Relevant Economics ?

1
Relevant Economics ?

• Unit II
• 12.1 and 12.5

2
Table of Contents

• Marginal Benefit, Marginal Utility, and
  Cost-benefit Analysis
• Income
• Gross and Net
• Education Levels
• Taxes
• Federal Income
• State Income
• Sales Tax
• Property Tax
• Excise Tax
• Credit Score and Credit Cards
• FICO
• Credit Bureaus
• www.freecreditreport.com
• Savings
• Retirement plans
• Banks, credit unions
• Household Budget

3
Cost Benefit Analysis

• In the decision making process, a person will
  weigh the benefits of something against its
  costs.
• Marginal Benefit if you buy one more unit of a
  good, will it still give you a benefit?
• Marginal Cost - What is it costing you to buy one
  more unit?
• What is the opportunity cost for each unit that
  you buy?
• Marginal Utility the satisfaction of you
  receive from one more (unit) of something.

1.00
4
Income
What are the opportunity costs you face by not
graduating from high school, or not going to
college?
Before Taxes
Gross Pay What you have earned before taxes are
taken out. Net Pay What you have after taxes
have been taken out. FICA Federal Insurance
Contribution Act also called Payroll Taxes which
funds Social Security.
5
(No Transcript)
6
Something to Think about
7
(No Transcript)
8
Taxes

• Federal Income Tax progressive (as your income
  rise so does the percentage of taxes you pay to
  the federal government.
• State Income Taxes varies by state. California
  is one of the highest.
• Sales Tax on most goods. The amount depends
  upon the state. California is one of the
  highest.
• Property Tax tax on WEALTH not income. Depends
  upon the state. This is a percentage of the
  value of your home.
• Inheritance Tax It used to be as high as 50.
• Excise Tax tax on goods the government doesnt
  want you to use or there arent enough people to
  complain about raising taxes on these goods
  Alcohol, cigarettes, gambling also called a sin
  tax

Disclaimer the purpose of this picture is not
to promote religion, but rather to make a point.
And its funny.
9
State Income Tax Welcome to California land of
TAXES.
10
Sales Tax on pretty much everything except food.
11
Excise Taxes

• Taxes on a specific good.

12
Credit Cards

• Allows a person to buy a good or service now, and
  pay for it later
• Finance Charge
• The cost of credit you pay in dollars and cents
• Includes membership fee
• Annual Percentage Rate (APR)
• The cost of credit as a yearly percentage
• Rises if you miss a payment, are late on a
  payment or go over your credit limit

13
Credit Cards
Pay attention to due dates and your credit limit!
14
Your Credit Score
15
Credit Bureaus
All three credit reporting agencies have their
own website where you can have access to your
credit report for a fee, or you can try
www.freecreditreport.com, also for a fee, or the
government allows you to print out a free copy of
your credit report once a year.
16
Charge Accounts

• Regular charge accounts aka 30 day charge has a
  credit limit and must be paid at the end of the
  month, or interest must be paid on the remaining
  balance.
• Revolving You can continue to make purchases
  even if you havent paid the pervious amounts
  bill in full. Monthly payments are usually 1/5th
  of your balance.
• Installment equal payments spread over time.
• Durable goods manufactured items that have a
  life span longer than three years
• Mortgages - largest
• Cars, appliances blah blah

17
Loans

• Secured
• Collateral that can be repossessed upon the
  default of the loan.
• Collateral something of value that a borrower
  lets the lender claim if a loan is not repaid.
  Example Your car
• Unsecured
• Based on your credit score and promise to repay.
• Credit Cards
• Student loans

18
Mortgages

• Mortgage an installment debt owed on real
  property houses, buildings or land
• No more than 1/3 of your monthly income
• Credit score and interest rates
• Points- Fees paid to a lender and computed as a
  percentage of a loan
• Down payment needed (20)
• Closing costs fees involved in arranging for a
  mortgage or in transferring ownership of property
• Property Taxes paid twice a year or can be
  impounded.
• Home owners insurance paid yearly, monthly, or
  can be impounded.
• Type of loan 15, 30 or 40 year fixed,

Rule I Purchase price /annual income 2.0 or
less Rule II mortgage payment/monthly take-home
income 33.3 or less Rule III Loan
amount/appraised value of the house 95 or less
19
Owning an Automobile

• Purchasing a Car
• Principal Interest rate warranty the GAP
  insurance Licensing and fees paid to the state
  Your monthly payment.
• Insurance requirements Liability v.
  Comprehensive
• Choosing an insurance company
• Registration
• DMV annually
• Amount depends on the age, weight, type and value
  of the automobile.

20
Bankruptcy

• The Constitution gives Congress the right to
  establish bankruptcy laws
• If you file bankruptcy you will have poor credit
  for the next ten years making it difficult to
  purchase anything on credit.
• Your possessions will be collected and
  distributed to the companies you owe money to.
• Filing bankruptcy is VERY expensive
• This should be your very LAST option.

21
Child Support Laws

• Based on
• The number of children
• Health insurance cost
• The income of the custodial parent
• The income of the non-custodial parent
• Example the amount of child support for two
  children with an income of 3,000.00 is 550.00 a
  month.
• Remember that before you go getting someone
  pregnant you will be paying child support for
  the next 18 years!

22
Saving!

• Savings accounts
• Easy availability of funds, low interest rate
• Time Deposits you must deposit your funds for a
  certain period of time
• CDs (Certificates of Deposit)
• Maturity/interest rate higher
• Insured by FDIC (Federal Deposit Insurance
  corporation)

23
Stocks and Bonds
Stock Exchanges Stock market such as
NYSE Or Over-the Counter markets internet such
as NASDAQ

• Stocks
• Selling of shares (You become part owner of that
  corporation
• Stock Returns dividends
• Selling stock (speculation)
• Stock Exchanges (New York, Chicago, London and
  Tokyo)
• Bonds
• Certificate issued by a company or government.
  They are borrowing money from you and will pay it
  back later with interest.
• Tax Exempt bonds (good for rich people)
• Savings bonds
• War bonds

The New York Exchange Bond Market and the
American Exchange Bond market are the two largest
bond exchanges. You can also purchase bonds on
the internet.
24
Mutual Funds

• Mutual Funds -An investment company that pools
  the money of many individuals to buy stocks,
  bonds or other investments.
• Diversification
• Stocks, bonds, CDs,
• Real Estate

25
Index

• Index
• Measuring system that tracks stock prices over
  the long run
• SP Standard and Poor
• Tracks the stocks of 500 companies
• Dow Jones Industrial Average (DJIA)
• Tracks the stocks of 30 companies

FCF Free Cash Flow
26
Retirement dont rely on Social Security!

• Pensions
• Keogh Plan (15 )
• IRA (Individual Retirement Account)
• You are not taxed on the money you deduct, or the
  interest you have received until you take the
  money out of your account.
• Roth IRA
• Only 3,000 per year deduction, you cannot deduct
  from your taxable income, but you will not ever
  have to pay taxes on the interest your receive.

27
Government Regulation
Page 103

• The Securities and Exchange Commission Act 1934
• Truth in Lending Act (1968)
• Fair Credit Reporting Act 91970)
• Equal Credit opportunity Act (1974)
• Fair Credit Billing Act (1974)
• Fair Debt Collection Practices Act (1974)

28
Household Budget
House Payment/rent 1200-2500
Utility bills (gas, water, phone, electric) 500
Cell phone/cable 100
Insurance (car, house, health life) 400
groceries 200 to 600
Car payment 250
Student loans 200
gasoline 100
Clothing/gym membership ?
Miscellaneous ?
29
Group Project Expectations

• Follow directions complete all parts of the
  project
• All members of the group participate no social
  loafing! Optimize your efforts.
• Your presentations should be 10 to 15 min! Do
  not exceed 15 minutes! Rehearse to make sure all
  participants know what to do and you are within
  the time frame
• Email presentations to me just in case.
• Bring your presentation on your day on a
  flashdrive
• Dress up! Look professional
• I need a written copy of your report
• Be here on your day and be on time. Those not
  present on the day of their presentation will NOT
  receive credit for the presentation component of
  your assignment.