1 / 16

Consumers in the Economy

Consumers in the Economy. Income vs. Wealth. Income . Wealth. Accumulated assests Financial or Porperty. Wages Salary Interest Returns Any cash flow items. Types of Income . Gross Income Earnings before taxes are deducted Disposable Income

lihua
Télécharger la présentation

Consumers in the Economy

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Consumers in the Economy

  2. Income vs. Wealth Income Wealth Accumulated assests Financial or Porperty • Wages • Salary • Interest • Returns • Any cash flow items

  3. Types of Income • Gross Income • Earnings before taxes are deducted • Disposable Income • Amount of paycheck after taxes are deducted • Discretionary Income • Income used to pay for luxuries or nonessential goods

  4. Inflation • Increases the general level of prices • CPI – Consumer Price Index • http://www.usinflationcalculator.com/inflation/current-inflation-rates/

  5. Purchasing Power • Dollar value of how much an indiiduals money will really buy • Inflation decreases Purchasing Power • PP = Income – (Income x Inflation rate)

  6. So Why Save?? • Borrow less on big ticket items • Increase wealth over time • In case of emergencies • Factors: • AMOUNT saved • LENGTH OF TIME money is saved • INTEREST RATE earned

  7. Interest Rates Savings Borrowing Want a low interest rate on borrowing Takes away from Purchasing Power (higher interest rate) • You want a high interest rate on savings! • Simple interest (specific period) • I=Prin x Rate x Time • $5000 x .07 x 1 yr = $350 • $5000 x .07 x 2 yr = $700 • Future value (int. not compound) • FV=PV x (1 + Rate) x Time

  8. Interest • Simple – interest based on original amount • Compound – interest payment is added to principle every time period • Yield – actual amount received on savings • Yields are highter when compounded more often

  9. What do we think about when we are making investment decisions? • RISK - “Will I lose my investment?” • RATE – “What will I earn on my investment?” • LIQUIDITY – “How quickly can I turn my investment into cash?”

  10. How easy can I get cash? • Liquidity!! • Speed at which you can convert investment into cash Liquid>>>>>>>>>>>>>>>>>>>>>>>Illiquid Cash, savings, CD, stocks, IRA’s, 401K Trade offs- Risk vs. Rate at Return?

  11. Social Security • When did it start? • What was the purpose for it? • How is it funded?

  12. Markets Equity Bond Bonds Lend money to corp/govt Pay interest rate Predictable income Types: Corp. bonds Treasury bonds/Savings Municipal • Stocks • Buy piece of co • Profits-dividends • Voting rights • High rate of return

  13. Personal Managed Investments • Money Markets • Mutual fund • Real Estate • Beware: • Diversify Capital Gains (sell investment for more than you bought it,….pay taxes) Insurance – avoid losing money due to unforeseen circumstances (pay premiums)

  14. Credit/Credit Worthiness • How consumers pay back money • 3 C’s: • Collateral – repossess if fail to repay • Capacity – level of income, can they pay? • Character – history of payments

  15. Credit Cards • Cost: • Opportunity cost – future spending limited • Interest rates – annual percentage rate high • Annual fees – priviledge of having card • Other fees – late pymt, exceed limit, cash adv.

More Related