1. You are trying to decide whether to finance the purchase of a used Mustang convertible. What questions should you ask yourself first?
2. List the advantages and disadvantages of using credit.
3. You want to purchase a home in the next five years. You know how important a good credit score is for getting a lower interest rate. What are some ways you can continue to improve your credit score over the next five years?
4. Why is it important to avoid the minimum monthly payment trap?
5. What factors (including psychological) would you consider in assessing the choices in declaring personal bankruptcy? Why should it be the choice of last resort?
6. Jamie Lee Jackson, age 27, full-time student and part-time bakery employee, has just moved in to a bungalow-style, unfurnished, home of her own. The house is only a one- bedroom, but the rent is manageable and has plenty of room for Jamie Lee. She decided to give notice to her roommate that she would be leaving the apartment and the shared expenses after the incident with the stolen checkbook and credit cards a few weeks back. Jamie had to dip in to her emergency savings account to help cover the deposit and moving expenses, as she had not planned to move out of the apartment and be on her own this soon.
Jamie is in need of a few appliances, as there is a small laundry room, but no washer or dryer, nor is there a refrigerator in the kitchen. She will also need a living room set and a television, as Jamie only had a bedroom suite to move in with. Jamie is so excited to finally have the say in how she will furnish the bungalow,
and began shopping for her home as soon as the lease was signed.
The home appliance store was the first stop as Jamie chose a stacking washer and dryer set, which would fit comfortably in the laundry space provided. A stainless steel refrigerator with a built-in television screen was her next choice, and the salesperson quickly began to write up the order. Jamie was informed that if she opened up a credit card through the appliance store that she would receive a discount of 10% off her total purchase. As she waited for her credit to be approved, she decided to continue shopping for her other needed items.
Living room furniture was next on the list as Jamie went to the local retailer who had endless choices of complete sofa sets that included the coffee and end tables as well as the matching lamps. Jamie chose a contemporary-style set and again, was offered the tempting deal of opening a credit card through the store in exchange for a percentage off her purchase and free delivery. On to the big box retailer where Jamie then chose a 52” 1080p LED HDTV. For the third time, a percentage off her first purchase at the big box retailer was all that was needed to get Jamie to sign on the dotted line of the credit card application. She was daydreaming of how wonderful her new home would look when a call from the appliance store came through and asked her to return to the store.
Jamie Lee had the unfortunate news that her credit application at the appliance store had been denied. She left the store only to arrive at the next two stores where she had chosen the living room set and television with the same bad news- credit application denied! She was informed that her credit score was too low for approval. “How could this be?” Jamie wondered.
Current Financial Situation:
Checking account: $1,800
Savings Account: $7,200
Emergency Fund savings account: $2,700
IRA balance: $410
Student loan balance: $10,800 (Jamie is still a full-time student, so no payments are required on the loan until after graduation)
Credit Card Balance: $4,250 (total of three store credit cards)
Gross monthly salary from the bakery: $2,750 (Net income: $2,175)
Credit Card Payment: $0
6A. What steps should Jamie Lee take so she may discover the reason for the denial of her credit application?
6B. Jamie discovers that she has become the victim of identity theft, as her credit report indicates that two credit cards have been opened in her name without her authorization! The police had already been notified the evening of the theft incident in the apartment, but what other measures should Jamie Lee take now that she has become aware of the identity theft?
6C. Fortunately for Jamie, she was able to show proof of the theft to the credit bureau and her credit applications for her apartment furnishings were approved. The purchase total for the appliances, living room furniture and television amounted to $4,250. The minimum payments between the three accounts total $325 a month.
What is Jamie Lee’s debt payments-to-income ratio? Is she above or below the recommended limit?
6D. Oh, no! The television was finally delivered today, but was left on the porch by the delivery company. When Jamie Lee was finally able to attach all the wires and cables according to the owner’s manual, it played for a half an hour and then shut off. Jamie Lee was unable to get the television to turn back on, although she read the troubleshooting guide in the manual and contacted tech support from the manufacturer. Jamie Lee lugged the television back to the store, but they would not accept a return on electronics.
What should Jamie Lee do now?
6E. Jamie Lee now has to juggle the three monthly credit card bills for each of the retailers where she purchased her home furnishings. She is interested in getting one loan to consolidate the three store consumer credit cards so she may make a single payment on the goods per month.
How should Jamie Lee go about deciding if she should consolidate or not and what factors would come into play in deciding who to consolidate with. What type of institution would you choose?
Chap 6 – Consumer Purchases
7. Jamie Lee is attracted to the low monthly payment advertised for a vehicle lease. She may well be able to afford a more expensive car than she originally thought. Jamie Lee really needs to think this through. Compare the advantages and disadvantages to leasing and buying a vehicle?
8. Jamie Lee sat down with a salesperson to discuss a new vehicle and its $24,000 purchase price. Jamie Lee has heard that “no one really pays the vehicle sticker price”. What guidelines may be suggested for negotiating the purchase price of a vehicle?
9. Jamie Lee has decided to purchase a certified pre-owned vehicle. What might she expect as far as reliability and a warranty on the used car?
10. What actions might a car buyer take if a lemon is purchased?
Chap 7 – Home Buying
11. What are the advantages and disadvantages of renting?
12. What are the advantages and disadvantages of owning a home?
13. What guidelines can be used to determine the amount you should spend on a home?
14. What factors affect a person’s ability to qualify for a mortgage?
15. How do changing interest rates affect the amount of mortgage a person can afford?