THE ECONOMICS BEHIND FINANCIAL DECISIONS

I can understand the definition of Economics.

I can understand why people have to make choices and that with choosing comes consequences.

I can understand that with every benefit there is always a cost.

I can understand that incentives help to set goals.

I can understand that setting goals helps in the efficient use of scarce resources.

STUDENT TARGET

CONCEPTS Economics Scarcity Opportunity Cost Income Consumption Saving Incentives Cost Benefit

Goals Budget Utility Choice Consumer Producer Wages Short-term Long-term

Standard 1 : ScarcityProductive resources are limited. Therefore, people can not have all the goods and services they want; as a result, they must choose some things and give up others.

Standard 2 : Marginal Cost/BenefitEffective decision making requires comparing the additional costs of alternatives with the additional benefits. Most choices involve doing a little more or a little less of something: few choices are "all or nothing" decisions.

NATIONAL STANDARDS

Standard 3 : Allocation of Goods and Services

Different methods can be used to allocate goods and services. People acting individually or collectively through government, must choose which methods to use to allocate different kinds of goods and services.

Standard 4 : Role of IncentivesPeople respond predictably to positive and negative incentives

NATIONAL STANDARDS

WHICH ONE OF THESE TWO THINGS WOULD YOU RATHER BE

DOING RIGHT NOW?

A Cost is something you give up in making a choice and a Benefit is something you gain. What would be the costs and the benefits of doing this now?

COSTS AND BENEFITS

COSTS AND BENEFITS

WHY MUST YOU CHOOSE? BECAUSE OF SCARCITY

Why have you chosen to do this instead? What are the costs and benefits?

SCARCITY TELLS ME ICAN’T DO BOTH, IHAVE TO MAKE A CHOICE.SINCE YOU CAN’T HAVEEVERYTHING YOU WANTECONOMICS HELPS USGET THE MOST OUT OF WHAT WE CAN HAVE.

SCARCITY

TIME: There is not enough of it to do all of the things you want to do.

MONEY: There are a lot of things you would love to buy now, but what about all of the things you’ll want in the future?

LIFE: We are only on this planet for so long so the quality of our years matter.

HEALTH: Human beings are not indestructible and there are limits we must recognize.

FIRST IMPRESSIONS: There is only one so you better make it a good one.

WHAT THINGS IMPORTANT TO YOU ARE SCARCE?

Have you ever heard the phrase:

“There’s no such thing as a free lunch”?

T.I.N.S.T.A.A.F.L.

EVEN THOUGHTHE SIGN SAYSSO, IS IT TRULYFREE? I MAY NOTGIVE UP MONEY,BUT WHAT AM IGIVING UP BYATTENDING?

OPPORTUNITY COST

IF I EAT LUNCH FROM 12:00 TO 1:00 P.M., WHAT CAN’T I DO?

What is the Opportunity Cost of the following decisions?

Buying a gift for a friend. Working at a job after school Waiting on line for an hour to buy a new cell

phone Saving 50% of this weeks paycheck.

Did you all have the same answers? Why not?

OPPORTUNITY COST IS THE BEST OPTION GIVEN UP WHEN YOU MAKE A

CHOICE

Economics is the study of how people make choices. When you make a good economic decision the benefits will be greater than the costs.

WHAT IS ECONOMICS?

UTILITY = SATISFACTION

He made a good decision

He made a bad decision

SETTING GOALS CREATES A TARGET FOR YOU TO AIM FOR AND GIVES PURPOSE TO THE USE OF YOUR SCARCE RESOURCES.

TAKE OUT A PIECE OF PAPER AND DRAW A LINE VERTICALLY DOWN THE MIDDLE. LABEL ONE SIDE SHORT-TERM GOALS AND THE OTHER SIDE LONG-TERM GOALS. MAKE A LIST OF THINGS YOU WANT TO ACCOMPLISH WITHIN A YEAR OR TWO AND THEN A LIST OF THINGS YOU WANT TO ACCOMPLISH IN 5-

10 YEARS AND BEYOND.

SHORT-TERM GOALS LONG-TERM GOALS

SPEND TIME WITH YOUR FAMILY

GET GOOD GRADES THIS SEMESTER

BUY A NEW PHONE EAT BETTER TRAVEL DURING MY

NEXT VACATION FIND A JOB OPEN A SAVINGS ACCT.

GET INTO A GREAT COLLEGE

OWN A HOME BE FINANCIALLY

INDEPENDENT HAVE A GREAT CAREER RETIRE WHEN I AM 40 TRAVEL AROUND THE

WORLD HAVE A BIG HAPPY

FAMILY OF MY OWN

INCENTIVES are things such as rewards that motivate a person to do something. Punishment is meant to be a disincentive.

PEOPLE RESPOND TO INCENTIVES

YOUR GOALS ARE DETERMINED BY WHAT IS IMPORTANT TO YOU. ACCOMPLISHING THEM

IS THE REWARD.

INCENTIVES HELP PEOPLE MAKE CHOICES

OVER TIME, YOUR SHORT-TERM GOALS CHANGE AS YOUR

PRIORITIES CHANGE.

THINK ABOUT THINGS THAT ARE

IMPORTANT TO YOU NOW THAT WON’T

BE SO IMPORTANT IN THE FUTURE?

CHANGING INCENTIVES CHANGE PEOPLE’S CHOICES

SCARCITY TELLS US WE CAN’T HAVE EVERYTHING WE WANT

EVERY DAY OF OUR LIVES WE HAVE TO MAKE CHOICES

IN MAKING CHOICES WE WEIGH THE BENEFITS AGAINST THE COSTS

NOTHING IS FREE, THERE IS ALWAYS AN OPPORTUNITY COST

A GOOD ECONOMIC DECISION CREATES MORE BENEFITS THAN COSTS

INCENTIVES HELP US TO CHOOSE SETTING GOALS HELPS TO FOCUS

SO, TO RECAP!!!

TRADE-OFFS

OR

TRADE-OFFS

OR

TRADE-OFFS

OR

TRADE-OFFS

OR

WHERE DOES YOUR MONEY COME FROM?

WORK/ALLOWANCE GIFTS/GAMBLING/FOUND

RENTS/LENDING/INVESTING

WHERE DOES YOUR MONEY GO?

It’s the Motorola DynaTAC 8000X , the world’s first cell phone. It went on sale March 6, 1983 and the initial price was $3995 ($10,000 in today’s dollars). It had enough battery life for 30 minutes of talk, cost $5/minute to talk and there was a waiting list of thousands anxious to buy it.

DO YOU KNOW WHAT THIS IS?

WHY WOULD ANYONE BUY THIS?

WHY DO PEOPLE SAVE THEIR MONEY?

BECAUSE:

IF YOU SAVE TO BUY SOMETHING IN THE

FUTURE,

YOU CAN NOT BUY SOMETHING TODAY

WHY IS IT SO HARD TO SAVE?

Trade-offs require a sacrifice in order to achieve satisfaction

Immediate gratification is a strong incentive to act

Income is earned from many sources

People buy things if they provide utility

Buying something today results in the inability to buy something in the future

Saving is hard because it delays gratification

SO, TO RECAP