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HIP4O – Unit 5 June 2013

Unit 5: Economic and Personal Finances

Economic Influenceshttp://highered.mcgraw-hill.com/sites/0073106712/student_view0/ebook/chapter1/chbody1/influences_on_personal_financial_planning.html

Many factors influence daily financial decisions, ranging from age and household size to interest rates and inflation. Three main elements affect financial planning activities: life situation, personal values, and economic factors.

LIFE SITUATION AND PERSONAL VALUES

People in their 20s spend money differently than those in their 50s. Personal factors such as age, income, household size, and personal beliefs influence your spending and saving patterns. Your life situation or lifestyle is created by a combination of factors.

As our society changes, different types of financial needs evolve. Today people tend to get married at a later age, and more households have two incomes. Many households are headed by single parents. More than 2 million women provide care for both dependent children and parents. We are also living longer; over 80 percent of all Americans now living are expected to live past age 65.

As the chart on page 2 shows, the adult life cycle—the stages in the family and financial needs of an adult—is an important influence on your financial activities and decisions. Your life situation is also affected by marital status, household size, and employment, as well as events such as

Graduation (at various levels of education). Engagement and marriage. The birth or adoption of a child. A career change or a move to a new area. Dependent children leaving home. Changes in health. Divorce. Retirement. The death of a spouse, family member, or other dependent.

Personal Life Management Page 1


Life situation influences on your financial decisions

In addition to being defined by your family situation, you are defined by your values—the ideas and principles that you consider correct, desirable, and important. Values have a direct influence on such decisions as spending now versus saving for the future or continuing school versus getting a job.

ECONOMIC FACTORS

Daily economic activities are another important influence on financial planning. In our society, the forces of supply and demand play an important role in setting prices. Economics is the study of how wealth is created and distributed. The economic environment includes various institutions, principally business, labor, and government, that must work together to satisfy our needs and wants.

While various government agencies regulate financial activities, the Bank of Canada, our nation’s central bank, has significant responsibility in our economy. The Bank of Canada, is concerned with maintaining an adequate money supply. It achieves this by influencing borrowing, interest rates, and the buying or selling of government securities. The Bank of Canada attempts to make adequate funds available for consumer spending and business expansion while keeping interest rates and consumer prices at an appropriate level.

GLOBAL INFLUENCES - The global marketplace influences financial activities. Our economy is affected by both the financial activities of foreign investors and competition from foreign companies. Canadian businesses compete against foreign companies for the spending dollars of Canadian consumers.

When the level of exports of Canada.-made goods is lower than the level of imported goods, more Canadian. dollars leave the country than the dollar value of foreign currency



coming into the Canada. This reduces the funds available for domestic spending and investment. Also, if foreign companies decide not to invest their dollars in Canada, the domestic money supply is reduced. This reduced money supply may cause higher interest rates.

ECONOMIC CONDITIONS - Newspapers and business periodicals regularly publish current economic statistics. The chart below provides an overview of some economic indicators that influence financial decisions. Your personal financial decisions are most heavily influenced by consumer prices, consumer spending, and interest rates.

Changing economic conditions and financial decisions

1. Consumer Prices – Inflation is a rise in the general level of prices. In times of inflation, the buying power of the dollar decreases. For example, if prices increased 5


http://highered.mcgraw-hill.com/sites/0073106712/student_view0/ebook/chapter1/chbody1/influences_on_personal_financial_planning.html#exhibit1-6


percent during the last year, items that cost $100 one year ago would now cost $105. This means it now takes more money to buy the same amount of goods and services.

The main cause of inflation is an increase in demand without a comparable increase in supply. For example, if people have more money to spend because of pay increases or borrowing but the same amounts of goods and services are available, the increased demand can bid up prices for those goods and services.

Inflation is most harmful to people living on fixed incomes. Due to inflation, retired people and others whose incomes do not change are able to afford smaller amounts of goods and services.

Inflation can also adversely affect lenders of money. Unless an adequate interest rate is charged, amounts repaid by borrowers in times of inflation have less buying power than the money they borrowed. If you pay 10 percent interest on a loan and the inflation rate is 12 percent, the dollars you pay the lender have lost buying power. For this reason, interest rates rise in periods of high inflation.

The rate of inflation varies. During the late 1950s and early 1960s, the annual inflation rate was in the 1 to 3 percent range. During the late 1970s and early 1980s, the cost of living increased 10 to 12 percent annually. At a 12 percent annual inflation rate, prices double (and the value of the dollar is cut in half) in about six years. To find out how fast prices (or your savings) will double, use the rule of 72: Just divide 72 by the annual inflation (or interest) rate. An annual inflation rate of 8 percent, for example, means prices will double in nine years (72 ÷ 8 = 9).

More recently, the annual price increase for most goods and services as measured by the consumer price index has been in the 2 to 4 percent range. The consumer price index (CPI), published by the Bureau of Labor Statistics, is a measure of the average change in the prices urban consumers pay for a fixed “basket” of goods and services.

DID YOU KNOW?Not all consumer prices change by the same amount. In a recent year, the price of tomatoes increased nearly 50 percent, while the price of eggs declined about 20 percent.

Inflation rates can be deceptive, since the index is based on specific items calculated in a predetermined manner. Many people face hidden inflation since the cost of necessities (food, gas, health care), on which they spend most of their money, may rise at a higher rate than the cost of nonessential items, which could be dropping in price. This results in a reported inflation rate much lower than the actual cost-of-living increase being experienced by consumers.

2. Consumer Spending - Total demand for goods and services in the economy influences employment opportunities and the potential for income. As consumer



purchasing increases, the financial resources of current and prospective employees expand. This situation improves the financial condition of many households.

In contrast, reduced spending causes unemployment, since staff reduction commonly results from a company’s reduced financial resources. The financial hardships of unemployment are a major concern of business, labor, and government. Retraining programs, income assistance, and job services can help people adjust.

3. Interest Rates - In simple terms, interest rates represent the cost of money. Like everything else, money has a price. The forces of supply and demand influence interest rates. When consumer saving and investing increase the supply of money, interest rates tend to decrease. However, as consumer, business, government, and foreign borrowing increase the demand for money, interest rates tend to rise.

Interest rates affect your financial planning. The earnings you receive as a saver or an investor reflect current interest rates as well as a risk premium based on such factors as the length of time your funds will be used by others, expected inflation, and the extent of uncertainty about getting your money back. Risk is also a factor in the interest rate you pay as a borrower. People with poor credit ratings pay a higher interest rate than people with good credit ratings. Interest rates influence many financial decisions. Current interest rate data may be obtained at any bank web site.

ASSIGNMENT #1

After the reading the information in Economic Influences, answer the following questions on your own paper

1. How do age, marital status, household size, employment situation, and other personal factors affect financial planning?

2. How might the uncertainty of inflation make personal financial planning difficult?

3. What factors influence the level of interest rates?

4. Using the Internet research how the inflation rate reflects the change in price for items commonly bought by you and your family. Create a chart showing this rate of change. You may us EXCEL to create a spread sheet of your findings and then create the chart to be presented to your teacher.

Examples:Cost of a Television set from your birth year to this current yearCost of bread (by the loaf) from you birth year to this current year



MANAGING YOUR MONEY

Once you have located a job that meets your skills and goals, and you have been hired, you will start to receive a regular paycheck. How will you manage your money? Throughout the rest of this lesson, you will learn about some of the many options you have for managing your money. By the end of this lesson, you will be able to make an informed decision about how you will handle your money responsibly.

ASSIGNMENT #2

Pretend that you have been saving your money from a part-time job, and you now have saved a total of $300. You can do anything you want with the $300 dollars. What would you do with the money?

Using point form sentences, describe what you would do with the $300 that you have. You can do anything you want with the money except keep it! You can divide it up into smaller amounts if you want to, but try to be realistic about what you would do with this money. For example, if you have a boyfriend or girlfriend, you might spend a portion of the money on a gift or dinner. Or, if you have a child, you would probably went to spend some of the money on your child, since children are so expensive these days! So, think about your personal situation and now describe what you would do with this money.

Note: At the end of this lesson, we will return briefly to this assignment.

JOB TO PAY

Here is a fun little activity to get you in the spirit of working at a job in order to get paid and make some money.

Activity:

Start with the word JOB. You are only allowed to change one letter at a time. Change one letter in the word JOB to create a new word. Now change one letter in the new word to create another new word. You are trying to work your way to the word PAY. How many words did it take you before you made it to the word PAY?

JOB _____ _____ _____ _____ _____ _____ _____ _____ PAY



ASSIGNMENT #3: An Average week of spending

Using the following chart, make a list of all your expenses during an average week. You will need to copy the chart on your answer paper. List food, snacks, clothing, transportation, babysitting, entertainment, etc. Then decide whether each purchase is a “Need” or a “Want”; put a check mark under the appropriate column. An example has been done for you.

What do you spend $ on?

How much do you spend per week?

WANT NEED

e.g. CD’s $10 1.2.3.4.5.6.7.8.9.10.

ASSIGNMENT #4 Personal Budget Project

Personal Budget Project

Situation: Look ahead to your future; the day after your graduation from high school you will face the following scenario:

A month before your graduation, you were information that you will need to move on your own. Your parents well not finance this move thus you will have to create a budget that will allow you to maintain the lifestyle you have become accustom to. You may be considering college; however you have decided to wait a year in order to prepare yourself financially as well as work readiness.

You will work full-time at the mall as a commission sale representative with a monthly salary of $1750o Create a budget identifying your monthly expenseso Research for the apartment and mode of transportation that fits your salaryo All expenses listed on the excel spreadsheet must be accounted for. Should one

category cost more than budgeted then the difference must be taken from another category.

o All expenses should equal the monthly salary



o Designated % of salary for each category in the “C” column and the dollar target in the “D” column. Total percent (“C” column) should equal 100% and the Total Dollar Target (“D” column) must equal your Income value (D1) The Saving/Debt must equal “$0”, if it does not you must revise.

o Look at the example below to help with your organization of your personal budget expense sheet

o Read further instruction on page 4

Range Category % Dollar TargetRevised

Research July Aug Sept TotalsIncome Full time Job $1,750 $1,750 $1,750 $1,750 $1,750 Fixed Expenses 18-25% Housing 13% Taxes 1-5% Insurance 0-10% Debt Repayment (37-58%) Savings 0-10% Monthly Saving 0-10% Education Fund 0-10% Emergency Savings (0- 30%) Living Expenses 5-12% Utilities 8-15% Food 5-15% Transportation 2-5% Medical 2-8% Clothing 2-9% Personal Grooming 5-10% Recreation (30-88%) Total (100%) Saving/Debt

Personal Expenses:

Decide % for eachCalculate the formulasTotal Expenses - should equal 100% and SalaryComplete and hand in - use EXCEL to complete this assignment



Instructions and helpful hints to help complete assignment #3 – Personal Budget Project

Use Excel to create your personal budget spreadsheet (if you are unfamiliar with EXCEL be sure to ask your teacher for help setting up your spread sheet and learning how to calculate using formulas in EXCEL

In Column B – Category – list all possible expenses and income that you think you may have from month to month. You may need to research expenses including cell phone, car, gas, parking, how you will furnish an apartment or a room.

In column “C” % (percent) record a percent of your total income that you think you will spend on each expense – e.g. maybe you might spend 22% of your total income on your living expense – that would include your rest or mortgage.

Calculate the percent column (column C) using the following formals:

Total percent = Income x percent/100, e.g. 1750 x 22/100

1750 x .22$385

When making your calculating it is very important to use the formula feature in EXCEL, especially the formula function for calculating percent and totals. Use cell addresses and hot the actual value when setting up your formula. e.g. D1 x C4

CHEQUING AND SAVINGS BANK ACCOUNTS

Once you have a job and you are receiving a paycheck, you need a safe place to keep your money. Although hiding your money under your mattress might seem like a good idea, it really isn’t! There are several reasons why you should open a bank account. There are two main types of bank accounts that we will look at, chequing and savings accounts.

SOME USEFUL DEFINITIONS…

Cheque: An official paper from a bank which is written by an account holder to transfer a specified amount of money from the account holder’s account to an account belonging to another person or business.

Deposit: Putting money into an account.

Withdrawal: Taking money out of an account.

Transaction: Any change made to your account such as deposits and withdrawals.

Service Charge: A fee charged to your account for certain banking services such as transactions.



Interest: Payment for the use of money or credit expressed as a percentage of the amount owed or used.

CHEQUING ACCOUNT

A chequing account is a bank account that provides you with several options. First of all, you can write cheques from your chequing account. Once you have opened an account and made a small deposit of money, your bank will provide you with a chequebook with your name, address and account number on it. You can use a cheque to pay for something, provided that you have enough money in your account to cover the amount for which you wrote the cheque. If you write a cheque and you do not have enough money in your bank account to cover it, then you will have a problem called a “bounced” cheque. If you “bounce” a cheque, you will have to pay an extra fee to your bank, and a fee to the bank of the person to whom you wrote the cheque. You will also have to cover the amount of the cheque. Although it can happen, it is very important that you avoid “bouncing” a cheque. One of the reasons it is bad is that you will create a bad credit rating for yourself; in other words, the bank will not trust you as much anymore.

Another reason to open a chequing account is that you can deposit or withdraw money as often as you want. There is rarely a limit to the number of times you put money in or take money out of your account; however, some banks will charge you a service charge for making a lot of transactions.

Another benefit of putting your money in a chequing account is that you will earn interest on your money. The bank will pay you a certain percentage of money based on how much money you have in the bank. The more money you have in the bank, the more interest you will earn from the bank. The percentage of interest you make depends on the bank and the type of account you choose. Lastly, it is a good idea to open an account because it is an extremely safe way to keep your money until you need it.

SAVINGS ACCOUNT

A savings account is similar to a chequing account in that the bank will pay you interest on the money you have in the bank. Banks usually pay a higher interest rate on savings accounts. If you plan to deposit a lot of money without making many withdrawals, then a savings account is a good idea. A savings account is especially useful when you are trying to save money for a specific goal. For example, you might open a savings account to start saving money for college or to buy a car. Many banks limit the number of transactions that can be made in a savings account or they will charge you a service charge for making too many transactions. It is best to use a savings account for a long-term savings plan. Another difference between a savings account and a chequing account is that you usually cannot write a cheque on a savings account. Many people will open both a chequing and a savings account to suit their financial needs. Like a chequing account, a savings account is a very safe way to save your money.



AUTOMATIC TELLER MACHINES (ATM)

When you open an account at a bank, they will ask you if you would like an ATM card. This card allows you to complete almost any bank transaction that you would normally complete with a human bank teller, with an ATM machine instead. The benefits of having an ATM card are that you can access your accounts even when your bank is closed. Another advantage is that you can use almost any ATM machine to withdraw money, although a service charge will often be charged to your account.

CHOOSING THE RIGHT BANK FOR YOU

Once you have decided to open an account, you need to research which bank you would like to open an account with. There are several things to consider when choosing a bank. First of all, you want to choose a location that is convenient for you. Secondly, you will need to find out what fees are charged. Are there monthly fees, fees per transaction, are you charged for writing cheques or using the ATM machine? Are there any other charges? How much will it cost if you “bounce” a cheque? Next, you should ask how much interest you will earn on your account. Are there any restrictions? For example, is there a maximum number of transactions allowed per month, is there a minimum balance that you must have in your account, etc.? Lastly, are there any special features that exist at one bank compared to another? For example, can you bank on-line using the Internet, is there a special rate for students or can you make arrangements for certain bills to be paid from your account automatically? When you are deciding which bank is best for you, you should take the time to visit each of the banks you are considering and ask to speak to someone about opening an account. If no one will even take the time to discuss your options, then maybe this is a warning signal to you about the kind of customer service you can expect from them in the future. If this should happen, you might want to keep looking for a better bank.

ASSIGNMENT #5

CHOOSING THE RIGHT BANK

For this assignment, you will choose a bank and research the options it provides for opening chequing and savings accounts. If you already have a bank account, then choose to research a bank where you do not already have an account. This will give you an opportunity to compare a new bank with your current bank to see if you have the best possible arrangement to meet your financial needs.

For this assignment, you have the choice of personally visiting a bank, phoning a bank or researching the bank on the Internet.

Record the name of the bank you will be researching on your answer sheet.



Your assignment is to get as much information about the chequing and savings accounts at this bank as possible on the following topics:

Location:

Fees (Service Charges):

Interest:

Restrictions:

Special Features:

Once you have collected the information. Write a few sentences describing whether or not you think this bank would meet your financial needs.

SAVING

The most important factor in saving money is to start early. The longer you have to save money, the more you will make. Even if you only have a few dollars a week to save, your money will increase significantly over time. Look at the following example:

Save this each week At % Interest In 10 years you’ll have$7.00 5% $4,720$14.00 5% $9,440$21.00 5% $14,160$28.00 5% $18,880$35.00 5% $23,600

So, if you invest $7.00 per week at 5% interest, you will have almost $5000 saved in 10 years. If you are 16 years old now, you could save $5000 by the time you are 26 years old by parting with only $7 a week. Think about it. What do you spend $7 on in a week? Snacks, lunch, etc. Look back to Assignment #3, is there anything on that list worth $7 that you could live without each week? Maybe you should consider investing that money instead. You could successfully accomplish a long-term goal for only $7 per week. Think about it!



MANAGING DEBT

What is debt?

Debt is a situation where you owe something to someone.

When does debt become a problem?

Debt becomes a problem when you owe more than you have to give. For example, if you have written too many cheques and you don’t have enough money in your account to cover them, then you are in debt. Another common way to get yourself in debt is to overuse a credit card.

What are some warning signs of trouble?

You don’t know how much you owe You often pay bills late You get a new loan to pay old loans You always pay the minimum amount due on your bills, credit cards, etc. You would be in extremely serious trouble if you lost your job You are spending more than you earn and using your savings to pay for day-to-day

expenses

What can you do if you find yourself in a situation where you have spent more money than you have?

You need to take immediate action. The following is a list of some of the first steps you can take to begin managing your debt.

Take a close look at your spending:

Trim your expenses. Remember that chart you completed in Assignment #4; stop spending immediately on all your wants.

Carefully evaluate your “needs” versus “wants” Be realistic about what you can afford.

Contact your creditors:

Contact those people and/or institutions that you owe and inform them of why you have not paid them. Tell them that you are working on a solution and that you intend to pay them as soon as possible. It is not a wise idea to avoid people to whom you owe money.

Ask if you can work out a new payment plan. If possible, always make the minimum payments.



Of course, the most obvious solution is to never let yourself end up in this type of situation. With careful planning, evaluation of wants and needs, research, goal setting and resource management, you should be able to avoid this type of situation all together. However, as you get older and your financial obligations increase with such things as car and house payments or child expenses, you may find it increasingly difficult to manage your finances. This is the reason why it is so important to start learning and practising appropriate money management strategies now. Remember, the sooner you start saving and planning, the more likely you will have a successful and responsible financial future.

(Adapted from Choices & Decisions by: VISA)

ASSIGNMENT #6: Review

Answer the following questions using point form on your answer sheet.

1. If you invest $14 each week at a 5% interest rate, how much money will you have in 10 years?

2. List three warning signs that you are in financial trouble.

3. List three strategies that you can use to try and manage your debt.

4. Name one good thing about opening a chequing account.

5. Name one good thing about opening a savings account.

ASSIGNMENT #7: Second chance

Look back to Assignment #1

Now that you have learned more about managing your money, use your new knowledge to spend your $300 more wisely. Describe how you would now spend your $300. Explain why you made certain changes to your spending and/or investing of the money.



DECIDING TO BUY

Before you go ahead and make a purchase, especially an expensive purchase, you need to take some time to carefully consider your decision. You will recall learning about decision making from a previous lesson. The process of deciding whether or not to purchase a product can also be applied to the decision making model you learned earlier in this course. Take some time now to look up decision-making if you don’t remember the process.

Deciding to spend your money, ask yourself the following questions:

Do I really need this item? Is it worth the time I spend making the money to pay for it? Is there a better use for my money right now?

If you have carefully considered these questions and you still want to purchase the product, you would now consider the following things.

What should you consider before buying a product?

QUALITY

There are five factors related to determining the quality of a product.

Performance: How well does the product work?

Durability: Is the product well-made so that it will last a long time?

Convenience: Does the product function in a convenient manner?

Maintenance: Is there a lot of care involved in having this product?

Safety: Is there any potential hazard involved with the use of this product?

PRICE

There are several things to consider when you are trying to decide how much to spend on an item. Spending more money does not always guarantee that you will get a better quality product. Similarly, spending too little could result in a poor quality product. If you are in a rush, and you need a gift today, then you might be willing to pay a little bit more for an item because you are in a rush. If you have more time, you should do some comparison shopping (see next section of the lesson) first.



SUITABILITY

What exactly do you expect or want from this product? For what will you be using it ? For example, if you are purchasing a pair of boots, should they be waterproof? Should the sole be a rubber grip sole? Should they be tall or short? You need to consider the suitability of the product for the intended purpose before you buy anything.

RESEARCH

Do you know anyone who already owns this type of product? Ask him/her about it. Is he/she pleased with the purchase? You can learn a lot of valuable information from a person who has already purchased a similar product. Furthermore, some consumer magazines and websites will provide you with information about specific products. You learned how to conduct research in a previous lesson. Now is a great opportunity to use those skills again to help you make a wise and satisfactory purchase.

COMPARISON SHOPPING

One of the smartest and easiest things a consumer can do to ensure he/she is making the right decision about a purchase is to “Comparison Shop”. Comparison shopping simply means that you are gathering information about a product or service in order to make the best possible selection of quality for the lowest price. One of the nicest things about comparison shopping is that it can often be done right from your home by telephone. Using the phone is especially useful when you are looking for a specific item that you do not need to actually see. If the item you intend to purchase comes in a variety of styles, colours and qualities, then it will be necessary for you to visit a few stores in person in order to complete your comparison shopping.

How should I go about comparison shopping?

The first thing you need to do is select the item you would like to purchase and identify any special features that you want to be included. Then look in the phone book and record the name and phone number of several stores that you think would carry your product. Call each of the stores and record your information on a piece of paper. A chart would be especially useful in this case. Remember to ask questions about guarantees and warranties, delivery service, tax, etc. Once you have gathered enough information from several stores, you can choose to make your purchase at the store offering you the quality you want at the best price available.



ASSIGNMENT #8

Select an item that you would like to purchase in the near future. It doesn’t matter if the product is $20 or $200. Using the yellow pages, locate the name and phone number of four different stores that would sell your product. Phone or visit each of these stores and gather the necessary information to complete the following Comparison Shopping Chart. You may also use the Internet to do your comparison shopping.

Name and describe on your answer paper the product that you are gathering information. Be sure to include information about specific qualities that you want in your product:

Name of Store

Price Will they deliver &

how much $

Does the product come

with the features you

want? Explain

Is there a guarantee or

warranty included with this product?

Explain

Other details

Where would you buy your product? Why did you choose this store instead of the others?



LABELS

There are many Federal laws that have been designed specifically to provide protection to Canadian consumers. One of the areas where several acts have been implemented is in the labeling of certain goods. Read about the following labeling acts carefully. Learning your rights as a consumer could save you from many costly errors.

Hazardous Products Act

This federal law dictates the standards that must be met for the manufacturing and labeling of hazardous products in Canada. This law also prohibits the sale of goods brought into Canada which do not meet the required safety standards. The law states that any product that is flammable, poisonous, explosive or corrosive must be labeled with the appropriate symbol. You learned about labeling of hazardous materials in the lesson on safety. Manufacturers must also indicate the possible effects and dangers of misuse of each particular product. For example, the manufacturer will give instructions as to what should be done if a poisonous product is swallowed.

Weights and Measures Act

According to Federal law, inspectors may examine any device that is used for measurement. This applies to coin-operated machines that dispense liquid or measure time. Examples include coin operated laundry machines and dryers in laundromats or coin operated parking meters. The purpose for the law is to ensure that there is consistency and uniformity all across Canada.

Consumer Packaging and Labeling Act

This law protects consumers from misleading packaging, in size, volume or shape. If a package contains a specific number of “servings”, then the mass of each serving must be indicated on the outside of the package. The package must also state the quantity of the product by number, mass or capacity.

NOTE: Look in the Blue pages of your local telephone book under Government of Canada. Look up Industry Canada and you will see a 1-800 number for contacting: Packaging and Labelling-Consumer Goods-Textiles-Precious Metals Marking 1-800-348-5358



ASSIGNMENT # 9

Look in your cupboard or fridge at home and find an example of a food product that lists the required information on the outside of the package.

Record all the information provided about the size, weight, quantity, number of servings, etc. that you can find on the package. Be sure to record the type of product you are describing as well. Then answer the following questions.

Do you think this is a necessary law?

How often do you read this type of information before making a purchase?

If this law did not exist, would you want to know this sort of labeling information before you purchased certain products? Why or why not?

GUARANTEES AND WARRANTIES

The terms “guarantee” and “warranty” generally mean the same thing. However, a warranty usually has the identity of the seller and a service schedule to be followed if the purchaser is to take advantage of the warranty. When you purchase a new product, it is often required that you mail in a proof of purchase sales receipt and a warranty card that will register you and your product with the company. There is often a limited amount of time for you to mail in this information. If you do not mail in the information on time or you do not mail in the information at all, your warranty may not be valid. When a product comes with a guarantee, you should make some inquiries as to the exact meaning of the guarantee. Is the guarantee still valid if you sell the product to another person or give it away as a gift? As with a warranty, it may be necessary to mail in a registration form so that your guarantee will be effective. Ask enough questions until you are satisfied that you understand the guarantee/warranty of your product clearly.

Unfortunately, even when you follow all the steps necessary to make your guarantee/warranty effective, you may be disappointed with the outcome. Although a guarantee attached to a product indicates a promise that the manufacturer will stand behind his product and repair/replace the product at little or no charge to you, it often becomes quite a hassle. Many manufacturers will ask you to mail the product to them in the original packaging at your expense. You rarely receive a new product; rather, your old and defective product is repaired by the manufacturer and returned to you.



ASSIGNMENT #10

Shaneek has decided to purchase a new stereo. The stereo will cost almost $800. When Shaneek goes to the store to purchase the stereo, she is told that the stereo comes with a two-year guarantee.

What questions should Shaneek ask the sales person about the guarantee, before she buys the stereo? Write down four questions that Shaneek should ask about the guarantee.


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