Ch. 10: Consumption

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Ch. 10 Consumption Savings

• Gr. 11 Economics (CIE3M1-01)
• M. Nicholson

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Consumption

• Consumption is that part of an individuals
  income that is spent on goods services rather
  than saved.
• Consumer demand determines what goods services
  are produced

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Consumption

• Factors influencing consumer choice
• Income levels
• Fashion
• Custom
• Advertising

4
Consumption

• Consumer protection ? Goods and services much
  more complex than in the past, therefore
  vulnerable consumers need to be protected by
• Government
• Better Business Groups
• Consumer Protection Groups

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Consumption

• Consumer credit
• The ability to buy now and pay later
• Other sources of credit include bills we receive
  and pay well after we have used the product (e.g.
  hydro, telephone)
• Credit cards such as Visa and MasterCard are very
  popular, but unpaid balances have punitive
  interest payments of 18.5

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Consumption

• Consumer credit
• Charge accounts like a Sears card are growing
  less popular as they become credit cards (e.g.
  Canadian Tire)
• Conditional sales contracts are installment
  payments that if not paid allow the seller to
  repossess the product sold

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Consumption

• Spending patterns of Canadians
• incomes ? ? expenditures ? lt savings ?
• expenditures as a percentage of income decrease
  as income rises
• e.g. spend 12,000 of a 12,000 income which is
  100 whereas spend 40,000 of a 60,000 income
  which is 66

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Consumption

• Personal finances
• Good idea to develop a budget or financial plan
  showing expected income expenditures
• it helps control your consumption to avoid debt
  caused by poor purchasing decisions

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Savings

• Savings are that part of current income that is
  not spent
• Loans
• Banks, trust companies, and credit unions borrow
  money from individual Canadians (e.g. personal
  chequing account, chequing / savings account,
  savings account, guaranteed investment
  certificates)

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Savings

• Loans
• Governments borrow money through savings bonds
  (e.g. Canada Savings Bonds)
• Life insurance savings
• Corporate bonds

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Savings

• Equities
• Stocks or ownership in a corporation offer a high
  return, but risk of losing investment can be high
• Real estate offers homeowners equity, the
  difference between the value of the house and
  outstanding loans plus there is no capital gains
  tax on the increased price a home seller may
  receive

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Savings

• Mutual / Investment Funds
• Safer investment because of diversification and
  professional management
• E.g. equity funds, bond funds, mortgage funds,
  money market funds, balanced funds

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Savings

• Life Insurance
• A contract in which one party (the insurer)
  agrees to pay another (the insured) a sum of
  money in the event of a specific loss (e.g.
  death)
• Term insurance, Straight-life / Whole-life
  insurance, Limited-pay life insurance

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Savings

• Share ownership among Canadians
• image of Canadians being very conservative and
  adverse to risk
• ownership of stocks ? ? 16 to 21 of the
  population between 1989-93
• 25 own equity funds

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Savings

• Registered Retirement Savings Plans
• Method of reducing taxable income and saving for
  retirement
• You and your investments
• Decide on reasonable financial objectives (e.g. 3
  bedroom house, minivan, Florida vacation)
• greater risk greater potential returns
• less risk less potential returns

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Savings

• You and your investments
• Income large enough?
• Future income?
• Age?
• Time, interest, knowledge in investments?
• Tax situation?
• Risk tolerance?