.
_____2. Consumer information from business organizations includes advertising,
product labels, and packaging.
_____3. National name brand products usually cost more than store brands or generics.
_____4. An express warranty is usually in a written form.
_____5. Most consumer complaints are resolved with the use of a government agency
or by taking legal action.
MULTIPLE CHOICE
_____6. A(n) __________ warranty covers most repairs of a product.
a. limited
b. implied
c. full
d. express
_____8. When leasing a motor vehicle, the capitalized cost refers to the
a. security deposit.
b. residual value.
c. interest rate.
d. price of the vehicle.
_____10. __________ are publicly supported community law offices that provide legal
assistance to consumers who cannot afford their own attorney.
a. Small claims courts
b. Class action suits
c. Legal aid societies
d. Legal clinics
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Chapter 08 - Consumer Purchasing Strategies and Legal Protection
SUPPLEMENTARY ACTIVITY
This page contains statements on different interests and priorities consumers have. Please read each
statement and circle the number indicating how much you agree or disagree with the statement as a
description of you.
Disagree
Disagree
Between
Strongly
Strongly
Agree
Agree
In
1. Getting very good quality is very important to me 1 2 3 4 5
2. The well-known national brands are best for me 1 2 3 4 5
3. I usually have one or more outfits of the very newest style 1 2 3 4 5
4. Shopping is a pleasant activity to me 1 2 3 4 5
5. I buy as much as possible at “sale” prices 1 2 3 4 5
6. I should plan my shopping more carefully than I do 1 2 3 4 5
7. There are so many brands to choose from that often I feel
confused 1 2 3 4 5
8. I have favorite brands I buy over and over 1 2 3 4 5
9. When it comes to purchasing products, I try to get the very
best 1 2 3 4 5
10. The more expensive brands are usually my choices 1 2 3 4 5
11. I keep my wardrobe up-to-date with the changing fashions 1 2 3 4 5
12. Going shopping is one of the enjoyable activities of my life 1 2 3 4 5
13. The lower price products are usually my choice 1 2 3 4 5
14. I am impulsive when shopping 1 2 3 4 5
15. Sometimes it’s hard to choose which stores to shop 1 2 3 4 5
16. Once I find a product or brand I like, I stick with it 1 2 3 4 5
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Chapter 08 - Consumer Purchasing Strategies and Legal Protection
Scoring Summary
Scoring Interpretation
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Chapter 08 - Consumer Purchasing Strategies and Legal Protection
PRACTICE QUIZZES
Identify sources of used vehicles, research and compare prices, condition of vehicle, and options.
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Chapter 08 - Consumer Purchasing Strategies and Legal Protection
Leasing may be appropriate for business use or when a new vehicle is desired every few years.
Frequent oil changes, regular tune-ups, and checking belts, hoses, and fluids regularly can minimize
major repairs and maximize vehicle life.
1. Calculating Future Value. You can purchase a service contract for all of your major appliances for
$180 a year. If the appliances are expected to last for 10 years and you earn 5 percent on your savings,
what would be the future value of the amount you will pay for the service contract?
Solution: $180 12.578 (PVA 5%, 10 years) = $2,264.04
LO: 8-1
Topic: Calculating Future Value
LOD: Medium
Bloom’s tag: Application
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Chapter 08 - Consumer Purchasing Strategies and Legal Protection
2. Future Value of Wise Buying. If a person saves $63 a month by using coupons and doing comparison
shopping, (a) what is the amount for a year? (b) What would be the future value of this annual amount
over 10 years, assuming an interest rate of 4 percent?
Solution: (a) $63 × 12 = $756; (b) $756 × 12.006 = $9,076.54
LO: 8-1
Topic: Future Value of Wise Buying.
LOD: Medium
Bloom’s tag: Application
Using the consumer buying matrix (p. 271), conduct a quantitative product evaluation rating for each
brand. What other factors is Tammy likely to consider when making her purchase?
Solution:
Brand A: (.1 6) + (.6 8) + (.3 7) = 7.5
Brand B: (.1 9) + (.6 6) + (.3 8) = 6.9
Brand C: (.1 5) + (.6 9) + (.3 6) = 7.7
Tammy should also consider many other factors such as store location, availability of service, brand
reputation, experience of others, and shipping costs.
LO: 8-2
Topic: Comparing Buying Alternatives.
LOD: Medium
Bloom’s tag: Application, analysis
4. Calculating the Cost of Credit. John Walters is comparing the cost of credit to the cash price of an
item. If John makes an $80 down payment and pays $34 a month for 24 months, how much more will that
amount be than the cash price of $695?
Solution: [($34 24 months) + $80] - $695 = $201
LO: 8-2
Topic: Calculating the Cost of Credit.
LOD: Medium
Bloom’s tag: Application
5. Computing Unit Prices. Calculate the unit price of each of the following items:
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Chapter 08 - Consumer Purchasing Strategies and Legal Protection
Solution:
Motor oil 78 cents a quart
Cereal 14.5 cents an ounce
Canned fruit 6.8 cents an ounce
Facial tissue 75 cents per 100
Shampoo 23.3 cents an ounce
LO: 8-2
Topic: Computing Unit Prices.
LOD: Easy
Bloom’s tag: Application
6. Calculating the Present Value of a Consumer Purchase. What would be the net present value of a
microwave oven that costs $159 and will save you $68 a year in time and food away from home? Assume
an average return on your savings of 4 percent for five years.
Solution: $68 4.452 (PV of a series of amounts, 4%, 5 years) - $159 = $143.74
LO: 8-2
Topic: Calculating the Present Value of a Consumer Purchase
LOD: Medium
Bloom’s tag: Application
7. Comparing Automobile Purchases. Based on financial and opportunity costs, which of the following
do you believe would be the wiser purchase?
Vehicle 1: A three-year-old car with 45,000 miles, costing $8,700, and requiring $585 of immediate
repairs.
Vehicle 2: A five-year-old car with 62,000 miles, costing $6,500, and requiring $960 of immediate
repairs.
Solution: Students can make a case for either vehicle since #1 has lower mileage, is newer, and
requires fewer repairs. However, some people may find #2 more appealing due to the lower initial
costs.
LO: 8-2
Topic: Comparing Automobile Purchases
LOD: Medium
Bloom’s tag: Analysis
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Chapter 08 - Consumer Purchasing Strategies and Legal Protection
8. Calculating Motor Vehicle Operating Costs. Using Sheet 38 in the Personal Financial Planner,
calculate the approximate yearly operating cost of the following vehicle.
Solution:
Fixed Ownership Costs Variable Operating Costs
$2,500 depreciation $2,024 Gasoline
650 interest on loan 370 oil/repairs
680 Insurance 420 parking/tolls
65 License/registration $2,814 total variable costs
$3,895 total fixed costs
Total costs $6,709 divided by 13,200 miles equals 50.8 cents cost per mile.
LO: 8-2
Topic: Calculating Motor Vehicle Operating Costs
LOD: Medium
Bloom’s tag: Application
9. Buying versus Leasing a Motor Vehicle. Based on the following, calculate the costs of buying and of
leasing a motor vehicle.
Loan payment $450 for 48 months Lease payment $450 for 36 months
Solution:
Purchase: $1,500 + [450 × 48] – 4,000 + [1,500 × .04 × 4] = $19,340
Lease: [450 × 36] + 600 + [500 × .04 × 3] = $16,860
LO: 8-2
Topic: Buying vs. Leasing a Motor Vehicle.
LOD: Medium
Bloom’s tag: Application
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Chapter 08 - Consumer Purchasing Strategies and Legal Protection
1. Analyzing Influences on Consumer Buying. Use advertisements, online articles, and personal
observations to describe the economic, social, and personal factors influencing purchases of people in the
following life situations: (a) a retired person; (b) a single parent with children ages 5 and 9; (c) a dual-
income couple with no children; (d) a person with a dependent child and a dependent parent.
Ask students to identify and explain differences in buying influences for different life situations.
2. Comparing Consumer Information Sources. Obtain online reviews to evaluate and compare different
brands of a product. Also obtain information on the product from people who sell the item and those who
have recently purchased it. Compare the information received from these sources.
Product reviews and ratings can provide helpful insight into a purchase. However, these results can
sometimes be different from those of individual consumers. Have students report on their findings of
differences between what was found online and what other consumers experienced with the product.
3. Researching Consumer Purchases. Using the consumer buying matrix (p. 271), analyze a consumer
purchase you plan to make sometime in the future. What factors affected the selection of the attributes
and weights you chose for this purchase analysis?
This assignment will require students to assess the importance of various attributes when making a major
purchase.
4. Comparing Used Cars. Use Sheet 35 in the Personal Financial Planner to compare different sources
of used motor vehicles.
This activity can involve use of advertisements and an online search rather than visits to used car sales
locations. Students should be able to point out economic, operational, and other factors that influence
costs of vehicles from different sources.
5. Evaluating Motor Vehicle Leases. Use Sheet 36 in the Personal Financial Planner to compare the
costs of buying and leasing a motor vehicle.
This activity will allow students to better understand the sources and costs of leasing a motor vehicle.
Encourage students to use dealer visits, advertisements, and websites to obtain information for this
activity.
6. Identifying and Solving Consumer Problems. Conduct online research to determine the most common
sources of consumer complaints. Interview someone who has had a consumer complaint. What was the
basis of the complaint? What actions did the person take? Was the complaint resolved in a satisfactory
manner?
7. Comparing Legal Services. Prepare a survey of legal services available to students and others in your
community. Use Sheet 39 in the Personal Financial Planner to compare the fees and services provided
by lawyers and other sources of legal assistance.
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Chapter 08 - Consumer Purchasing Strategies and Legal Protection
Some colleges have legal services available for students, this alternative should be considered along with
others.
1. Based on Mackenzie’s experiences, what benefits and drawbacks are associated with online car
buying?
While ease and convenience may be associated with online car buying, uncertainty of vehicle
performance and dealer reputation may be a concern.
2. What additional actions might Mackenzie consider before buying a motor vehicle?
Talk to people who have purchased vehicles through various online sources; research local dealers
who actively participate in the online buying process.
3. What do you consider to be the benefits and drawbacks of shopping online for motor vehicles and
other items?
While student answers will vary, encourage students to communicate their knowledge related to
online shopping.
CONTINUING CASE
Although student responses may vary, some good answers to this question are:
They should identify their needs and gather relevant product information.
They should then compare product features such as the vehicle options.
They should then compare various sources of the product such as new-car dealers, used-car
dealers, individuals selling their own cars, auctions, used-car superstores, or online used-car
businesses.
Then they should determine a fair purchase price by reviewing various sources such as
newspaper ads, Kelley Blue Book, and Edmund’s Used Car Prices.
Then they should negotiate to obtain a lower price.
Lastly, they should determine if paying cash is appropriate or if financing is appropriate.
Various sources of financing are available to choose from such as loans from banks, credit
unions, consumer finance companies, and other financial institutions.
2. What items should Shelby and Mark consider a part of the real cost of owning a car?
Although student responses may vary, some good answers to this question are:
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Personal Finance Kapoor 11th Edition Solutions Manual
Chapter 08 - Consumer Purchasing Strategies and Legal Protection
Depreciation
Insurance
Interest on the auto loan
License and registration fees
Taxes and other fees
Oil, tires, and other maintenance or repair costs
Gasoline
Parking and toll fees
3. Explain how Shelby and Mark might use the following Personal Financial Planner sheets (Used-
Car Purchase Comparison and Buying versus Leasing an Automobile).
Although student responses may vary, some good answers to this question are:
a. Used-Car Purchase Comparison
They can use this form to compare the condition of used vehicles they are considering from
various sources.
b. Buying versus Leasing an Automobile
They can use this form to compare the total cost of leasing a car to the total cost of
purchasing a car.
This activity can assist students with an ability to reduce unplanned buying and to better achieve long-
term financial goals.
8-25
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