Making Smart Decisions

2. 5 Making Smart Decisions

3. Chapter Objectives • Explain how needs, wants, values, goals, and standards serve as guides to consumer decisions. • Identify personal goals to guide your decisions. • Prioritize your goals. • Identify the resources available to you. continued

4. Chapter Objectives • Plan the use of resources available to you. • Use the decision-making process. • Apply management principles to help you achieve important goals.

5. Personal Side of Consumer Choices • Developing managementskills can help you achieve goals • Management involves • identifying resources • setting goals • making decisions • solving problems • evaluating results

6. Importance of Needs and Wants • Knowing your needs and wants can help determine how you use resources

7. Importance of Values • Values • govern and direct your life • influence decisions, actions, and behavior • differ among people • can change over time • The things you value become part of your value system

8. Importance of Ethics • Ethics conform to accepted standards of right and wrong • Individuals, businesses, and governments are expected to behave ethically • Unethical behavior is wrong, even illegal

9. Importance of Goals • Goals are related to values • “To be” goals relate to character and personality • “To do” goals relate to accomplishments • “To have” goals relate to possessions and purchases

10. Timing of Goals • Short-term goal—can be reached within a year • Medium-term goal—may take one to three years to reach • Long-term goal—takes longer than three years to reach

11. Evaluating Goals • List each goal and rank it according to its importance • Is it realistic and possible? continued

12. Evaluating Goals • Can you break it up into smaller goals? • Can progress be measured? • What will it cost in time, money, and effort? • Will you still want the goal when you reach it?

13. Interdependent and Conflicting Goals • Interdependent goals—one must be achieved to reach the other • Conflicting goals—one must be given up to achieve the other • Your priorities and values can help you choose between conflicting goals

14. Establishing Priorities • Goals listed in priority order help you direct your time, energy, and money • You make a priority judgment when you decide one thing is more important than another

15. Standards of Quality and Excellence • Standards grow out of goals and values • People set standards for • how they want to live • what they want to do • the goods and services they want to buy

16. Identifying Resources • Resources are the tools needed to reach goals continued

17. Humanresources include skills energy knowledge motivation Nonhuman resources include money time capital natural resources public resources Identifying Resources continued

18. Identifying Resources • Practicing good resource management means remembering that • resources are scarce • resources are manageable • resources are related to one another

19. Making Financial Decisions • Making good decisions requires careful thought and planning continued

20. Making Financial Decisions • People often make bad decisions by • acting out of habit • acting on impulse • failing to act continued

21. Making Financial Decisions • Tools of financial decision making include • cost-benefit principle • marginal analysis • commonsense rule • systematic decision making

22. Cost-Benefit Principle • Examine the benefits and costs of a decision and act only if the benefits are at least as great as the costs • The cost-benefit principle applies to economic decisions of individuals, businesses, and governments

23. Marginal Analysis • Examine the added benefit, versus the added cost, of one more unit of an item or an experience continued

24. Marginal Analysis • Marginal benefit: change in total benefit of using one additional unit • Marginal cost:change in total cost of using one additional unit • The marginal benefit of using each additional unit of something tends to decrease as the quantity used increases

25. A Commonsense Rule • Do not spend more than you can afford • Live within your means

26. In Your Opinion • Why do you think it is difficult for some people to live within their means?

27. Systematic Decision Making • Systematic decision-making processinvolves five steps 1. Define the problem 2. Explore all alternatives 3. Choose the best alternative 4. Act on your decision 5. Evaluate your decision

28. Managing Resources to Reach Goals • Management involves more than making decisions and solving problems • Management is a three-part process • Planning phase • Action phase • Evaluation phase

29. Planning Phase • Involves identifying goals, obstacles, and resources • What do you want to achieve? • What stands between you and your goals? • What can you use to reach your goals?

30. Action Phase • Depends on two personal qualities: • Determination • Flexibility • Involves putting your resources to work to overcome obstacles to your goals, such as the next slide shows continued

31. Action Phase

32. Evaluation Phase • Assess your progress • Determine better ways of using resources to reach goals • Decide what worked and what did not work • Remember that evaluation is ongoing continued

33. Evaluation Phase

34. Central Ideas of the Chapter • Careful decisions and wise use of resources can help you achieve your financial goals. • Reviewing the success or failure of past decisions helps you make better decisions.

35. Glossary of Key Terms Back • cost-benefit principle. The idea thatan action should be taken or a purchase made only if the benefits are at least as great as the costs. • decision-making process. A method of choosing a course of action after evaluating information and weighing the costs and benefits of alternative actions and their consequences.

36. Glossary of Key Terms Back • ethic. A moral principle or belief that directs a person’s actions. • goal. An objective a person wants to attain. • management. The process of organizing and utilizing resources to accomplish predetermined objectives. • marginal benefit. The change in total benefit of using one additional unit.

37. Glossary of Key Terms Back • marginal cost. The change in total cost of using one more unit. • priority. A goal or value that is given more importance than other goals or values. • standard. An established measure of quantity, value, quality, or excellence.

38. Glossary of Key Terms Back • values. Beliefs and principles about what is important or desirable. • value system. A system that guides a person’s behavior and provides a sense of direction in his or her life.