Lesson 8.1 Spending, Debt and Credit July 2011Copyright © 2007-2011 … REMTECH, inc … All Rights...

Lesson 8.1Spending, Debt and Credit

July 2011 Copyright © 2007-2011 … REMTECH, inc … All Rights Reserved 1

Introduction

Most of you will earn $1 to $2 million dollars during your lifetime and have access to an abundance of credit.

Unfortunately, you will be forced to make complex financial decisions previous generations didn’t have to

make.

In fact, many of you will have access to credit before you even get a job.

Understanding personal finance and knowing how spending, debt and credit are related will make it much

easier for you to make wise decisions.

Your knowledge of spending, debt and credit will be essential to your future financial success.



Objectives

• Explain why people work and what they do with the money they earn

You should be able to do the following after completing this lesson

• Describe the difference between Needs and Wants

• Discuss how spending, debt and credit are related

• Review why you must be taught when and how to spend

• Illustrate why learning by trial and error is dangerous

• Conclude why the cost of spending is greater than the sticker price

• Define opportunity cost and key terms presented in this lesson

• Demonstrate how you would convert the cost of items to hours worked



8.1.1 – Spending Basics

• Why people work and what they do with the money they earn

• The difference between a need and a want

• What debt and credit are

In this section, you will learn

• How expenses can be classified

• What credit can help you do and what it can keep you from doing

• Needs vs. Wants Example

You will run the following Interactive Example



8.1.2 – Connecting Spending, Debt and Credit

• How the economic environment in the US began to change in the early 1980’s

• What the economic environment in the US is now


• What you must do to make use of this theory

• What the Utility Theory of Economics assumes

• Spending, Debt & Credit Exercise

You will run the following Interactive Exercise



8.1.3 – When and How to Spend

• About different ways to learn when and how to spend

• Why it is dangerous to learn by trial and error

• Why peer pressure and the urge for instant gratification creates problems for people

• What the logical cap to spending should be

• What you should base your spending decisions on


• How major life events can affect income and spending

• What is key to managing your money and life events



8.1.4 – Typical Spending Patterns

• Who spends money to purchase goods and services

• About the Consumer Expenditure Survey and what it does

• What pre-teens, teens and young adults spend their money on

• What adults 22 to 64 spend their money on


• What adults older than 64 spend their money on

• The affect of age on spending



8.1.5 – The True Cost of Spending

• What the true cost of spending money you have consists of

• What opportunity cost is and how it is calculated

• Why the cost of an item is always greater than the sticker price

• What the true cost of spending money you don’t have consists of


• What the true cost of an item depends on

• Why it is dangerous to base spending on what might happen in the future



8.1.6 – Relating Spending to Time

• How today’s spending decisions will affect the future

• Why people find it easier to purchase with credit than cash

• How any purchase can be equated to hours worked

• The relationship between hours worked and the effect on your finances


• Time to Work vs. Expense Cost Example

You will run the following Interactive Example



Discussion Questions

Why do you think it is so important to establish and maintain good credit?

What is a debt-to-income ratio and what is it used for?

Lesson 8.1 Spending, Debt and Credit July 2011Copyright © 2007-2011 … REMTECH, inc … All Rights...

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