IMChap 008

Chapter 08 - Consumer Purchasing Strategies and Legal Protection
8
CONSUMER PURCHASING STRATEGIES AND LEGAL
PROTECTION
CHAPTER OVERVIEW
While making consumer purchases may not be considered in most financial plans, these choices affect
financial resources available for other purposes. This chapter starts with a discussion of the factors that
influence buying habits. Selected purchasing strategies are then covered, including types of retail stores,
brands, and comparison shopping methods. Next, a systematic approach to making purchase decisions is
presented related to buying, leasing, and operating motor vehicles. The chapter concludes with a
discussion of consumer protection actions and legal alternatives available to individuals.
LEARNING OBJECTIVES
CHAPTER SUMMARY
After studying this chapter, students will be able to:

LO 8-1
Identify strategies for

effective consumer
buying
.
LO 8-2
Implement a process for

making consumer
purchases.
LO 8-3
Identify steps to take to

resolve consumer
problems.
LO 8-4
Evaluate the legal

alternatives available to
consumers.
Various economic, social, and personal factors influence daily

buying decisions. Overspending and poor money management are
frequent causes of overuse of credit and other financial difficulties.
Timing purchases, comparing stores and brands, using label
information, computing unit prices, and evaluating warranties are
common strategies for effective purchasing.
A research-based approach to consumer buying involves: (1)
preshopping activities, such as problem identification and
information gathering; (2) evaluating alternatives; (3) determining
the purchase price; and (4) postpurchase activities, such as proper
operation and maintenance.
Most consumer problems can be resolved by following these steps:
(1) return to the place of purchase; (2) contact the companys main
office; (3) obtain assistance from a consumer agency; and (4) take
legal action.
Small claims court, class action suits, and the services of a lawyer
are legal means for handling consumer problems that cannot be
resolved through communication with the business involved or
through the help of a consumer protection agency.
8-1
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
INTRODUCTORY ACTIVITIES
Ask students to comment on their responses to the My Life chapter opening exercise (p. 267).
Point out the learning objectives (p. 267) in an effort to highlight the key points in the chapter.
Ask students to provide examples of purchasing decisions and buying decisions that could affect a
persons overall financial situation.
Point out the opportunity costs of consumer buying habits that could affect reaching other financial
goals.
Discuss common causes of consumer problems and methods that could be used to resolve these
situations.
WHAT'S NEW TO THIS EDITION

Topics, Features
New visual: Buying Influences and
Wise Spending Strategies.
New feature: Net present value of
buying a hybrid car
New example: Upside down
New visual: Resolving Consumer
Complaints
Benefits for the Teaching-Learning Environment

Presents an overview of factors that influence buying and actions
that may be taken for wise shopping decisions.
Provides a framework to assess various consumer purchases in
terms of the time value of money.
Presents a numeric examples for a situation in which the balance of
an auto loan exceeds the value of the vehicle.
Offers detailed actions for obtaining assistance when facing a
consumer problem situation.
CHAPTER 8 OUTLINE
I.
Consumer Buying Activities

A. Financial Implications of Consumer Decisions
B. Practical Purchasing Strategies
1. Timing Purchases
2. Store Selection
3. Brand Comparison
4. Label Information
5. Price Comparison
B. Warranties
1. Used-Car Warranties
2. New-Car Warranties
3. Service Contracts
II.
Making Major Consumer Purchases: Buying Motor Vehicles

A. Phase 1: Preshopping Activities
1. Problem Identification
8-2
2. Information Gathering
B. Phase 2: Evaluating Alternatives
1. Selecting Vehicle Options
2. Comparing Used Vehicles
3. Leasing a Motor Vehicle
C. Phase 3: Determining Purchase Price
1. Used-Car Price Negotiation
2. Price Bargaining for New Cars
3. Comparing Financing Alternatives
D. Phase 4: Postpurchase Activities
1. Automobile Operation Costs
2. Motor Vehicle Maintenance
3. Automobile Servicing Sources
III.
Resolving Consumer Complaints

A. Step 1: Initial Communication
B. Step 2: Communication with the Company
C. Step 3: Consumer Agency Assistance
D. Step 4: Legal Action
IV.
Legal Options for Consumers

A. Small Claims Court
B. Class-Action Suits
C. Using a Lawyer
D. Other Legal Alternatives
E. Personal Consumer Protection
8-3
CHAPTER 8 LECTURE OUTLINE

I. CONSUMER BUYING ACTIVITIES (p. 268)
Financial Implications of Consumer Decisions (p. 268)
Your daily buying habits are affected by a wide
variety of economic, social, and personal factors.
Opportunity costs of daily buying decisions are
commonly overlooked trade-offs such as:
higher costs when buying on credit
buying poor quality items
buying brands that are difficult to obtain repair
service
buying by mail to save time and money but
having a difficult time returning the item
using time and effort to comparison shop
Wise Purchasing Strategies (p. 269)
Various shopping techniques should be considered for
various purchasing situations.
Timing Purchases
Many people save by buying holiday items and other
products at reduced prices in late December and early
January, when retail sales are slow.
Bargains can be obtained by buying winter clothing in
midwinter or late winter or by buying summer
clothing in midsummer or late summer.
Store Selection
Your decision to shop at a particular store is probably
influenced by the variety of merchandise and quality
of its brands.
Also important are the stores policies with regard to
such matters as check cashing, exchanges, and
frequency of sales.
Brand Comparison
Comparison shopping is the process of considering
alternative stores, brands, and prices. In contrast,
impulse buying is unplanned purchasing. While some
impulse buying may be acceptable, too much can
cause financial problems.
Brand name products are highly advertised items that
are available in many stores.
Store brand products, sold by one chain of stores, are
low-cost alternatives to famous name products.
Generic items, plain package, nonbrand items,
provide a low-cost third choice.
Label Information
Federal law requires that a label on all food products
Instructional Suggestions
Use PPT slides 8-2 to 8-5.
Text Highlight: Exhibit 8-1

presents the relationship
between wise buying and
financial security.
Use PPT slides 8-6 to 8-9.
Assignment: Have students

conduct a survey to determine
the factors that influence store
choice among consumers.
Text Highlight: The "Financial

Planning Calculations " feature
(pp. 270-271) provides two
consumer buying analysis tools"
net present value and a
consumer buying matrix.
8-4

contain information on the common name of the
product, the name and address of the manufacturer or
distributor, the net weight, and ingredients listed in
decreasing order of weight.
Product labeling for appliances includes information
on operating costs that can assist you in selecting the
most energy-efficient models.
Open dating tells consumers about the freshness or
shelf life of a perishable product.
Price Comparison
Unit Pricing uses a standard unit of measurement to
compare the prices of packages of different sizes.
The process for calculating the unit price is as
follows:
Step 1. Determine the common unit of
measurement, such as ounces, pounds, gallons, or
number of sheets (for items such as paper towel
or facial tissues).
Step 2: Divide the price by the number of
common units; for example, an 8-ounce package
of breakfast cereal selling for $1.52 has a unit
price of 19 cents per ounce, while an 11-ounce
package costing $1.98 has a unit price of 18 cents
per ounce.
Step 3: Compare the unit price for various sizes,
brands, and stores to determine the best buy for
your situation.
Remember, the package with the lowest unit price
may not be the best buy for you since it may contain
more food than you would use before it spoiled.
Text Highlight: The example

on page 272 provides an
explanation of unit pricing.
Text Highlight: Exhibit 8-2

(p. 273) provides a summary of
wise online buying activities.
Use PPT slide 8-10.
Warranties (p. 272)
A warranty is a written guarantee from the

manufacturer or distributor of a product that specifies
the conditions under which the product can be
returned, replaced, or repaired.
An express warranty, usually in written form, is
created by the seller or manufacturer and can be a full
warranty or a limited warranty.
An implied warranty is the result of a products
intended use or other suggested understandings that
are not in writing.
Used-Car Warranties (p. 272)
The Federal Trade Commission requires businesses
that sell used cars to have a buyers guide sticker.
This disclosure must state if the car comes with a
warranty; if so, what is the specific protection.
While a used car may not have an express warranty,
most states have implied warranties that protect the
8-5
basic rights of a used car buyer.

New-Car Warranties (p. 274)
New car warranties provide buyers with some
assurance of quality. These warranties vary in time
and mileage of the protection they offer and in the
parts they cover.
Service Contracts (p. 274)
A service contract is an agreement between a
business and a consumer to cover the repair costs of a
product. While sometimes called extended
warranties, they are not warranties.
For a fee, they insure the buyer against losses due to
the cost of certain repairs. Automotive service
contracts can cover repairs not included in the
manufacturers warranty.
Service contracts range from $400 to over $1,000;
however, they do not always include everything you
might expect.
Because of costs and exclusions, service contracts
may not be a wise financial decision.

Planning for Life's Situations"
feature (p. 275) discusses
common consumer buying
myths.
Practice Quiz 8-1 (p. 274)
II. MAKING MAJOR CONSUMER PURCHASES:

BUYING MOTOR VEHICLES (p. 275)
Use PPT slides 8-11, 8-12, 818.
Discussion Question: How can

consumers determine if
information from advertising
and other business sources is
reliable?
Text Highlight: Exhibit 8-3 (p.

276) provides an overview of
the phases involved in the
research-based approach for
consumer purchasing.
Current Example: Compulsive

shoppers tend to have some of
the following characteristics:
A specific decision-making process can help to make

effective purchases.
Phase 1: Preshopping Activities (p. 275)
Objective decision making must start with a planned

course of action. Define your shopping problem in
terms of a broad perspective.
Information is power. The better informed you are,
the more likely you are to make the purchasing choice
that best serves your interest.
The main sources of consumer information are:
1. personal contacts
2. business organizations including advertising,
labels, and sales personnel
3. media information from television, radio,
newspapers, and magazines
4. independent testing organizations such as
Consumers Union and Underwriters Laboratories
5. government agencies
6. online sources
Phase 2: Evaluation of Alternatives (p. 277)
Each alternative needs to be evaluated on the basis of
run up credit card balances
miss paying some bills
make only minimum

payment on charge
accounts
hide purchases from partner
throw out clothes that have

never been worn
buy something every time a

store is entered
Some individuals may

require professional help
8-6
such factors as personal values and goals, available

time and money, the costs of each alternative, the
benefits of each alternative, and your specific needs
with regard to product size, quality, quantity, and
features.
As you research various consumer purchases, you will
need to identify the attributes important to you.
Research studies have shown that price variations can
occur for all types of products. For a single-lens reflex
camera, prices may range from under $200 to well
over $500. The price of aspirin may range from less
than 50 cents to over $3 for 100 five-grain tablets.
You can benefit from comparison shopping when
buying expensive or complex items
buying items you purchase often
comparison can be done easily (using ads or
catalogs)
different sellers offer different prices and services
product quality or prices vary greatly.
Selecting Vehicle Options (p. 277)

Optional equipment can be grouped into three
categories: (1) devices to improve performance and
ease of operation, (2) comfort and convenience
options, and (3) features that add to the vehicles
visual appeal.
Comparing Used Vehicles (p. 277)
Common sources of used cars include:
New-car dealers offer late-model vehicles and may
give you a warranty, which usually means higher
prices than at other sources.
Used-car dealers usually have older vehicles.
Warranties, if offered, will be limited. However,
lower prices may be available.
Individuals selling their own cars can be a bargain if
the vehicle was well maintained. Few consumer
protection regulations apply to private-party sales.
Caution is suggested.
Auctions and dealers sell automobiles previously
owned by businesses, auto rental companies, and
government agencies.
Used-car superstores, such as CarMax, offer a large
inventory of previously owned vehicles.
Online used-car businesses, such as
www.dealernet.com and www.americasautomall.com.
Certified, pre-owned (CPO) vehicles are nearly new
cars that come with the original manufacturers
guarantee of quality. The rigorous inspection and
with this behavior disorder.
Exercise: Create a list of the

most popular optional features
for motor vehicles, and discuss
their costs and benefits.
Use PPT slides 8-13.
8-7

repair process means a higher price than other used
vehicles.
Leasing a Motor Vehicle (p. 278)
Leasing is a contractual agreement with monthly
payments for the use of an automobile over a set time
period.
The main advantages of leasing include:
(1) only a small cash outflow may be required for the
security deposit;
(2) monthly lease payments are usually lower than
monthly financing payments;
(3) the lease agreement provides detailed records for
business purposes; and
(4) you are usually able to obtain a more expensive
vehicle, more often.
Major drawbacks of leasing include:
(1) no ownership interest in the vehicle;
(2) a need to meet requirements similar to qualifying
for credit;
(3) additional costs may be incurred for extra mileage,
certain repairs, turning the car in early, or even a
move to another state.
When leasing, you arrange for the dealer to sell the
vehicle through a financing company. As a result, be
sure you know the true cost, including
o The capitalized cost, which is the price of the
vehicle.
o The money factor, which is the interest rate
being paid on the capitalized cost.
o The monthly payment and number of
payments.
o The residual value, or the expected value of
the vehicle at the end of the lease.
After the final payment, you may to return, keep, or
sell the vehicle.

Planning Calculations" feature
(p. 279) provides a framework
for comparing buying and
leasing a motor vehicle.
8-8
Phase 3: Determining Purchase Price (p. 280)
Negotiation of price may be possible in a buying

situation when:
1. you have all the necessary information about the
product and buying situation.
2. you deal with a person who has the authority to
give you a lower price or additional features, such
as the owner or store manager.
Use PPT slides 8-14 and 8-15.
Used-Car Price Negotiation (p. 280)

You can begin to determine a fair price by checking
newspaper ads for the prices of comparable vehicles.
Several published sources also list current prices for
used cars.
The basic price of a used car is also influenced by the
number of miles and special features and options.
Price Bargaining For New Cars (p. 280)
The sticker price, displayed in printed form on the
vehicle, is the suggested retail price of a new car and
optional equipment.
Information about the dealers cost may be obtained
from several sources including books available at
libraries and computerized data services.
Start your price bargaining by comparing prices of
similar automobiles at several dealers.
Use dealers cost information in your effort to get a
vehicle price that is only a couple of hundred dollars
over the dealers cost.
Lowballing occurs when a new car buyer is quoted a
very low price and add-on costs increase before the
deal is concluded.
Highballing occurs when a new car buyer is offered a
very high price for a trade-in vehicle, with the extra
amount made by increasing the price of the new car.
8-9

Comparing Financing Alternatives (p. 281)
Car loans are available from banks, credit unions, finance
companies, and other financial institutions.
The annual percentage rate (APR) is the best indicator of
the true cost of credit.
Text Highlight: Exhibit 8-6 (p. 283)

provides a list of proper motor vehicle
maintenance.
Phase 4: Postpurchase Activities (p. 282)
Maintenance and ownership costs may be associated with

the purchased item.
In some situations, you may not be satisfied with a
purchase. A wide variety of grounds for complaint can
occur.
Automobile Operation Costs (p. 282)
Your driving costs will vary based on two main factors
the size of your automobile and the number of miles you
drive.
The largest fixed expense associated with a new
automobile is depreciation, the loss in the vehicles value
due to time and use.
Another fixed ownership cost is the interest charge for
financing an automobile purchase.
Other fixed costs associated with automobile ownership
are insurance, license and registration fees, and taxes.
Since fixed costs are fairly constant, they are easier to
anticipate than variable costs.
Expenses related directly to the operation of a vehicle are
gasoline, oil, tires, maintenance, repairs, and replacement
parts.
An awareness of the total cost of owning and operating an
automobile can be valuable for overall financial planning.
Motor Vehicle Maintenance (p. 282)
People who sell, repair, or drive automobiles for a living
state that regular vehicle care is one of your best
investments.
The systems of your car that should be monitored and
maintained on a regular basis are the engine, cooling
system, transmission, brakes, steering mechanism, exhaust
components, and suspension.
8-10

Automobile Servicing Sources (p. 283)
The service department of a car dealer offers a wide range
of car care activities; their charges are generally higher
than other service locations.
Local gas stations often provide convenience and
reasonable prices for most repairs; fewer full-service
stations are available than in the past.
Independent repair shops serve a wide variety of servicing
needs at competitive prices.
Mass merchandising retailers offer convenient, low-cost
service, and usually emphasize the sale of tires, batteries,
mufflers, and other replacement parts.
Specialty shops are limited-service businesses that offer a
single product or maintenance effort at a reasonable price.
Many individuals avoid repair fraud problems and
minimize costs by working on their own vehicles.
Use PPT slide 8-18.
Text Highlight: Exhibit 8-7 (p. 283)

warns of common auto repair frauds.
8-11
III. RESOLVING CONSUMER COMPLAINTS (p.

284)

288) provides an overview of
the process for resolving
consumer complaints.

287) suggests a format for a
complaint e-mail/letter when
contacting a business or
consumer agency.
Supplementary Resource:
Have students access the
Consumer Resource Handbook
at http://publications.usa.gov/
Supplementary Example:
Federal law allows a person
three business days to cancel a
contract for $25 or more if the
agreement was signed away
from the sellers regular place of
business. This cooling-off law
does not apply to purchases
made at a retail business in a
fixed location or for transactions
made by mail or phone. The
cancellation right also applies to
home-equity loans, health club
memberships, and discount
buying clubs, no matter where
the contract is signed. Many
states have a cooling-off period
when buying timeshare vacation
property, while others also cover
campground memberships.
Every business transaction is a potential problem.

Most customer difficulties are the result of defective
products, low quality, short product lives, unexpected
costs, and poor repairs.
You will probably never be completely satisfied with
every purchase you make. The process for resolving
differences has four phases:
1. Initial communication
2. Communication with the company
3. Consumer agency assistance
4. Legal action.
Mediation is involvement of an impartial third party
who tries to resolve a difference between a customer
and a business through discussion and negotiation.
Arbitration is the settlement of a difference by a
third partythe arbitratorwhose decision is legally
binding.
Many state, local, and federal government agencies
are available to assist consumers; see Appendix B.
8-12
IV. LEGAL OPTIONS FOR CONSUMERS (p. 288)
Use PPT slide 8-21.
Supplementary Resource: Talk

to a lawyer to obtain information
about types of situations that
require legal assistance. How
can people avoid some of the
legal problems they commonly
encounter?
Text Highlight: The How

to feature on page 290
provides details on filing a suit
in small claims court.
Discussion Question: What are

the best methods for staying
informed on current consumer
problems?
Current Example: Complaint

letters and store protests have
given way to technology.
Several hundred websites have
been created by consumers
wishing to let others know of
their dissatisfaction with a
company.
Text Reference: The Financial

Planning for Lifes Situations
feature on page 291 provides an
opportunity to discuss various
business practices in relation to
potential legal violations.
If all previously mentioned avenues of action fail to

resolve a consumer complaint, legal action may be
appropriate.
Small Claims Court (p. 289)
In a small claims court, a person may file a claim for

legal matters involving amounts under a set limit.
To make best use of small claims court, the following
tips are suggested:
Become familiar with the location, procedures,
and filing fees (usually ranging from $5 to $50)
Observe other cases to learn more about the
process
Present your case in a polite, calm, and concise
manner
Submit evidence such as photographs, contracts,
receipts, and other documents
Use witnesses who can testify on your behalf
Class Action Suits (p. 289)
A class action suit is a legal action taken by a few

individuals on behalf of all the people who have
suffered the same alleged injustice.
Recent class action suits included auto owners who
were sold unneeded replacement parts for their
vehicles and a group of investors who sued a
brokerage company for unauthorized buy and sell
transactions resulting in high commission charges.
Using a Lawyer (p. 289)
Deciding when to use a lawyer is difficult. In general,

straightforward legal situations usually do not require
legal counsel. But for more complicated matters, it is
probably wise to obtain legal assistance.
Other Legal Alternatives (p. 290)
A legal aid society is one of a network of publicly

supported community law offices that provide legal
assistance to consumers who cannot afford their own
attorney.
Prepaid legal services are programs that provide
unlimited or reduced-fee legal assistance for a set fee.
Personal Consumer Protection (p. 291)
Consumer protection devices are of no value unless a

person is aware of them, and makes use of them when
seeking information or resolving a problem.
8-13
CONCLUDING ACTIVITIES
Point out the chapter summary (p. 293) and key terms in the text margin.
Use the My Life Stage feature (p. 292) to highlight the main financial planning activities from the
chapter for various ages and life situations.
Discuss selected end-of-chapter Financial Planning Problems, Financial Planning Activities, and Life
Situation Case.
Use Chapter Quiz in the Instructors Manual.
WORKSHEETS FROM PERSONAL FINANCIAL PLANNER FOR USE

WITH CHAPTER 8
Use the Your Personal Financial Planner in Action (pp. 296-297) activities to encourage students to
plan and implement various personal financial decisions.
Sheet 32
Unit Pricing Comparison
Sheet 33
Major Consumer Purchase Comparison
Sheet 34
Current and Future Transportation Needs
Sheet 35
Used Car Purchase Comparison
Sheet 36
Buying vs. Leasing an Automobile
Sheet 37
Comparing Cash and Credit for Major Purchases
Sheet 38
Automobile Ownership and Operation Costs
Sheet 39
Legal Services Cost Comparison
CHAPTER 8 QUIZ ANSWERS

True-False
1. F (p. 275)
2. T (p. 276)
3. T (p. 270)
4. T (p. 272)
5. F (p. 285)
Multiple Choice
6. C (p. 272)
7. A (p. 277)
8. D (p. 278)
9. A (p. 288)
10. C (p. 290)
8-14
Name ________________________________________
Date____________________________
CHAPTER 8 QUIZ
TRUE-FALSE
_____1.
The first element in a purchasing decision is gathering information.
_____2.
_____3.
Consumer information from business organizations includes advertising,

product labels, and packaging.
National name brand products usually cost more than store brands or generics.
_____4.
An express warranty is usually in a written form.
_____5.
Most consumer complaints are resolved with the use of a government agency
or by taking legal action.
MULTIPLE CHOICE
_____6.
A(n) __________ warranty covers most repairs of a product.

a. limited
b. implied
c. full
d. express
_____7.
The highest prices for used cars are usually at a

a. new-car dealer.
b. used-car dealer.
c. private-party sale.
d. public auto auction.
_____8.
When leasing a motor vehicle, the capitalized cost refers to the

a. security deposit.
b. residual value.
c. interest rate.
d. price of the vehicle.
_____9.
A legally binding decision by a third part is

a. arbitration.
b. mediation.
c. a legal society.
d. a pre-paid legal service.
_____10. __________ are publicly supported community law offices that provide legal
assistance to consumers who cannot afford their own attorney.
a. Small claims courts
b. Class action suits
c. Legal aid societies
d. Legal clinics
8-15
SUPPLEMENTARY ACTIVITY
Consumer Decision-Making Styles Inventory

Your Consumer Choices
Agree
Strongly
Agree
8. I have favorite brands I buy over and over

9. When it comes to purchasing products, I try to get the very
best
10. The more expensive brands are usually my choices
11. I keep my wardrobe up-to-date with the changing fashions
12. Going shopping is one of the enjoyable activities of my life
13. The lower price products are usually my choice
14. I am impulsive when shopping
15. Sometimes its hard to choose which stores to shop
16. Once I find a product or brand I like, I stick with it
In
Between
Getting very good quality is very important to me

The well-known national brands are best for me
I usually have one or more outfits of the very newest style
Shopping is a pleasant activity to me
I buy as much as possible at sale prices
I should plan my shopping more carefully than I do
There are so many brands to choose from that often I feel
confused
Disagree
1.
2.
3.
4.
5.
6.
7.
Strongly
Disagree
This page contains statements on different interests and priorities consumers have. Please read each
statement and circle the number indicating how much you agree or disagree with the statement as a
description of you.
1
1
2
2
3
3
4
4
5
5
1
1
2
2
3
3
4
4
5
5
8-16
Scoring Summary
Directions: Add your scores for items on Your Consumer Choices:
Perfectionist Consumer
1._____
9._____
_____
Brand Conscious Consumer
2._____
10._____ =
_____
Fashion Conscious Consumer
3._____
11._____ =
_____
Recreational Shopping Conscious Consumer
4._____
12._____ =
_____
Price-Value Conscious Consumer
5._____
13._____ =
_____
Impulsive Consumer
6._____
14._____ =
_____
Confused by Overchoice Consumer
7._____
15._____ =
_____
Habitual-Brand Loyal Customer
8._____
16._____ =
_____
Scoring Interpretation
Scores of 9-10 = You are HIGH on this consumer characteristic.
Scores of 6-8
= You are MODERATE to AVERAGE on this consumer characteristic.
Scores of 2-5
= You are LOW on this consumer characteristic.
8-17
ANSWERS TO PRACTICE QUIZZES, FINANCIAL PLANNING PROBLEMS,

FINANCIAL PLANNING ACTIVITIES, FINANCIAL PLANNING CASE, AND
CONTINUING CASE
PRACTICE QUIZZES
1. What factors commonly influence a persons daily buying choices?
Buying decisions are most influenced by economic factors (inflation, taxes, interest rates,
government regulations), personal factors (age, sex, income, family situation), and social factors
(lifestyle, interests, hobbies, advertising). (Exhibit 8-1, p. 268)
Different individuals tend to overlook different factors. An increased awareness of these factors can
assist in making wiser and more satisfying consumer choices.
2. How are daily buying decisions related to overall financial planning?
As shown in Exhibit 8-1 (p. 268), a persons spending patterns can result in either financial
difficulties or achievement of desired financial goals.
3. What types of brands are commonly available to consumers?
Consumers have a choice of brand-name, store-brand, and generic products. (p. 270)
4. In what types of situations can comparing prices help in purchasing decisions?
Comparing prices can be helpful when buying expensive or complex items, when competing brands
are available, when different package sizes are available, and when product quality varies. (p. 272)
5. How does a service contract differ from a warranty? What rights do purchasers of products have even
if there is no written warranty?
A service contract is a paid agreement for repairs. A warranty is a feature offered by a manufacturer
or distributor.
Even if there is not a written warranty, certain implied warranties are present. For example, sale of an
item implies that the store owns the product or an item must do what it is intended to do, at least for a
while! (p. 272)
1. What are the major sources of consumer information?
The major sources of consumer information are personal contacts, business organizations, media
information, independent testing organizations, online sources, and government agencies. (p. 276)
2. What actions are appropriate when buying a used car?
Identify sources of used vehicles, research and compare prices, condition of vehicle, and options.
3. When might leasing a motor vehicle be appropriate?
8-18
Leasing may be appropriate for business use or when a new vehicle is desired every few years.
4. What maintenance activities could increase the life of your vehicle?
Frequent oil changes, regular tune-ups, and checking belts, hoses, and fluids regularly can minimize
major repairs and maximize vehicle life.

1. What are common causes of consumer problems and complaints?
Not being informed in advance of factors such as warranties, service availability, prices at various
stores, or cost of installation can result in consumer complaints. Also, not asking questions and not
obtaining details in writing are common causes of consumer problems. (p. 284)
2. How can most consumer complaints be solved?
Most consumer complaints are solved by contacting the store or company office. (p. 285)
3. How does arbitration differ from mediation?
Mediation is the involvement of a third party to suggest solutions in a dispute; arbitration is a legally
binding decision by a third party made once the two parties in dispute agree to the process. (pp. 288)

1. In what types of situations would small claims court and class action suits be helpful?
Small claims court is helpful for minor consumer problems that require legal action. Class action
suits can provide legal assistance to a group with the same consumer complaint. (p. 289)
2. Describe some situations in which you might use the services of a lawyer.
If a consumer situation is complicated or involves a large sum of money, the use of a lawyer may be
appropriate. Situations might include a product injury case, settling an estate, purchase of real estate,
adoption of a child, or a divorce. (p. 289)
FINANCIAL PLANNING PROBLEMS (p. 293)

1. Calculating Future Value. You can purchase a service contract for all of your major appliances for
$180 a year. If the appliances are expected to last for 10 years and you earn 5 percent on your savings,
what would be the future value of the amount you will pay for the service contract?
Solution: $180 12.578 (PVA 5%, 10 years) = $2,264.04
LO: 8-1
Topic: Calculating Future Value
LOD: Medium
Blooms tag: Application
8-19
2. Future Value of Wise Buying. If a person saves $63 a month by using coupons and doing comparison
shopping, (a) what is the amount for a year? (b) What would be the future value of this annual amount
over 10 years, assuming an interest rate of 4 percent?
Solution: (a) $63 12 = $756; (b) $756 12.006 = $9,076.54
LO: 8-1
Topic: Future Value of Wise Buying.
LOD: Medium
3. Comparing Buying Alternatives. Tammy Monahan is considering the purchase of a home
entertainment center. The product attributes she plans to consider and the weights she gives to them are
as follows:
Portability .1
Sound projection .6
Warranty .3
Tammy rated the brands as follows:
Brand A
Brand B
Brand C
portability
6
9
5
sound projection
8
6
9
warranty
7
8
6
Using the consumer buying matrix (p. 271), conduct a quantitative product evaluation rating for each
brand. What other factors is Tammy likely to consider when making her purchase?
Solution:
Brand A: (.1 6) + (.6 8) + (.3 7) = 7.5
Brand B: (.1 9) + (.6 6) + (.3 8) = 6.9
Brand C: (.1 5) + (.6 9) + (.3 6) = 7.7
Tammy should also consider many other factors such as store location, availability of service, brand
reputation, experience of others, and shipping costs.
LO: 8-2
Topic: Comparing Buying Alternatives.
LOD: Medium
Blooms tag: Application, analysis
4. Calculating the Cost of Credit. John Walters is comparing the cost of credit to the cash price of an
item. If John makes an $80 down payment and pays $34 a month for 24 months, how much more will that
amount be than the cash price of $695?
Solution: [($34 24 months) + $80] - $695 = $201
LO: 8-2
Topic: Calculating the Cost of Credit.
LOD: Medium
5. Computing Unit Prices. Calculate the unit price of each of the following items:
8-20
Solution:
Motor oil
Cereal
Canned fruit
Facial tissue
Shampoo
78 cents a quart
14.5 cents an ounce
6.8 cents an ounce
75 cents per 100
23.3 cents an ounce
LO: 8-2
Topic: Computing Unit Prices.
LOD: Easy
6. Calculating the Present Value of a Consumer Purchase. What would be the net present value of a
microwave oven that costs $159 and will save you $68 a year in time and food away from home? Assume
an average return on your savings of 4 percent for five years.
Solution: $68 4.452 (PV of a series of amounts, 4%, 5 years) - $159 = $143.74
LO: 8-2
Topic: Calculating the Present Value of a Consumer Purchase
LOD: Medium
7. Comparing Automobile Purchases. Based on financial and opportunity costs, which of the following
do you believe would be the wiser purchase?
Vehicle 1: A three-year-old car with 45,000 miles, costing $8,700, and requiring $585 of immediate
repairs.
Vehicle 2: A five-year-old car with 62,000 miles, costing $6,500, and requiring $960 of immediate
repairs.
Solution: Students can make a case for either vehicle since #1 has lower mileage, is newer, and
requires fewer repairs. However, some people may find #2 more appealing due to the lower initial
costs.
LO: 8-2
Topic: Comparing Automobile Purchases
LOD: Medium
Blooms tag: Analysis
8-21
8. Calculating Motor Vehicle Operating Costs. Using Sheet 38 in the Personal Financial Planner,
calculate the approximate yearly operating cost of the following vehicle.
Annual depreciation
Current years loan interest
Insurance
License and registration fees
Parking/tolls
$2,500
$650
$680
$65
$420
Annual mileage 13,200

Miles per gallon 24
Average gasoline price $3.68 per gallon
Oil changes/repairs $370
Solution:
Fixed Ownership Costs
Variable Operating Costs
$2,500
depreciation
$2,024
Gasoline
650
interest on loan
370
oil/repairs
680
Insurance
420
parking/tolls
65
License/registration
$2,814
total variable costs
$3,895
total fixed costs
Total costs $6,709 divided by 13,200 miles equals 50.8 cents cost per mile.
LO: 8-2
Topic: Calculating Motor Vehicle Operating Costs
LOD: Medium
9. Buying versus Leasing a Motor Vehicle. Based on the following, calculate the costs of buying and of
leasing a motor vehicle.
Purchase Costs
Down payment
Loan payment
Leasing Costs
$1,500
$450 for 48 months
Estimated value at end of loan
$4,000
Security deposit
$500
Lease payment
$450 for 36 months
End of lease charges
$600
Opportunity cost interest rate: 4 percent

Solution:
Purchase: $1,500 + [450 48] 4,000 + [1,500 .04 4] = $19,340
Lease: [450 36] + 600 + [500 .04 3] = $16,860
LO: 8-2
Topic: Buying vs. Leasing a Motor Vehicle.
LOD: Medium
8-22
FINANCIAL PLANNING ACTIVITIES (p. 295)

1. Analyzing Influences on Consumer Buying. Use advertisements, online articles, and personal
observations to describe the economic, social, and personal factors influencing purchases of people in the
following life situations: (a) a retired person; (b) a single parent with children ages 5 and 9; (c) a dualincome couple with no children; (d) a person with a dependent child and a dependent parent.
Ask students to identify and explain differences in buying influences for different life situations.
2. Comparing Consumer Information Sources. Obtain online reviews to evaluate and compare different
brands of a product. Also obtain information on the product from people who sell the item and those who
have recently purchased it. Compare the information received from these sources.
Product reviews and ratings can provide helpful insight into a purchase. However, these results can
sometimes be different from those of individual consumers. Have students report on their findings of
differences between what was found online and what other consumers experienced with the product.
3. Researching Consumer Purchases. Using the consumer buying matrix (p. 271), analyze a consumer
purchase you plan to make sometime in the future. What factors affected the selection of the attributes
and weights you chose for this purchase analysis?
This assignment will require students to assess the importance of various attributes when making a major
purchase.
4. Comparing Used Cars. Use Sheet 35 in the Personal Financial Planner to compare different sources
of used motor vehicles.
This activity can involve use of advertisements and an online search rather than visits to used car sales
locations. Students should be able to point out economic, operational, and other factors that influence
costs of vehicles from different sources.
5. Evaluating Motor Vehicle Leases. Use Sheet 36 in the Personal Financial Planner to compare the
costs of buying and leasing a motor vehicle.
This activity will allow students to better understand the sources and costs of leasing a motor vehicle.
Encourage students to use dealer visits, advertisements, and websites to obtain information for this
activity.
6. Identifying and Solving Consumer Problems. Conduct online research to determine the most common
sources of consumer complaints. Interview someone who has had a consumer complaint. What was the
basis of the complaint? What actions did the person take? Was the complaint resolved in a satisfactory
manner?
Have students report their findings in a brief presentation or video dramatization.
7. Comparing Legal Services. Prepare a survey of legal services available to students and others in your
community. Use Sheet 39 in the Personal Financial Planner to compare the fees and services provided
by lawyers and other sources of legal assistance.
8-23
Some colleges have legal services available for students, this alternative should be considered along with
others.
FINANCIAL PLANNING CASE
Online Car Buying (p. 295)
1. Based on Mackenzies experiences, what benefits and drawbacks are associated with online car
buying?
While ease and convenience may be associated with online car buying, uncertainty of vehicle
performance and dealer reputation may be a concern.
2. What additional actions might Mackenzie consider before buying a motor vehicle?
Talk to people who have purchased vehicles through various online sources; research local dealers
who actively participate in the online buying process.
3. What do you consider to be the benefits and drawbacks of shopping online for motor vehicles and
other items?
While student answers will vary, encourage students to communicate their knowledge related to
online shopping.
CONTINUING CASE
Making Purchasing Decisions (p. 297)
Questions
1. What strategies should they use to research and purchase a used car and other high dollar items
such as furniture?
Although student responses may vary, some good answers to this question are:
They should identify their needs and gather relevant product information.
They should then compare product features such as the vehicle options.
They should then compare various sources of the product such as new-car dealers, used-car
dealers, individuals selling their own cars, auctions, used-car superstores, or online used-car
businesses.
Then they should determine a fair purchase price by reviewing various sources such as
newspaper ads, Kelley Blue Book, and Edmunds Used Car Prices.
Then they should negotiate to obtain a lower price.
Lastly, they should determine if paying cash is appropriate or if financing is appropriate.
Various sources of financing are available to choose from such as loans from banks, credit
unions, consumer finance companies, and other financial institutions.
2. What items should Shelby and Mark consider a part of the real cost of owning a car?
8-24
Depreciation
Insurance
Interest on the auto loan
License and registration fees
Taxes and other fees
Oil, tires, and other maintenance or repair costs
Gasoline
Parking and toll fees
3. Explain how Shelby and Mark might use the following Personal Financial Planner sheets (UsedCar Purchase Comparison and Buying versus Leasing an Automobile).
a. Used-Car Purchase Comparison
They can use this form to compare the condition of used vehicles they are considering from
various sources.
b. Buying versus Leasing an Automobile
They can use this form to compare the total cost of leasing a car to the total cost of
purchasing a car.
DAILY SPENDING DIARY (p. 297)

This activity can assist students with an ability to reduce unplanned buying and to better achieve longterm financial goals.
8-25

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Chapter 08 - Consumer Purchasing Strategies and Legal Protection

After studying this chapter, students will be able to:

Identify strategies for

Implement a process for

Identify steps to take to

Evaluate the legal

Various economic, social, and personal factors influence daily

Chapter 08 - Consumer Purchasing Strategies and Legal Protection

WHAT'S NEW TO THIS EDITION

Benefits for the Teaching-Learning Environment

Consumer Buying Activities

Making Major Consumer Purchases: Buying Motor Vehicles

Chapter 08 - Consumer Purchasing Strategies and Legal Protection

Resolving Consumer Complaints

Legal Options for Consumers

Chapter 08 - Consumer Purchasing Strategies and Legal Protection

CHAPTER 8 LECTURE OUTLINE

Use PPT slides 8-2 to 8-5.

Text Highlight: Exhibit 8-1

Use PPT slides 8-6 to 8-9.

Assignment: Have students

Text Highlight: The "Financial

Chapter 08 - Consumer Purchasing Strategies and Legal Protection

CHAPTER 8 LECTURE OUTLINE

Text Highlight: The example

Text Highlight: Exhibit 8-2

Use PPT slide 8-10.

Warranties (p. 272)

A warranty is a written guarantee from the

Chapter 08 - Consumer Purchasing Strategies and Legal Protection

CHAPTER 8 LECTURE OUTLINE

basic rights of a used car buyer.

Text Highlight: The "Financial

Practice Quiz 8-1 (p. 274)

II. MAKING MAJOR CONSUMER PURCHASES:

Use PPT slides 8-11, 8-12, 818.

Discussion Question: How can

Text Highlight: Exhibit 8-3 (p.

Current Example: Compulsive

A specific decision-making process can help to make

Phase 1: Preshopping Activities (p. 275)

Objective decision making must start with a planned

Phase 2: Evaluation of Alternatives (p. 277)

Each alternative needs to be evaluated on the basis of

run up credit card balances

miss paying some bills

make only minimum

hide purchases from partner

throw out clothes that have

buy something every time a

Some individuals may

Chapter 08 - Consumer Purchasing Strategies and Legal Protection

CHAPTER 8 LECTURE OUTLINE

such factors as personal values and goals, available

Selecting Vehicle Options (p. 277)

Exercise: Create a list of the

Use PPT slides 8-13.

Chapter 08 - Consumer Purchasing Strategies and Legal Protection

CHAPTER 8 LECTURE OUTLINE

Text Highlight: The "Financial

Chapter 08 - Consumer Purchasing Strategies and Legal Protection

CHAPTER 8 LECTURE OUTLINE

Phase 3: Determining Purchase Price (p. 280)