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© Goodheart-Willcox Co., Inc.
Making Smart Decisions
© Goodheart-Willcox Co., Inc.
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
© Goodheart-Willcox Co., Inc.
Chapter Objectives
• Plan the use of resources available to you.
• Use the decision-making process.• Apply management principles to help
you achieve important goals.
© Goodheart-Willcox Co., Inc.
Personal Side of Consumer Choices
• Developing management skills can help you achieve goals
• Management involves – identifying resources– setting goals– making decisions– solving problems– evaluating results
© Goodheart-Willcox Co., Inc.
Importance of Needs and Wants
• Knowing your needs and wants can help determine how you use resources
© Goodheart-Willcox Co., Inc.
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
© Goodheart-Willcox Co., Inc.
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
© Goodheart-Willcox Co., Inc.
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
© Goodheart-Willcox Co., Inc.
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
© Goodheart-Willcox Co., Inc.
Evaluating Goals
• List each goal and rank it according to its importance
• Is it realistic and possible?
continued
© Goodheart-Willcox Co., Inc.
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?
© Goodheart-Willcox Co., Inc.
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
© Goodheart-Willcox Co., Inc.
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
© Goodheart-Willcox Co., Inc.
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
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Identifying Resources
• Resources are the tools needed to reach goals
continued
© Goodheart-Willcox Co., Inc.
Identifying Resources
• Human resources include– skills– energy– knowledge – motivation
• Nonhuman resources include– money– time – capital – natural resources – public resources
continued
© Goodheart-Willcox Co., Inc.
Identifying Resources
• Practicing good resource management means remembering that– resources are scarce– resources are manageable– resources are related to one another
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Making Financial Decisions
• Making good decisions requires careful thought and planning
continued
© Goodheart-Willcox Co., Inc.
Making Financial Decisions
• People often make bad decisions by– acting out of habit– acting on impulse– failing to act
continued
© Goodheart-Willcox Co., Inc.
Making Financial Decisions
• Tools of financial decision making include – cost-benefit principle– marginal analysis– commonsense rule– systematic decision making
© Goodheart-Willcox Co., Inc.
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
© Goodheart-Willcox Co., Inc.
Marginal Analysis
• Examine the added benefit, versus the added cost, of one more unit of an item or an experience
continued
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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
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A Commonsense Rule
• Do not spend more than you can afford
• Live within your means
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In Your Opinion
• Why do you think it is difficult for some people to live within their means?
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Systematic Decision Making
• Systematic decision-making process involves five steps1. Define the problem 2. Explore all alternatives3. Choose the best alternative4. Act on your decision5. Evaluate your decision
© Goodheart-Willcox Co., Inc.
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
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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?
© Goodheart-Willcox Co., Inc.
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
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Action Phase
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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
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Evaluation Phase
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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.
© Goodheart-Willcox Co., Inc.
Glossary of Key Terms
• cost-benefit principle. The idea that an 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.
Back
© Goodheart-Willcox Co., Inc.
Glossary of Key Terms
• 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.
Back
© Goodheart-Willcox Co., Inc.
Glossary of Key Terms
• 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.
Back
© Goodheart-Willcox Co., Inc.
Glossary of Key Terms
• 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.
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