Personal Finance Chapter 6

Impulse buying

involves unplanned purchasing, which can result in financial problems

Most customer complaints result from?

1) defective product 2) low quality 3) short product lives 4) unexpected cost 5) deceptive pricing 6) poor repair

Comparison shopping can be beneficial when:

1. Buying expensive or complex items 2. Buying items that you purchase often 3. Comparison shopping can be done easily, with advertisements, catalogs, or online 4. Different sellers offer different prices & services 5. Product quality or prices vary greatly

Common Sources of Consumer Fraud

1. Prizes, contests, & sweepstakes 2. Work at home, starting your own business, phony training courses, employment scams 3. Fraudulent diets & health claims, easy weight loss 4. Credit repair, debt collection, mortgage scams 5. Phony charities 6. High-return investments & multilevel marketing 7. Foreign money offers, such as the Nigerian bank scam 8. Online purchases & auctions 9. Home & auto repairs 10. Travel deals

Purchasing a Motor Vehicle:

Phase 1-Preshopping Activities: -Problem identification -Info gathering Phase 2-Evaluating Alternatives: -Selecting vehicle options -Comparing used vehicles -Leasing a vehicle Phase 3-Determining Purchase Price: -Used-car price negotiations -Price bargaining for new cars -Comparing financing alternatives Phase 4-Postpurchase Activities: -Automobile operation costs -Motor vehicle maintenance

Small claims court

a court that settles legal differences involving amounts below a set limit & employs a process in which the litigants usually don't use a lawyer

Sharing Economy

allows consumers to save money or earn income through car & bicycle rentals, home sharing, & shared nanny services -May also borrow drills, saws, ladders, or lawn mowers with a community tool-shed

Implied warranty

covers a product's intended use or other basic understandings that aren't in writing

Limited warranty

covers only certain aspects of the product, such as parts, or requires the buyer to incur part of the costs for shipping or repairs

Warranty of merchantability

guarantees that the product is fit for the ordinary uses for which it is intended

National-brand products

highly advertised items available in many stores

CPO

nearly new cars that come with the original manufacturer's guarantee of quality

Federal Trade Commission (FTC)

requires used cars to have a buyer's guide sticker telling whether the vehicle comes with a warranty &, if so, what protection the dealer will provide -Their regulations don't apply to vehicles purchased from private owners

Payment schedule

the amount paid monthly & the number of payments

Arbitrator

the third party in arbitration who decision is legally binding

Set-price dealers

use no-haggling car selling with the prices presented to be accepted or rejected as stated

Upside-down/negative equity

when the value of your car may be less than the amount you still owe

Rebate

a partial refund of the price of a product

To Effectively Use Small Claims Court:

-Become familiar with court procedures & filing fees (usually from $5 to $50) -Observe other cases to learn about the process -Present your case in a polite, calm, & concise manner -Submit evidence such as photographs, contracts, receipts, & other documents -Use witnesses who can testify on your behalf

Sales techniques you should avoid:

-Lowballing: when quoted a very low price that increases when add-on costs are included at the last moment -Highballing: when offered a very high amount for a trade-in vehicle, with the extra amount made up by increasing the new-car price -The question "How much can you afford per month?"; be sure to also ask how many months -The offer to hold the vehicle for a small deposit only; never leave a deposit unless you are ready to buy a vehicle or are willing to lose that amount -Unrealistic statements, such as "Your price is only $100 above our cost"; usually, hidden costs have been added in to get the dealer's cost -Sales agreements with preprinted amounts; cross out numbers you believe aren't appropriate for your purchase

Decision-Making Process for Major Buying:

-Phase 1-Preshopping Activities: -Problem identification to set a goal & focus your purchasing activities -Info gathering to benefit from the buying experiences of others -Phase 2-Evaluating Alternatives: -Attribute assessment with a comparison of product features -Price analysis including consideration of the costs at various buying locations -Comparison shopping activities to evaluate shopping location -Phase 3-Selection & Purchase: -Negotiation activities to obtain lower price or added quality -Payment alternatives including use of cash & various credit plans -Assessment of acquisition & installation that might be encountered -Phase 4-Postpurchase Activities: -Proper maintenance & operation -Identification & comparison of after-sale service alternatives -Resolution of any purchase concerns that may occur

Automobile operation costs:

1. Fixed Ownership Costs: -Depreciation -Interest on auto loan -Insurance -License, registration, taxes, & fees 2. Variable Operating Costs: -Gasoline & oil -Tires -Maintenance & repairs -Parking & tolls

Warranty

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

Near-field communications (NFC)

allow consumers to make purchases by waving their smartphones in front of a sensor when paying

Service contract

an agreement between a business & a consumer to cover the repair costs of a product -Sometimes called extended warranties (they aren't warranties)

Store-brand products & private-label products

are sold by one chain of stores, are low-cost alternatives to famous-name products

Car-buying services

businesses that help buyers obtain a specific new car at a reasonable price -Also called an auto broker -Offer desired models with options for prices ranging from $50 & $200 over the dealer's cost

Invoice cost

dealer's cost; is an amount less than the sticker price

Open dating

describes the freshness or shelf life of a perishable product

Warranty of title

indicates that the seller has the right to sell the product

Legal aid society

one of a network of publicly supported community law offices that provide legal assistance to consumer who can't afford their own attorney

Lemon laws

require a refund for the vehicle after the owner has made repeated attempts to obtain servicing

Full warranty

states that a defective product can be fixed or replaced during a reasonable amount of time

Mediation

the attempt by an impartial third party to resolve a difference between two parties through discussion & negotiation

Depreciation

the loss in the vehicle's value due to time & use

Capitalized cost

the price of the vehicle

Comparison shopping

the process of considering alternative stores, brands, & prices

To save money with shopping:

1. Check your budget 2. Create a list, & don't stray from it 3. Avoid shopping as a social activity 4. Be careful not to let anxiety influence your purchases 5. Remember that bargaining can result in the thrill of success for a deal on an item that you don't need

Prevent being taken by Deceptive Business Practices:

1. Do business only with reputable companies with a record of satisfying customers 2. Avoid signing contracts & other documents you don't understand 3. Be cautious about offerings that seem too good to be true-they probably are 4. Compare the cost of buying on credit with the cost of paying cash; also, compare the interest rates the seller offers with those offered by a bank or a credit union 5. Avoid rushing to get a good deal; successful con artists depend on impulse buying

2 vital factors in negotiating:

1. Having all the necessary info about the product & buying situation 2. Dealing with a person who has the authority to give you a lower price or additional features, such as the owner or store manager

Sticker price label

printed on the vehicle with the suggested retail price

Prepaid legal services

provide unlimited or reduced-fee legal assistance for a set fee -Are designed to prevent minor troubles from becoming complicated legal problems

Residual value

the expected value of the vehicle at the end of the lease

Mediator

the impartial person in mediation who tries to resolve a conflict between a customer & a business through discussion & negotiation

Money factor

the interest rate being paid on the capitalized cost

Arbitration

the settlement of a difference by a third party whose decision is legally binding

Unit pricing

uses a standard unit of measurement to compare the prices of packages of different sizes -To calculate the unit price, divide the price of the item by the number of units of measurement

Steps to Resolving Consumer Complaints:

1. Initial Communication: -Return to place of purchase or contact online retailer -Provide a detailed explanation & the action you desire -Be pleasant yet persistent in your efforts to obtain a resolution 2. Communicate with the Company: -Send an e-mail with the details of the situation -Post your concerns on the company's online social media sites -Comment on a blog or a consumer review website 3. Consumer Agency Assistance: -Seek guidance from a local, state, or federal consumer agency -Determine if any laws have been violated in the situation -Consider the use of mediation or arbitration 4. Legal Action: -Consider bringing your case to small claims court -Determine if a class-action suit is appropriate -Seek assistance from a lawyer or legal aid organization

To Minimize Consumer Problems Before Making a Purchase:

1. Obtain recommendations from friends, family members, & online reviews 2. Verify company affiliations, certifications, & licenses 3. Understand the sale terms, return policies, & warranty provisions

Advantages of Leasing:

1. Only a small cash outflow may be required for the security deposit, whereas buying can require a large down payment 2. Monthly lease payments are usually lower than monthly financing payments 3. The lease agreement provides detailed records for business purposes 4. You are usually able to obtain a more expensive vehicle, more often

Checking Out a Used Car:

1. Outside the Car: -Look for major dents & signs of accidents -Inspect the trunk & spare tire -Check tire tread wear -Observe smoothness of springs & shocks when pushing down on car -Check operation of doors & windows -Look for leaking fluids under vehicle 2. The Engine: -Check for leakage of fluids & overheating -Check oil level & for signs of leaks -Check radiator cap, radiator for cracks & repairs, & for oil in coolant -Check battery & cables -Expect a smooth, clean start 3. Inside the Car: -Look for wear of pedals & steering column -Check for operation of dash lights & accessories -Check instrument panel for operation of gauges -Start engine & check operation of power accessories such as radio, wipers, & heater 4. The Road Test: -Let vehicle warm up -Test-drive car on a road with which you are familiar -Listen for smoothness or acceleration & transmission (forward & reverse) -Check breaks at different speeds -Check ease of steering & vehicle control

Drawbacks of Leasing:

1. You have no ownership interest in the vehicle 2. You must 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

Express warranty

usually in written form, is created by the seller or manufacturer & has 2 forms: the full warranty & the limited warranty

Main conditions of a new-car warranty:

1. Coverage of basic parts against defects 2. Power train coverage for the engine, transmission, & drive train 3. The corrosion warranty: usually applies only to holes due to rust, not to surface rust

3 categories of optional equipment for cars:

1. Mechanical devices to improve performance (power steering, power brakes, & cruise control) 2. Convenience options (power seats, air conditioning, audio systems, power locks, rear window defoggers, & tinted glass) 3. Aesthetic features that add to the vehicle's visual appeal (paint, trim, & upholstery)

When comparing prices, remember that:

-More store convenience (location, hours, sales staff) usually means higher prices -Ready-to-use products have higher prices -Large packages are usually the best buy; however, compare using unit pricing -"Sale" may not always mean saving money -The use of online sources & shopping apps can save time

Leasing

a contractual agreement with monthly payments for the use of an automobile over a set time period, typically 3, 4, or 5 years -Vehicle is usually returned to the leasing company after the term

Class-action suit

a legal action taken by a few individuals on behalf of all the people who have suffered the same alleged injustice

Buying Techniques:

-Timing Purchases -Purchase Location -Brand Comparison -Label Info -Price Comparison