C HAPTER 8

1. CHAPTER8 Consumer Purchasing Strategies and Legal Protection Personal Finance 7e Kapoor Dlabay Hughes 8-1

2. Financial Implications ofPurchasing Decisions • Commonly overlooked trade-offs when buying include… • Paying a higher price over time by using credit to buy items you need now. • Buying unknown, possibly poor-quality brands, that are less expensive. • Selecting brands that may be difficult to service or repair. • Ordering by mail or online to save time and money, but return or repair may be difficult. • Taking time and effort to comparison shop. 8-2

3. Economic Factors Social Factors • Consumer prices • Interest rates • Supply/demand • Brand name • Warranty • Product Quality • Tax rates • Govt. regs. • Lifestyle • Culture • Attitudes • Ads • Media/Internet • Hobbies • Peer group Consumer Buying Influences Personal Factors • Housing type • Ethnic group • Religion • Sex and age • Marital status • Occupation • Income • Education • Family size 8-3

4. Consumer Purchasing: A Research-Based Approach - Phase 1: Preshopping Activities • Problem identification. • Information gathering. • Costs - price variance. • Options - who offers brands and services. • Consequences - to time, health and financial situation. • Market awareness. • Store, mail-order, and online sources of an item. • Available brands and features. • Pricing techniques for the item. • The most reliable sources of information. 8-4

5. Phase 2: Evaluation of Alternatives • Attribute assessments. Based on personal values and goals, available time and money, costs and benefits, and specific needs with regard to product size, quality, quantity, and features. Four steps to take include... • Identify attributes such as features, performance, design, and warranty, and assign a weight to each based on each attribute’s importance to you. See Consumer Reports and the Web. • Select brands to be evaluated. • Rate each brand’s attributes from 1-10. Multiply the rating by the assigned weight to get a score. • Total the scores and assess the results. 8-5

6. Phase 2: Evaluation of Alternatives (continued) • Price analysis. • Prices can vary for all types of products. • Assess differences in quality in relation to price. • Price and quality are not always closely related. • Comparison shopping can be beneficial when... • Buying expensive or complex items. • Buying items that you purchase often. • It can be done easily with advertisements, catalogs, or online. • Different sellers offer different prices and services. • Product quality or prices vary greatly. 8-6

7. Phase 3: Selection and Purchase • Negotiation may be used in some buying situations. • Have all the necessary information. • Deal with a person who has the authority to give you a lower price or additional features. • Decide on cash or credit. If credit, consider... • Different places to borrow. • Different types of credit accounts. • Different down payment options. • Different payment periods. • Get all acquisition and installation costs and conditions in writing to avoid add-on costs. 8-7

8. Phase 4: Postpurchase Activities • Three days to cancel some contracts of =>$25. • Maintenance and ownership costs may be associated with some purchases. • Use the item correctly to have improved performance and fewer repairs. • Investigate, evaluate and negotiate a variety of servicing options. • Complain if you are not satisfied with a purchase. • Consider what you have learned from the purchase. 8-8

9. Practical Purchasing Strategies • Timing of purchases. • Be aware if the price varies with the time of the year. • Store selection. • The retailer you use depends on a variety of factors. • One choice is a cooperative, which is a non-profit organization, and members save money. • Comparison shopping of store and national brands, or impulse buying (unplanned purchasing). • Look for information on the label and open dating. 8-9

10. Practical Purchasing Strategies (continued) • Price comparison. • Unit pricing provides a standard of measurement. • Coupons (online: coolsavings.com; centsoff.com; couponsurfer.com) and rebates (partial refund). • More convenience, and ready-to-use products, may mean higher prices. Large is not always the best buy, and “Sale” prices vary among stores. • Evaluate warranties. • Full or limited express warranties, usually written. • Implied warranties of merchantability. • Service contracts -also called extended “warranties.” 8-10

11. Resolving Consumer Complaints • Return to place of purchase. • Contact the company’s main office (www.pueblo.gsa.gov to link to the online Consumer’s Resource Handbook). Another option is via a firm’s website “contact us.” • Obtain assistance from a consumer agency. • BBB provides pre-purchase information. • File a complaint on line at www.bbb.org. • Mediation - third party negotiates (nonbinding) • Arbitration - decision is binding. • State consumer protection office or agency. • Federal agencies - see pueblo.gsa.gov. 8-11

12. Steps in Resolving Consumer Complaints (continued) • Take legal action - options for consumers... • Small claims court. • Class action suits. • Using a lawyer. • Other legal alternatives. • Legal aid society. • Prepaid legal services. • Legal questions can be researched at www.nolo.com. 8-12

13. Personal Consumer Protection • To protect yourself as a consumer… • Deal with reputable companies. • Avoid signing contracts and other documents you do not understand. • Be cautious about offerings that seem too good to be true - they probably are. • Compare the cost of buying on credit with the cost of paying cash. Compare interest rates the seller offers with other sources. • Avoid rushing to get a good deal. 8-13

14. CHAPTER8 Appendix Buying and Operating a Motor Vehicle Personal Finance 7e Kapoor Dlabay Hughes 8-14

15. Buying a Used Vehicle • Sources of used vehicles. • New-car dealers. • Used-car dealers. • Private parties. • Auctions, used car superstores such as CarMax, or online at sites such as www.dealernet.com or www.americasautomall.com. • Consumer protection for used car buyers. • FTC buyer’s guide in window. • Buy from a source that gives some assurance of the vehicle’s reliability. 8-15

16. The Used Car Inspection Process • Outside the car. • Inside the car. • The engine. • Have a mechanic or technician of your choice estimate the costs of potential repairs. • Odometer fraud. • The road test. 8-16

17. Used-Car Price Negotiation • Price information sources • Edmund’s Used Car Prices or edmunds.com • NADA Official Used Car Guide. • Kelly Blue Book kbb.com • The more new cars sold the more used cars there are for sale, keeping the prices down. 8-17

18. Gathering Information • Sticker price - suggested retail price. It includes the base price of the vehicle plus accessories. • Invoice price - dealers cost. • Know the dealer’s cost by consulting... • Consumer Reports www.consumerreports.org • Edmund’s New Car Priceswww.Edmund's.com • Buy in winter, early spring or end-of-month. 8-18

19. Selecting Options • Mechanical devices. • Engine size, transmission, power steering,cruise control, and antilock brakes. • Comfort and convenience options. • Power seats, air conditioning. • Stereo systems, power locks. • Aesthetic features. • Special paint. • Mag wheels. • Service contract - look for costs and exclusions. 8-19

20. Determining a Purchase Price • Price bargaining - compare dealers. • Set-price dealers. • Car buying services. • Also called an auto broker. $50-$200 over dealer’s cost. • Online car buying • www.autobytel.com or autoadvisor.com . • The sales agreement - specific details. • Consumer protection for new-car buyers. • Warranties and lemon laws. 8-20

21. Financing an Automobile Purchase • Financing sources. • Banks, credit unions, other financial institutions, finance companies, or dealer financing. • Get preapproved for a certain amount. • Consider the length of the loan. • Upside down equity means that your car is worth less that what you still owe on your car loan. • Check the APR and any rebates. 8-21

22. Leasing a Motor Vehicle • Advantages. • Small cash outflow. • Lower monthly payments than buying. • Lease provides detailed records - helps if you use your car for business purposes. • Disadvantages. • No ownership interest. • Must meet requirements. • May have additional costs for extra mileage, turning the car in early, or for certain repairs. 8-22

23. Types of Leases • Closed-end. • You return the car at the end of the lease and pay for any extra mileage or damage, but you are committed for the full lease term. • Open-end. • Easier to terminate the lease, but you have higher lease payments and they may require you to pay for the difference between the expected value of the leased vehicle and the amount for which they sell it. • Single-payment - prepaid, discounted lease. 8-23

24. Financial Aspects of Leasing • Capitalized cost - the price of the vehicle. Average buyer pays 92% of list, average person who leases pays 96% of list. • Money factor - interest rate. • Monthly payment amount and number of payments. • The residual value - expected value of the vehicle at the end of the lease. You may decide to return, keep, or sell the vehicle. If the residual value is less than market value, return it. 8-24

25. Financial Aspects of Leasing (continued) • Avoiding lease traps. • Not knowing the total cost of the agreement, including the cost of the vehicle. Don’t just look at the monthly payment. • Making a larger up-front payment than is required, or paying unnecessary add-on costs. • Negotiating the monthly payment rather than the cost of the vehicle. • Not having the value of any trade-in vehicle reflected in the lease. • Signing a contract you don’t understand. 8-25

26. Costs of Operating a Car • Fixed Costs. • Depreciation is the largest fixed cost. • Interest on loan. • Insurance. • License, registration and taxes. • Variable Costs. • Gas and oil. • Tires. • Maintenance and repairs. • Parking and tolls. 8-26

27. Costs of Operating a Car (continued) • Keep good expense records. • Follow the maintenance schedule in the manual. • Vehicle servicing options. • Car dealers. • Automobile repair shops. • Service stations. • Department and discount stores. • Specialty shops such as oil/lube, muffler, transmission, and tire shops • Be alert for signs of fraud. 8-27

28. The End