Spending Money • Disposable vs. Discretionary Income • Disposable= money income after all taxes have been paid • Discretionary= money left after all necessities have been bought. Money spent on entertainment and luxury items. • Rational Choice: alternative choice that has the best value • Values is subjective • In your notes: What do you look for when purchasing a pair of shoes?
Decision Making as a Consumer • First must decide if you are going to buy an item. • Next at least 2 scarce resources are involved: • Time • Money • Opportunity Cost: the value of your highest alternative choice that you did not make.
Three Basic Buying Principles • Gathering Information • The value of your own time is important in this • Using Advertising wisely • Competitive Ads: Attempts to prove superiority • Usually from established companies • Informative Ads: give you information on the product • Comparative: compare directly two products • Bait and Switch Ads: deceptive • Bait you with a low price, show you the better model on arrival • Comparison Shopping: Gaining info on Brands • Generic Names vs. Brand Names
Consumerism • Movement to educate people about the products they buy. • Demand better and safer products from manufacturers • Consumer Rights: Gained Steam with the Kennedy Administration in the 1960’s. - Consumer Bill of Rights 1. Right to safety 2. Right to be informed 3. Right to Choose 4. Right to be heard 5. Right to Redress
Consumer Responsibilities • Consumer Responsibilities: Educate yourself • If Producers have regulation, Consumers must act Ethically: • Acting morally when it comes to taking part in the market
Consumer Fraud and Scams • Avoiding Scams A. “If it is too good to be true, it probably is!” B. “There is nothing free in life!” C. Read all contracts D. Get everything in writing E. Never send money to win a prize F. Contact the Attorney Generals Office (Consumer Protections Agency)
Types of Scams Bait and Switch - Drawn to the store because of ad, then salesman sells you a more expensive product. - This is against the law Work at Home Scheme - You send money to assemble products then company pays to back when you finish the job Paying to Win - You have one a product or trip, but requests you send money or give credit card number, to cover shipping and handling.
Types of Fraud Home Solicitation Sales - hard sell the elderly - salesmen must be licensed Negative Option Clubs - club sends you books or CD’s and credits your account if you don’t send them back on time. Charitable Solicitations - phony charities Nigerian Scam