1 C HAPTER 6 Consumer Purchasing Strategies and Wise Buying of Motor Vehicles Or “I’d Like Some More Things, Please!” Microsoft Chairman Bill Gates told

1

CHAPTER 6Consumer Purchasing Strategies and Wise Buying of Motor Vehicles

Or

“I’d Like Some More Things, Please!”

Microsoft Chairman Bill Gates told CNBC that he wished he were not the richest man in the world. “There is nothing

good that comes out of that,” he said. (Reuters.com)

2

Scandal #6

Clothes

Culture of Consumption

3 “Thanking you for the clothes of your dead people”

A journalist was on assignment covering cultures around the world and specifically, how their cultures relate to and think of our culture. His guide in East Africa (the affluent part of Central Africa) invited him to come see the distribution of the clothes from the dead Americans to the locals. When the journalist asked the guide why the locals thought the clothes were from dead Americans, the guide looked at him oddly and said, “Why would a living person give away any of their clothes?”

4

Scandal #12

Pets


5

A What Therapist?!

How much does a very busy dog therapist charge for six 1-hour sessions with you and your dog?

A. $250

B. $500

C. $1,000

D. $1,500The correct answer is (D). That is $250 per hour!

Think Viet Nam.

6

How Much is Fido Costing You?

Speaking of dogs, what is the average yearly cost of owning a dog?*

A. Less than $500

B. Between $500 and $1,000

C. Between $1,000 and $1,500

D. Over $1,500The correct answer is (D). Well, of course. Just one series of

therapy sessions cost $1,500! Remember, this is per dog.The total for Americans is $52 billion and it is rising quickly.

*ASPCA, American Veterinary Medical Association

7

Do Not Forget Taxes For every $2 spent, you must earn more than $3 –

maybe up to $4 depending on your income bracket “A Dollar Saved is Two Dollars Earned”

From The Wealthy Barber

From The Millionaire Next Door

“I can’t get my wife to spend any money!”

“How did the wife of a millionaire respond when her husband gave her $8 million worth of stock in the company he recently took public? She said, “I appreciate this, I really do.” Then she smiled, never changing her position at the kitchen table, where she continued to cut out twenty-five- and fifty-cent-off food coupons from the week’s supply of newspapers, just as she had done each week for the past 27 years.”

“Frugal, Frugal, Frugal”

8

Speaking of Millionaires…

Spoken by the Senior Vice-President of a trust department of a major bank that had commissioned a focus group interview of

twenty first-generation millionaires.

“These people cannot be millionaires! They don’t look like millionaires, they don’t dress like millionaires, they don’t eat like millionaires, they don’t act like millionaires – they don’t even have millionaire names. Where are the millionaires who look like millionaires?”

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The median age is 57 years old Most are married and have not divorced More than 80% are first-generation millionaires The median income is $131,000 per year Most invest at least 15% of their income each year 50% have never spent more than

$399 for a suit $140 for a pair of shoes $235 for a wrist watch

There are over 8 million households in America with a net worth of over one million dollars.

From The Millionaire Next Door

(continued)

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Therein lies the paradox: Do you want to be a millionaire or do you want to live like a millionaire? All the people you think are millionaires – fancy cars, flashy clothes –

are really just high-income, high-consumption wage earners with 10 credit cards run up to the maximum.

The millionaires are the penny-pinchers.Bizarre, huh?

The lesson is clear. If you want to become a millionaire, having a high income is not important. You must be frugal and invest wisely.

(continued)

11


The media loves to showcase the high net worth, high consumption celebrity figures. The truth is that they

constitute only a small percentage of the millionaires in the United States.

The media advertisers love them because they encourage the “Little Folk” to over consume.

But what about “The Lifestyles of the Rich and Promiscuous” & Don King & Jennifer Spears & Brittany Lopez? Huh? What about them?

(continued)

12


Over 60% of the population live on less than $1 per day.About 41% do not have access to clean water.

Over 90% of the women over the age of 15 are illiterate.Life expectancy at birth is approximately 44 years.

And when you are sitting at home watching TV feeling sorry for yourself as you compare yourself to Donald Rump, instead compare yourself to the citizens of Niger.

In fact, about 1.2 billion people around the world (about 1 in 5) survive on less than $1 a day. (Los Angeles Times)

(continued)

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What You HaveHappiness = ––––––––––––––––

What You Want

So do you still believe that you would live happily-ever-after if you were a millionaire?

Simply put, if you never learn to be happy with what you have, you will never be happy. Your wants will always outweigh what you have. And even if you do become a millionaire, you will still face the same day-to-day travails that everyone faces. Your life

will be more comfortable, but there is no guarantee of happiness.

(continued)

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Scandal #23

Batteries


15

Disposable or Rechargeable?

Given normal usage, how many alkaline batteries would be replaced by one nickel metal-hydride battery?

A. 25

B. 100

C. 500

D. 750

The correct answer is (C). Screw the Energizer Bunny!

16

Shopping can be an addiction Many, many people buy things simply trying

to fulfill some unmet childhood desire “An addiction is any mood-altering behavior that

the participant is no longer in full control of.”John Bradshaw

Do not think the advertisers do not know all about this and other psychological phenomena

“She had forty-seven cashmere sweaters.”

Beware of Emotions

17

Speaking of Emotions…

Ever wonder why advertisers use sex to

sell their products?

“You can keep the beer. But I will take the

bubble-headed, bleached blonde with the big

kn___kers & the tight b__t, thank you.”

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Does Advertising Really Work?Economists estimate that every

hour of TV a person watches each week increases their

annual spending by about $200. In 2005, Nielsen Media

Research reported that the average person watched

approximately 4½ hours of TV a day, or 31½ hours a week.

At $200 in extra spending for each hour watched, that means that the average person spends

an extra $6,300 a year that they would not have spent if they

didn’t watch TV.

“Television commercials do not affect me!”

http://www.turnoffyourtv.com/commentary/morons/stupid.htmlUnhappy People Watch TV -- Happy People Socialize and Read

By 2009, the number rose to almost 5 hours per day.

http://articles.latimes.com/2009/feb/24/business/fi-tvwatching24

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CPI - inflationInterest ratesSupply/demandBrand nameWarrantyProduct QualityTax rates

Economic FactorsLifestylesCultureAttitudesAds/mediaHobbiesPeer group

Social Factors

Sex and ageMarital statusOccupation

Personal FactorsIncomeEducationFamily size

Housing typeEthnic groupReligion

Consumer Buying

Influences

What Factors Motivate You?

20

Speaking of Influences…

Would someone please tell me why a Roach handbag is worth $600 more than a JCPenney’s handbag?

Oh, I am so sorry. “Coach.” For the prices they are asking, shouldn’t they really call them “First Class?”

And do not even get me started on Lousy Vuitton!

21

Scandal #73

Light Bulbs


22

Incandescent or Fluorescent?

Given normal usage, how many incandescent bulbs would be replaced by one fluorescent bulb?

A. 2

B. 4

C. 8

D. 11The correct answer is (D). Incandescent bulbs give off 90%

of their energy as heat. Fluorescent bulbs are cold.

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Incandescent or Fluorescent?

Over its lifetime, how much money will one fluorescent bulb save you in energy costs at current electricity rates?

A. $25

B. $45

C. $65

D. $110

The correct answer is (B). But energy prices are rising…

24

Consumer Purchasing Activities

Problem identification

Information gathering: costs, options, consequences Sources of attribute assessment

Personal contacts and experience of others Business organizations advertising & media Independent testing organizations – Consumer

Reports

Price analysis: Are quality and price always related? Comparison shopping: Do you take the time to

comparison shop?

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Consumer Purchasing Activities

Negotiation may be used on some products Decide on cash or credit Get all acquisition and installation costs and

conditions in writing Maintenance and ownership costs may be

associated with some purchasesComplain if you are not satisfied with a purchase

Do you complain if you are not satisfied?

all

cash

A 2004 to 2007 survey by Consumer Reports shows that more than 90 percent of shoppers who asked for discounts got at least one. The

negotiated price cuts were on a wide range of goods and services, including furniture, electronics, and medical bills.

(continued)

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Timing purchases When is the best time to buy Christmas cards?

Brand comparison versus impulse buying Store brands can be low-cost alternatives

Evaluate warranties and service contracts Price comparison

Unit pricing provides a standard of measurement Coupons and rebates (partial refund) More convenience and ready-to-use products

mean higher prices (Tightwad Gazette – Potatoes)

“Sale” does not always mean saving money In fact…

Practical Purchasing Strategies

27

Pretzel Logic

“But it’s on sale! Think of how much we will save!”

You may spend less, but you never save money whenever you buy something; you always spend money whenever you buy

Repeat after me: “Spending is NEVER Saving!” “Spending is NEVER Saving!” “Spending is NEVER Saving!”

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(continued)

How much did we save? $37?

We didn’t save nothin’!

We spent $75!

Pretzel Logic

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Scandal #118

Meat


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Societal Cost of Meat?

How many gallons of fresh water are used to produce one pound of beef?

A. 100 gallons

B. 500

C. 1,000

D. 5,000

The correct answer is (D).

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Societal Cost of Meat?How many people can be fed via grains with the resources needed to feed one person with beef?

A. 5 people

B. 10

C. 20

D. 30The correct answer is (D). Plus, meat ain’t the best thing

for yer health, either. http://www.nytimes.com/2009/04/28/health/28brod.html?em

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The Cost of Convenience

5 Ounces of Potatoes Cost

Potato (10-pound bag) $0.06

Ore-Ida Frozen French Fries (28 oz bag) $0.62

Betty Crocker Mashed Potato Mix (13.75 oz box) $1.09

Ruffle's Potato Chips (17½ oz bag) $1.78

Pringle’s Potato Chips (6.41 oz tube) $1.83

McDonald’s French Fries (2 oz serving) $2.96

Lay’s Fat-Free Olestra Potato Chips (6½ oz bag) $3.12

PopChips Potato Chips (0.8 oz bag) $6.19

Sources: Local grocery store (Stump’s), Vons (H Street), McDonald’s

(revisited)

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World average is 2,700 calories per day

Speaking of Food…

Source: United Nations Environment Programme

3,600 calories per day



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Speaking of Food…

The total daily caloric intake of the average American has risen by 148 calories per day since 1980. This amount reflects an extra 15 pounds per person each year.

-- U.S. Department of Agriculture

Your clothes feeling a little tighter recently? Yeah, me too.

(continued)

35

Speaking of Food…

8,000 years ago, this was the image of the

ideal woman.

Today, this is the image of the ideal woman.

(continued)

36

Speaking of Food…

According to a recent study sponsored by the USDA, how much of the nation’s food ready to harvest never gets eaten?

A. 2% to 5%

B. 10% to 15%

C. 20% to 30%

D. 40% to 50%The correct answer is (D).

(continued)

37

Speaking of Food…

And the average family of four throws out how many dollars worth of food each year?

A. $50 to $75

B. $100 to $150

C. $250 to $300

D. $575 to $600

The correct answer is (D).

(continued)

38

Scandal #235

Bottled Water


39

Ads We Would Love to See

http://www.democracynow.org/2007/8/1/the_bottled_water_lie_as_soft

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But It’s Really Not Just Water!

How many plastic water bottles make their way into landfills or wind up as litter each year?

A. 5,900,000,000 (almost 5 billion)B. 12,100,000,000 (a bit over 12 billion)C. 22,600,000,000 (about 22½ billion)D. 28,000,000,000 (around 28 billion)

The correct answer is (C). 62 million each day. http://www.container-recycling.org/media/newsarticles/plastic/2006/5-WMW-DownDrain.htm

But the State of New York says that it is really closer to (D).

41 Steps in ResolvingConsumer ComplaintsReturn to place of purchaseContact the company’s main office via telephone

or their web siteObtain assistance from a consumer agency

Better Business Bureau web site to file a complaint on line: http://www.bbb.org Local Better Business Bureau

State consumer protection office or agency Federal agencies Mediation – parties decide for themselves (non-binding)

Arbitration – third-party decides (binding)

42 Steps in Resolving Consumer ComplaintsTake legal action

Small claims court Class-action suits Use a lawyer? (can not use one in small claims) Other legal alternatives

Legal aid society Prepaid legal services Research legal questions at www.nolo.com Try mediation or arbitration first

(continued)

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Personal Consumer Protection

To protect yourself as a consumer… Deal with reputable companies

Avoid doing any business with or giving any information to telemarketers / spammers

www.donotcall.gov Avoid signing contracts and other documents you

do not understand Compare financing through the seller with other

sources such as credit unions Avoid rushing to get a good deal Be cautious about offerings that seem too good to

be true – they usually are!

44

Scandal #1

Cars


http://www.youtube.com/watch?v=Z2mf8DtWWd8&feature=player_embedded

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CHAPTER 6 AppendixBuying and Operating Motor Vehicles

Or

“You Are Not What You Drive!”

46

First, Some Statistics… Percentages of Short Motor Vehicle Trips…

49% – Three miles or less 40% – Two miles or less 27% – One mile or less

The Average American Uses as Much Energy As… 3 Japanese 13 Chinese 153 Bangladeshis 499 Ethiopians

“The faster you drive, the more fuel you use. For example, driving at 65 mph, rather than 55 mph, increases fuel consumption by 20%. Driving at 75 mph,

rather than 65 mph, increases fuel consumption by another 25%.” http://www.ftc.gov/bcp/edu/pubs/consumer/autos/aut10.shtm

47

Societal Cost of Cars?

For every one gallon of gas you burn, how much carbon dioxide do you pump into the atmosphere?

A. 7 pounds

B. 15 pounds

C. 20 pounds

D. 125 poundsThe correct answer is (C). Here is the chemical formula:

C8H12 + O2 H2O + CO2

48


How much of our oil do we import?*

A. 12%

B. 27%

C. 48%

D. 66%

The correct answer is (D). However, we also export 5% so the net result is 61%.

*Energy Information Agency (EIA) of the Department of Energy

49


And how much, per person per year, do we spend on imported oil?

A. $456

B. $840

C. $1,600

D. $2,240

The correct answer is (C). The summer of 2008, it was D.(13.15 million barrels/day) * ($100/barrel) * (365 days/year) / (300 million people)

50


Let's see, $1,600 per person per year multiplied by 300,000,000 people – That is approximately...

A. $162,000,000,000 ($162 billion)

B. $292,000,000,000 ($292 billion)

C. $480,000,000,000 ($480 billion)

D. $672,000,000,000 ($672 billion)The correct answer is (C). This is your money going to foreign oil

producing countries like Saudi Arabia, the folks that really brought you 9/11. (Psst. It was not Iraq. Don’t tell your Republican friends.)

51


So how many barrels of oil (42 gallons of

crude oil) does each person consume in the United States each year?

A. 2.5 barrels

B. 12.8

C. 25.4

D. 112.3

The correct answer is (C).

52

Have We Learned Anything Yet?

Barrels of Oil Consumed per Person per Year in the United States 1970 – 26.3 barrels 1978 – 31.0 1983 – 23.7 2000 – 26.5

For years, public policy makers and environmentalists speculated on what price per gallon would people finally stop buying Sport Utility Land Barges. The answer came in 2008.

Once gas rose over $4.50 per gallon, SUV sales plummeted and people drove less.

We are now down to around 25.4

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New or Used Car?

Which do you prefer? Why? What are the pros and cons?

54

Buying a Used Vehicle

Sources of used vehicles New-car dealers Used-car dealers Private parties

Consult Consumer Reports Yearly Buying Guide – Reliability statistics Consumer protection for used car buyers T’ain’t much!

55

Inspecting a Used Car

Outside the car Inside the car The engine

Mechanic’s inspection Odometer fraud & crashed, salvage vehicles

Check carfax.com The road test

Find an honest mechanic and pay for an inspection!

56

Used Car Price Negotiation

Price information sources Edmund’s Used Car Prices or edmunds.com NADA Official Used Car Guide Kelly Blue Book kbb.com

Consult a friend who is a car enthusiast! Better yet, have him or her come with you when

you shop

57

Buying a New Vehicle

Over half of all new vehicle purchases now involve some Internet interaction From gathering information to actual purchasing

Average cost of a new vehicle now exceeds $28,400 – Ouch! (source:

http://www.ftc.gov/bcp/edu/pubs/consumer/autos/aut11.shtm )

Do not be swayed by advertising Check Consumer Reports

20% Gone! What?!

“You can keep the car. But I will take the bubble-headed, bleached blonde with the big kn___kers & the tight b__t,

thank you.”

58

Selecting Options Mechanical devices

Engine size Cruise control

Comfort and convenience options Air conditioning Stereo systems

Aesthetic features Special paint Mag wheels

Service contract – Do Not Fall For This! Unless the car you want has a less than stellar

repair record (Check Consumer Reports)

59

Negotiating the Price

Sticker price (a.k.a. suggested retail price) It includes the base price plus the accessories

Invoice price – dealer’s cost Know the dealer’s cost by consulting...

Consumer Reports consumerreports.orgConsumer Reports consumerreports.org Edmund’s New Car Prices edmunds.comEdmund’s New Car Prices edmunds.com

When is the dealer’s cost not the dealer’s cost? When the factory’s monthly incentive check comes in at the end of the month!

60

Price bargaining Set-price dealers Car buying services

Also called an auto broker

Online car buying The sales agreement – Read it!

Consumer protection for new-car buyers Each state has its own lemon laws

Determining the Purchase Price

61

Financing an Automobile Purchase

Financing sources Banks, credit unions, finance companies, or

dealer financing Many lenders will preapprove a certain

amount

Consider the length of the loan Upside-down equity means that your car is

worth less that what you still owe on the car loan (a.k.a. negative equity)

62

Leasing a Vehicle Closed-end versus Open-end lease Advantages

Small cash outflow Lower monthly payments than buying Lease provides detailed records

Disadvantages No ownership interests Must meet requirements May have additional costs

Especially for any extra miles!

My advice? Only lease if you are sure you have

no intentions of keeping the car

63

Leasing a Vehicle However, the large number of recent leases

has created an excellent opportunity for used-car buyers

Example: 3-year lease of a $45,000 Sport Utility Tank Expected residual value (a.k.a. lease-end value)

of $32,000 Lessee politely sez, “No, Thanks.” You pick up the vehicle from the leasing

company for around $20,000 Better yet, buy an econo-box for $15,000

(continued)

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What Kind of Vehicle?According to our authoritative and detailed scientific research, we have found that the larger the motor vehicle,

A. The smaller the IQ of the driver

B. The more fragile the ego of the driver

C. The greater the sense of powerlessness within and anger toward the society around them

D. The more microscopic the reproductive organ

E. All of the above

The correct answer, of course, is (E). My sincerest apologies to those of you who own a Ford Extinction (not really )

65

Costs of Operating a Car Fixed Costs

Depreciation – 65% after 5 years (average) That $28,000 car will be worth $9,000 in five years

Finance charge – Interest on loan Insurance License, registration & taxes

Variable Costs Gas and oil Tires Maintenance & repairs Parking and tolls

http://www.aaaexchange.com/Assets/Files/201145734460.DrivingCosts2011.pdf

66

According to the AAA, what is the average cost per mile to own and operate a new car in 2011?

A. 12.5¢ per mile

B. 25.8¢

C. 40.9¢

D. 58.5¢The correct answer is (D). So at 15,000 miles per year, that’s…

http://www.aaaexchange.com/Assets/Files/201145734460.DrivingCosts2011.pdf

Costs of Operating a Car(continued)

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Costs of Operating a Car Average of over $8,776* per year per car (58.5¢/mi)

Many families have two cars 40 years * $17,552 per year = $702,080!

Jonathon Pond’s study – 1980’s Buying a new car every 4 years, versus Buying a new car every 10 years and investing the

savings (including the cost of maintenance) At the end of 40 years, you would have $350,000

And those were 1980’s dollars – double it for nowMy advice?

Buy a reliable new or used car and run it into the ground!

(continued)

* Forbes says that the number is closer to $12,000 per year for new cars. But that is probably because they concentrate on luxury cars.

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Servicing Your Car Follow the maintenance schedule in the

manual (?) Vehicle servicing services

Car dealers Automobile repair shops Service stations Discount stores

Specialty shops Jiffy Lube (?) Midas

My advice?Find an honest

mechanic and stay loyal to ‘em!

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Bottom Line on Cars Get a bicycle! scooter! motorcycle! (Get training) I have >56,000 miles on my commuting bicycles

At 58.5¢ per mile, I have saved over $32,000 in vehicle costs

Plus I have saved a tremendous amount in health care costs Before I started riding again, I was a paunchy 30-

something male suffering from Sedentary Lifestyle Disease (Now I am just paunchy…)

Do not forget the savings to the environment Difficult to estimate but nevertheless do exist

Besides, it is fun to ride past people stuck in traffic in their cars as they are driving to the gym! And it is only going to get worse…

Documents

1 C HAPTER 6 Consumer Purchasing Strategies and Wise Buying of Motor Vehicles Or “I’d Like Some More Things, Please!” Microsoft Chairman Bill Gates told