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MM Lesson 1
Financial Decision Making
| Term | Definition |
|---|---|
| Values | What is important to your family, others in your culture? |
| Peers | People you know, Pressure for positive or negative behaviors |
| Habits | You are accustomed to doing it this way |
| Feelings | If you do make a certain decision, If you don’t make a certain decision |
| Family | Your family’s preferences, Decisions other family members have made |
| Risks and consequences | What or how much you stand to win or lose |
| Age | Are you an adult or minor |
| Spontaneity | Choosing the first option that comes to mind; giving little or no consideration to the consequences of the choice. |
| Compliance | Going along with family, school, work, or peer expectations. |
| Procrastination | Postponing thought and action until options are limited. |
| Agonizing | Accumulating so much information that analyzing the options becomes overwhelming. |
| intention | Choosing an option that will be both intellectually and emotionally satisfying. |
| Desire | Choosing the option that might achieve the best result, regardless of the risk involved. |
| Avoidance | Choosing the option that is most likely to avoid the worst possible result. |
| Security | Choosing the option that will bring some success, offend the fewest people, and pose the least risk. |
| Synthesis | Choosing the option that has a good chance to succeed and which you like the best |
| Consumer prices | changes in the buying power of the dollar, inflation |
| Consumer spending | demand for goods and services |
| Gross domestic product (GDP) | total value of goods and services produced within the country |
| Housing starts | the number of new homes being built |
| Interest rates | the cost of borrowing money |
| Money supply | funds available for spending in the economy |
| Stock market index | such as the Dow Jones averages, indicate general trends in the value of U.S. stocks |
| Unemployment | the number of people without employment who are willing to work |
| Personal risks | factors that may create a less than desirable situation. Personal risk may be in the form of inconvenience, embarrassment, safety, or health concerns. |
| Inflation risk | rising prices cause lower buying power. Buying an item later may mean a higher price. |
| Interest rate risk | changing interest rates affect your costs when borrowing and your benefits when saving or investing. |
| Income risk | changing jobs or reduced spending by consumers can result in a lower income or loss of one’s employment. Career changes or job loss can result in a lower income and reduced buying power. |
| Liquidity risk | certain types of savings like certificates of deposit and investments like real estate) may be difficult to convert to cash quickly. |
| Opportunity cost | refers to what a person gives up when a decision is made. This cost, also called a trade |
| Personal opportunity costs | may involve time, health, or energy. For example, time spent on studying usually means lost time for leisure or working. However, this trade |
| Financial opportunity costs | involve monetary values of decisions made. For example, the purchase of an item with money from your savings means you will no longer obtain interest on those funds. |
| Time value of money | can be used to measure financial opportunity costs using interest calculations. |
Created by:
jenjones