Wants, Need and Financial Goals of the Family

Chapter 4Chapter 4

Wants, Need and Wants, Need and Financial Goals of the Financial Goals of the

FamilyFamily

Wants & NeedsWants & Needs

Needs Needs Basic things required for safety and health.Basic things required for safety and health. Eg food to keep one alive, clothing to keep one warm, a Eg food to keep one alive, clothing to keep one warm, a

shelter (home) to protect oneshelter (home) to protect one

WantsWants Items one desire but not critical to lifeItems one desire but not critical to life Wants are fulfilled to achieve satisfaction and safetyWants are fulfilled to achieve satisfaction and safety Eg. savings, investment, transportation Eg. savings, investment, transportation

Wants & NeedsWants & NeedsMaslow’s hierarchy of needsMaslow’s hierarchy of needs Physiological needsPhysiological needs Safety needsSafety needs Needs of love, affection and belongingnessNeeds of love, affection and belongingness Needs for esteemNeeds for esteem Needs for self-actualizationNeeds for self-actualization

The first level of needs to fulfill in the hierarchy is the The first level of needs to fulfill in the hierarchy is the ‘needs’ as defined earlier‘needs’ as defined earlier

Thus, the definition refers to only the physiological needsThus, the definition refers to only the physiological needs


UtilityUtility In economics, it is a measure of the relative satisfaction In economics, it is a measure of the relative satisfaction

from consumption of goods or desirability of consumption from consumption of goods or desirability of consumption of goodsof goods

can be expressed as an increasing or decreasing utilitycan be expressed as an increasing or decreasing utility can explain economic behavior in terms of attempts to can explain economic behavior in terms of attempts to

increase one's utilityincrease one's utility changes in utility are sometimes expressed in units called changes in utility are sometimes expressed in units called

utilsutils


Marginal utility marginal utility of a good or of a service is the utility of the increase in specific use of that good or services or is the utility of the specific use that would be abandoned in response to a given decrease is the utility of the marginal use marginal utility of a good or service is the quantified change in utility obtained by using one more or one less unit of that good or service


Law of diminishing returnLaw of diminishing return is also called diminishing marginal returnsis also called diminishing marginal returns Eg. A production system with fixed and variable inputs Eg. A production system with fixed and variable inputs

(factory and labour), each additional unit of variable input (factory and labour), each additional unit of variable input (labour) yields less and less additional output – the return (labour) yields less and less additional output – the return diminishesdiminishes

Conversely, producing one more unit of output costs more Conversely, producing one more unit of output costs more and more in variable inputsand more in variable inputs

Financial GoalsFinancial Goals

Important things related to developing financial goals for the Important things related to developing financial goals for the purpose of managing family financialspurpose of managing family financials

Financial goals are shared together with all family Financial goals are shared together with all family membersmembers

Think of things having important relation to money Think of things having important relation to money Consider current consumption and future consumptionConsider current consumption and future consumption Focus on suitable goals or achievable with available Focus on suitable goals or achievable with available

resourcesresources

Financial Goals (cont.)Financial Goals (cont.)

Types of personal financial goalsTypes of personal financial goals Classified in terms ofClassified in terms of

1.1. Timing of goalsTiming of goals Period of time needed to achieve it; Period of time needed to achieve it;

short-term: within the next year short-term: within the next year intermediate: two to five yearsintermediate: two to five years long-term: more than five yearslong-term: more than five years

Time for it to happen (when)Time for it to happen (when) Eg. saves for how long and when is it needed?Eg. saves for how long and when is it needed?

Financial Goals (cont.)Financial Goals (cont.)2.2. Type of purchases for financial goalsType of purchases for financial goals Consumeable product goals: purchasing of products having Consumeable product goals: purchasing of products having

low economic value or economic value that did not last long low economic value or economic value that did not last long – vacation, entertainment – vacation, entertainment

Durable product goals: has certain economic value - Durable product goals: has certain economic value - purchasing electrical appliance, furnitures, automobiles, purchasing electrical appliance, furnitures, automobiles, house, landhouse, land

3.3. Type of needsType of needs Tangible purchase goals: tangible needs - eg food, clothingTangible purchase goals: tangible needs - eg food, clothing Intangible purchase goals: intangible needs – status, freedom Intangible purchase goals: intangible needs – status, freedom

of mindof mind


3.3. Frequency of happening: Frequency of happening: from continuous (always happening) to once in the lifetimefrom continuous (always happening) to once in the lifetime Purchasing clothing and food –always happeningPurchasing clothing and food –always happening Purchase cars – several times in a lifetimePurchase cars – several times in a lifetime To buy a bungalow house – once in a lifetime To buy a bungalow house – once in a lifetime


Steps in developing financial goals based on categories:Steps in developing financial goals based on categories:

1.1. Identify who involved in the plan – you & family membersIdentify who involved in the plan – you & family members

2.2. List down all the financial goals for yourself & family List down all the financial goals for yourself & family members without considering whether it overlaps or relatedmembers without considering whether it overlaps or related

3.3. Make the list in terms of priority (the priority may change Make the list in terms of priority (the priority may change later) to ensure important financial goals can be implemented later) to ensure important financial goals can be implemented earlier as resources are limited earlier as resources are limited

4.4. Determine when it is needed (to locate it according to Determine when it is needed (to locate it according to sequence of time in the table below)sequence of time in the table below)

5.5. Estimate the cost for each financial goals based on current Estimate the cost for each financial goals based on current ringgitringgit

Financial goals (cont.)Financial goals (cont.)

6.6. Classify the financial goals into categories as follows:Classify the financial goals into categories as follows: Timing of the goals – short-term to long-term ; list according Timing of the goals – short-term to long-term ; list according

to time sequenceto time sequence Frequency of it to happen – continuous to once in a lifetimeFrequency of it to happen – continuous to once in a lifetime Type of purchases – consumable to durable purchasesType of purchases – consumable to durable purchases Type of needs - tangible to intangible needsType of needs - tangible to intangible needs

Some items can be classify under more than one categorySome items can be classify under more than one category

Eg. House – as a shelter is tangible (measurable), & as symbol of Eg. House – as a shelter is tangible (measurable), & as symbol of status or safety that is intangible (immeasurable) status or safety that is intangible (immeasurable)


7.7. For goals under the timing period, determine For goals under the timing period, determine the monthly amount of savingsthe monthly amount of savings

8.8. Proceed with developing a table to achieve Proceed with developing a table to achieve the financial goals (financial goal the financial goals (financial goal achievement table). achievement table).

Financial Goals (cont.)Financial Goals (cont.)Timing Frequency Type of

purchaseNeeds

Short-term Continuous Consumable Tangible

Financial emergencies RM3,000 @ RM200

Emergencies – each year RM3,000

Holiday tour RM500

House RM150,000

Holiday tour RM500 @ 100

Holiday tour – 2 times a year RM500

Financial emergencies RM3,000

Car RM40,000

Car RM40,000 @RM300

Car – 3 times RM40,000

Car RM40,000 Financial emergencies RM3,000

House RM150,000 @RM800

House – once RM150,000

House RM150,000

Holiday tour RM500

Retirement RM400,000 @ RM300

Retirement – once RM400,000

Retirement RM400,000

Long-term Once in a lifetime

Durable Intangible

Financial goals (cont.)Financial goals (cont.)

Financial goals for various life situationFinancial goals for various life situation Accumulate appropriate emergency fundAccumulate appropriate emergency fund Select appropriate investmentSelect appropriate investment Establish & implement plan for retirement Establish & implement plan for retirement

goalgoal Purchase appropriate type of insurance planPurchase appropriate type of insurance plan Purchase a home or shelterPurchase a home or shelter Purchase transportationPurchase transportation Establish plan for further studyEstablish plan for further study Performing the haj in MeccaPerforming the haj in Mecca


Characteristics of financial goalsCharacteristics of financial goals When to achieve & the time period to achieve When to achieve & the time period to achieve

it – eg. Year 2020, 12 years from nowit – eg. Year 2020, 12 years from now Stating the amount needed – eg. RM 50,000 Stating the amount needed – eg. RM 50,000

for a car or RM10,000 for the down-payment for a car or RM10,000 for the down-payment of a carof a car

Stating the monthly saving – eg RM 500 per Stating the monthly saving – eg RM 500 per monthmonth


Factors to consider in stating the financial goalsFactors to consider in stating the financial goals Realistic & achievable goals – based on your Realistic & achievable goals – based on your

income & life situation. Eg. To buy a double-income & life situation. Eg. To buy a double-storey terrace house worth RM200,000 in 5 storey terrace house worth RM200,000 in 5 years time., the goals may be - saves RM800 years time., the goals may be - saves RM800 per month for the down-payment of the house per month for the down-payment of the house 5 years from now. 5 years from now.

Should be stated in specific & measurable Should be stated in specific & measurable term eg goal is to accumulate RM10,000 in an term eg goal is to accumulate RM10,000 in an investment fund 4 years from nowinvestment fund 4 years from now


Factors to consider in stating the financial goals Factors to consider in stating the financial goals (cont.)(cont.)

Financial goals should have a time frame – eg. Financial goals should have a time frame – eg. The goal is to be achieved in 5 years from The goal is to be achieved in 5 years from now; this helps measure the progress of the now; this helps measure the progress of the financial goalfinancial goal

Financial goals should indicate the action to Financial goals should indicate the action to be taken – eg. To save…., to invest…be taken – eg. To save…., to invest…

Factors Influencing Personal Factors Influencing Personal Financial DecisionFinancial Decision

1.1. Life situation and personal valuesLife situation and personal values

2.2. Economic factorsEconomic factors

a)a) Market forcesMarket forces

b)b) Financial institutionsFinancial institutions

c)c) Global influencesGlobal influences

d)d) Economic conditionsEconomic conditions

i)i) Consumer priceConsumer price

ii)ii) Consumer spendingConsumer spending

iii)iii) Interest rateInterest rate

Factors Influencing (cont.)Factors Influencing (cont.)

1.1. Life situation and personal valueLife situation and personal value Life situation or lifestyle is affected by marital status, Life situation or lifestyle is affected by marital status,

income, employment, household size & events such as income, employment, household size & events such as moving to a new area, graduation, divorce, retirement, moving to a new area, graduation, divorce, retirement, changes in healthchanges in health

Personal values or factors such as age, income, personal Personal values or factors such as age, income, personal beliefs influence decision on spending and savings beliefs influence decision on spending and savings


2.2. Economic factorsEconomic factors Economic is the study of how wealth is created & Economic is the study of how wealth is created &

distributeddistributed

a)a) Market forcesMarket forces Market forces of supply & demand affect the prices of Market forces of supply & demand affect the prices of

goods & servicesgoods & services

b)b) Financial institutionsFinancial institutions Services provided by the financial institutionsServices provided by the financial institutions

c)c) Global influencesGlobal influences Global marketplace influences financial activitiesGlobal marketplace influences financial activities


c)c) Economic conditionsEconomic conditions

i)i) Consumer priceConsumer price Inflation is the rise in general level of Inflation is the rise in general level of

pricesprices High inflation caused the purchasing High inflation caused the purchasing

power to decreasepower to decrease Main cause of inflation is the increase in Main cause of inflation is the increase in

demand without comparable increase in demand without comparable increase in supplysupply


c)c) Economic conditionsEconomic conditions

ii)ii) Consumer spendingConsumer spending Increase spending would increase the Increase spending would increase the

demand and supply, thus increase demand and supply, thus increase employment – financial situation of employment – financial situation of household improvehousehold improve

iii)iii) Interest rateInterest rate Savings & investing increase supply of Savings & investing increase supply of

money thus decreasing interest ratemoney thus decreasing interest rate

Economy & Finance

Wants, Need and Financial Goals of the Family