The Economic Way of Thinking Personal Finance
The Handy Dandy Guide The Handy Dandy Guide is based on six ideas of economic reasoning: • People choose • We always have a choice – though sometimes the choices can be very difficult
The Handy Dandy Guide • All choices involve cost • Dollar cost • Opportunity cost: your next best option you could have made but did not make.
The Handy Dandy Guide • People respond to incentives in predictable ways • One powerful incentive is money • As well as working for money, people can save money and earn interest on their savings • People can use their savings to buy more goods and services in the future
The Handy Dandy Guide • People create economic systems that influence choices and incentives • The American economic system relies on markets, choices and incentives • Every decision comes with an opportunity cost
The Handy Dandy Guide • People gain when they trade voluntarily • Doing something because you want to, not because someone forced you to do it • People must decide if the benefits are greater than the costs, gather sound information and trade carefully
The Handy Dandy Guide • People’s choices have consequences for the future • Most people live for today, but also for tomorrow • People are affected by good and bad luck, but overall people shape their futures by the decisions they make