CONSUMER BORROWING

Personal Finance
“Money is a terrible master but an excellent servant’.
TABLE OF CONTENTS

Concept of Consumer Borrowing

 Definitions
 History or Origin

Advantages and Disadvantages

Kinds of Credits
4 Basic Economic Activities of
Consumers
Different Activities of Consumers
Law of Scarcity
Trade-off
Opportunity Costs
DEFINITION
A consumer borrowing system allows consumers to
borrow money or incur debt, and to defer repayment of
that money over time. Having credit enables consumers
to buy goods or assets without having to pay for them in
cash at the time of purchase.
Having a good credit record means that a person has an
established history of paying back 100% of his/her debts
on time. A person with good credit will be able to borrow
money more easily in the future, and will be able to
borrow money at better terms. On the other hand, having
a bad credit record means that a person has had difficulty
in the past with paying back all of the money he/she owes,
or with making payments on time.
Lenders are less likely to loan more money to a person
with bad credit, making it difficult for that person to buy a
car, a house, or obtain a credit card. Access to credit is a
valuable benefit, which a person should protect and
manage wisely.
HISTORY / ORIGIN
Consumer borrowing has a rich history,
evolving from informal arrangements to
complex financial systems. In the early 20th
century, installment plans for purchases
gained popularity. The mid-20th century saw
the rise of credit cards, notably with the
introduction of Diners Club in 1950 and
BankAmericard (later Visa) in 1958. The
1970s brought about credit scoring systems,
revolutionizing credit assessment. Over time,
regulations like the Truth in Lending Act
(1968) aimed to protect consumers. The 21st
centuCry witnessed the digital transformation
of credit, with online lending platforms and
fintech innovations shaping the landscape.
ADVANTAGE

The ability to finance a purchase

over time.

The ability to avoid interest

charges by paying off a loan
within a set time.

The ability to get a loan without

having to put down any collateral.

The ability and freedom to charge

up to the limit or less.

The ability to request a limit

increase if payments are made
on time
DIS-ADVANTAGE
The possibility of accruing
numerous interest charges.

The possibility of getting into

debt.

The need to make minimum

monthly payments.

The potential for a high-interest

rate if payments are not paid on
time.
 KINDS
KINDS OF CREDITS
OF CREDITS

CONSUMER TRADE BANK CREDIT INVESTMENT PUBLIC

CREDIT CREDIT CREDIT CREDIT

Consumer credit Trade credit is a form Bank credit refers to Investment credits are Public credit generally
refers to the of credit extended by the funds extended by designed to promote refers to the
borrowing of money one business to a bank to individuals, capital expenditure creditworthiness of a
by individuals for another in the course businesses, or and drive economic government or a
personal use. This of their commercial governments. It growth by offering government's ability
can include credit transactions. It allows includes various financial benefits to to borrow money. It
cards, loans, and a buyer to purchase financial products entities engaged in involves the
other forms of credit goods or services on such as loans, lines of qualifying government issuing
that individuals use to account and defer credit, and mortgages investments. bonds or taking loans
make purchases or payment to a later to finance public
cover expenses. date. projects, services, or
cover budgetary
*
needs.
 4 BASIC ECONOMIC ACTIVITIES OF CONSUMERS

EARNING SPENDING SAVING BORROWING

Earnings refer to the Spending, refers to Saving is the act of Borrowing refers to
money that an the act of using setting aside a the act of obtaining
individual receives in money to purchase portion of one's money from a lender
exchange for their goods or services. earnings for future with the promise of
work or as a result use. returning it at a later
of an investment. date, usually with
interest.
 DIFFERENT ACTIVITY OF CONSUMERS

PURCHASING CONSUMPTION DECISION-MAKING FEEDBACK PROBLEM-SOLVING

Consumers After purchasing, Consumers constantly Consumers When faced with a

engage in the consumers use or make decisions, from provide feedback need or a challenge,
basic activity of consume the choosing between on products and consumers actively
purchasing products they products on a shelf to services through seek solutions. For
review, ratings, or
goods and bought. This could deciding on larger direct
instance, researching
services. For involve eating food, purchases like a car or communication product reviews
example, buying wearing clothes, or a home. with businesses. before making a
groceries, using electronic This activity helps purchase decision.
clothing, or devices. shape future
electronics. purchasing
decision.
 DIFFERENT ACTIVCITY OF CONSUMERS
Information Seeking Budgeting Brand Loyalty Returns and Social
Exchange Sharing

Consumers gather Consumers Some consumers Dealing with Consumers

information about engage in exhibit loyalty to product often share
products, prices, and financial specific brands, dissatisfaction their
brands to make informed planning, repeatedly or issues, experiences,
decisions. This could allocating choosing products consumers may purchases, and
involve online research, resources to or services from engage in recommendatio
asking for different the same company returning or n with others
recommendations, or needs and based on trust, exchanging through social
reading product labels. making satisfaction, or items, seeking a media or word
decisions on other factors. resolution to of mouth,
how to spend problems with influencing the
their money their purchases. decisions of
wisely. their social
circles.
TRADE-OFF

A trade-off in relation with Personal Finance

involves giving up one thing to obtain
something else due to the scarcity of
resources.
The concept of trade-off in Personal Finance,
where individuals must weigh the opportunity
costs of their financial decisions and make
choices that align with their overall priorities
and objectives.
LAW OF SCARCITY

The Law of Scarcity in Personal Finance

refers to the fundamental economic principle
that resources are limited, and individuals
must make choices based on the scarcity of
these resources. In Personal Finance, it
means that a people have finite financial
resources (income, savings, investment) and
must allocate them wisely among competing
needs and wants.
OPPORTUNITY COST
In Personal Finance, Opportunity often refers
to the potential benefits or returns that could
be gained by choosing a particular financial
option or investment. It’s closely tied to the
concept of Opportunity Cost - the value of the
next best alternative forgone.
Being aware of financial opportunities
involves assessing risks, returns, and
potential gains in various financial decisions.
It requires individuals to weigh the potential
benefits against the associated costs and
risks, helping them make choices that align
with their financial goals and priorities.
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