THE ECONOMY AND YOUChapter 8

LEARNING OBJECTIVES

Explain how economic factors impact financial decisions

Understand how demographic changes will impact your future

Analyze how events in the national and global economy might affect you

OBJECTIVE 1Explain how economic factors impact financial decisions

ECONOMICS AND THE ECONOMY

ECONOMICS

The study of choices

People can’t have everything they want so they must decided what they will seek, how they will seek it and what they will do without

It impacts financial decisions by affecting certain decisions you may make, such as what to invest in

THE ECONOMY

The system in which individuals, businesses, governments, and the world interact as a whole

HOW THE ECONOMY IS BROKEN DOWN

MACROECONOMICS

Deals with broad issues that impact the economy as a whole Countrywide Global

MICROECONOMICS

Focuses on the study of individual choices or decisions made by smaller units Individual households Single companies

OBJECTIVE 2Understand how demographic changes will impact your future

DEMOGRAPHICS

DEMOGRAPHICS is the study human populations1. Race2. Gender3. Age 4. Level of education

Demographics helps predict certain needs in advance

Example: If grade school enrollment is increasing, eventually high school enrollment will, too. A plan will need to be made for that, more classrooms, more teachers, etc.

Silent Generation Baby

BoomersGeneration X

Generation XY Cusp Generation

YGeneration Z

1925 – 1945 1946 – 1964 1964 – 1981 1975 - 1986 1981 - 2001 2001 and on

“MTV Generation”

“Echo Boomers” “Millennials”

“Homelanders”“Vista Generation”

NAMES USED TO DESCRIBE MAJOR DEMOGRAPHIC GROUPS OR TRENDS

THE “GRAYING OF AMERICA”

WHAT IT IS: the number of older people in the US is increasing at a faster rate that that of other age groups

WHY IS IT HAPPENING? The baby boom which was a period of very high birthrates after WWII

Baby boomers represent 1/3 of the workforce today and will all start retiring soon

Baby Boomers will be retiring soon and it may affect what job choice you make

IMMIGRATION

Immigration changes have produced some important demographic changes in the US

It’s altering the makeup of the population and creating new job opportunities

Hispanic Americans are rapidly growing share in the population

Jobs that cater to the needs of Hispanic Americans will be in high demand (companies will want employees who speak Spanish)

Younger people may seek a career or make investments in industries that serve the changing population

DEMOGRAPHIC TRENDS THAT WILL AFFECT THE US IN UPCOMING YEARS

1. The retirement of the members of the Baby Boom

2. The entry of members of Generation Y into the workforce

3. The growing population of Hispanic- Americans

SOCIAL SECURITY

When the United States government first established the Social Security Fund, there were MANY people paying into the system and FEW people drawing money out.

WHAT THAT MEANS TO YOU:1. Your FICA taxes may increase2. Your future Social Security

benefits may decrease3. You may have to be

responsible for funding most OR all of your own retirement

OBJECTIVE 3Analyze how events in the national and global economy might affect you

GDP

GDP = Gross Domestic Product DEFINITION: the total dollar amount of all final goods and services

purchased within the nation’s borders in a given year Looking at the GDP and how it changes over time helps show the

strength of the economy (how the government measures economic activity)

Primary indicator used to gauge the health of a country’s economy

When the GDP is higher from one year to the next, it means businesses and individuals are selling more goods and services and the economy is growing

When the GDP is lower, it means fewer goods and services are being sold and the economy is shrinking

RECESSION V. DEPRESSION

RECESSION

A period of time in which the economy is shrinking

GDP decreased

FEWER goods being sold and HIGHER levels of unemployment

“Great Recession” was 2007 – 2009

In the Business Cycle:

Lowest point of recession = TROUGH

Highest point of recovery = PEAK

DEPRESSION

A severe recession

Risk of job loss is the greatest because many businesses are forced to lay off workers

*Business Cycle: one full period of economic growth followed by a period of recession*

INFLATION AND PURCHASING POWER

INFLATION = a sustained increase in the general level of prices (things get more expensive)

REDUCES the value of your money

The purchasing power of your money goes down – examples: gas prices, movie tickets, education, etc.

How do you measure inflation? Economists look up prices on a set of 300 goods/services in a “market basket” of

goods Market basket includes: clothing, groceries, electronics, haircuts, medical care, and

education This price data is then used to construct the consumer price index or (CPI = the

formal measure of inflation that tells whether things overall are more expensive now than in the past)

With inflation, $20 will not buy you the same amount of things it did the year before

GLOBALIZATION

GLOBAL ECONOMY – the world in which economies of all countries interact and depend on each other because the world is shrinking

Top 3 Exports/Imports for US = Canada, Mexico, and China

In 2011, the US imported the highest value of goods from China

Companies close American factories and open new factories abroad because they can pay those employees lower wages and that country has more relaxed pollution controls than the US

Recognize what skills are in demand in America that CAN NOT be outsourced Plumbers, electricians, mechanics, health-care-related jobs As opposed to technical support, which can be outsourced

PROTECTING YOURSELF FROM INFLATION

Receiving regular increase in paychecks

Employers give their employees a standard “cost of living” increase which softens the impact of inflation

Hold some of your wealth in assets that tend to increase in value by more than the rate of inflation (example: real estate – which is risky)