lesson one

making decisions

Personal Finance & Budgeting

04/09
 VOCABULARY

Expenses- the cost required for something; the money spent on

something
Income- money received, especially on a regular basis, for work or
through investments
Balance- the amount of money owed on an account
Cash Flow- the net amount of cash and cash equivalents being
transferred in and out of a company
Credit- the ability to borrow money or access goods or services with
the understanding that you'll pay later
Debit- an entry recording an amount owed
Minimum Wage- $7 in Texas
Profit- the amount earned and the amount spent in buying, operating,
or producing something
Revenue- total money earned from goods without the expenses
subtracted
Taxes- A tax is a compulsory financial charge by a governmental
organization in order to fund government spending and various public
expenditures
 Financial Literacy 1/12

1. Some big purchases I believe i'll make is buying a car, house, and collage.
- I will graduate from college with a degree and find a job to make these big
purchases.
1. Investing is to expend money with the expectation of making
profit.
2. People choose to invest to potentially build wealth by putting
their money to work.
3. A similarity between savings and investing is they both
accumulate money for future use.
 the decision-making process

• The decision-making process

• Identify the problem

• Gather information and list possible alternatives

• Consider consequences of each alternative

• Select the best course of action

• Evaluate the results

 factors that can influence a decision

A. Values E. Family
• What is _important________ to your • Your family’s
family, others in your __preference________
__culture_______?
• __Decisions ________ other
family members have made
B. Peers
• People you __know__________
• Pressure for F. Risks and

sitive______or
___po _Consequences _____
_____
__negative__________ • What (or how much) you stand
behaviors to win
• What (or how much) you stand
C. Habits to lose
• You are accustomed to doing it
this way G. Age
• __Minor_________
D. Feelings (love, _anger_______, • Adult
frustration, ambivalence,
___rejection_____)
• If you do make a certain decision
• If you don’t make a certain decision
teens – lesson 1 - slide 1-
B
 common decision-making strategies
_spontaneity_________
_____
Choosing the first option that comes to mind;
giving little or no consideration to the
__consequences________ of the choice.
compliance
Going along with family, school, work, or peer
expectations_____________.
_procrastination___
___________
Postponing thought and action until options
are limited.
agonizing
Accumulating so much information that
analyzing the options becomes overwhelming.
__intention__________
Choosing an option that will be both
intellectually and emotionally satisfying.
desire
Choosing the option that might achieve the
best result, regardless of the risk involved.
__avoidance_________
Choosing the option that is most likely to avoid
the worst possible result.
security
Choosing the option that will bring some
success, __offend the fewest
people____________________, and pose the
least risk.
synthesis
Choosing the __option_______ that has a
good chance to ___succeed_______ and
which you like the best.
teens – sesson 1 - slide 1-C
 economic influences on decision-making

These economic factors may influence personal and financial decisions:

consumer prices money supply

changes in the __buying____________of the funds available for spending in the economy
dollar, inflation

stock market index

consumer spending (such as the Dow Jones averages, Standard &
demand for goods and services Poor’s 500) indicate general trends in the
value of U.S. stocks
gross domestic product
(_GDP____) __unemployment____________
total value of goods and services produced the number of people without employment
within the country who are willing to work

housing starts
the number of new homes being built

interest rates
the cost of __borrowing________ money

teens – lesson 1 - slide 1-D

 risks associated with decision-making

Risks are associated with every __decision__________The following are

__common____________related to personal and financial decision-making:

personal risks income risk

factors that may create a
__desirable__________situation. Personal risk
may be in the form of inconvenience,
embarrassment, safety, or
health concerns.
__Inflation_________ risk
rising prices cause lower buying power. Buying
an item later may mean a higher price.
changing jobs or reduced spending by
consumers can result in a lower income or loss
of one’s employment. ___Career
changes_____________or job loss can result
in a lower income and reduced buying power.
liquidity risk
certain types of savings (certificates of
deposit) and ___investments___________
(real estate) may be difficult to ____convert to
cash quickly__________________.

interest-rate risk
changing interest rates
___affect___________(when borrowing) and
your benefits (when saving or investing).

teens – lesson 1 - slide 1-

E
 opportunity costs and the time value of money

_opportunity cost__________________refers to what a person gives up when

a decision is made. This cost, also called a trade-off, may involve one or more of
your resources (time, money, and effort).

personal opportunity costs may involve ___time, health, or

energy___________________. For example, time spent on studying usually means
lost time for leisure or working. However, this trade-off may be appropriate since
your learning and grades will likely improve.

financial opportunity costs involve _momentary values____________of

decisions made. For example, the purchase of an item with money from your
savings means you will no longer obtain interest on those funds.

time value of money can be used to __measure _________ financial opportunity

costs using interest calculations.

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

Calculation: ___$1000 ______x .04 (4 percent) x 1 year = __$40____

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

teens – lesson 1 - slide 1-

F