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FACTORS INFLUENCING PERSONAL FINANCIAL DECISIONS.
CHAPTER 1 - INTRODUCTION
BACKGROUND
Many factors influence daily financial decisions, ranging from age to interest rates. Three main elements that affect financial planning activities are demographic factors, economic factors and global influence.
Demographic factors are socioeconomic characteristics of a population expressed statistically, such as age, gender, education level, monthly income level, marital status, and occupation. People in their 20s spend money differently than those in their 50s. Personal factors such as age, income, gender, and education level will influence a person’s spending and saving patterns.
Economic factors are another important influence on financial planning. Economics is the study of how wealth is created and distributed. The economic environment includes various institutions, businesses, labor force, and government, that must work together to satisfy our needs and wants. In our society, the forces of supply and demand play an important role in setting price levels. Price level will change a person’s consumption pattern, so do their investment and others. Labor force will determine our income and various institutions and other businesses are the users of the labor force. Their activities will shape the economy and eventually affect our financial decisions. Interest rates are among economic condition that affects our decision in handling our money matters. Interest rate measure cost of money or credit and return of investment. Increase in interest rate will make credit more expensive and discourage borrowing. With high interest rate, people are more likely to invest their money to earn interest than take higher risk to do business. Excessive investment from investor with inability of bank lending to third party will create over supply of fund which will lower the interest rate eventually. It is wiser to set up higher emergency fund and reduce debt rather than having to pay back
CHAPTER 1 - INTRODUCTION
BACKGROUND
Many factors influence daily financial decisions, ranging from age to interest rates. Three main elements that affect financial planning activities are demographic factors, economic factors and global influence.
Demographic factors are socioeconomic characteristics of a population expressed statistically, such as age, gender, education level, monthly income level, marital status, and occupation. People in their 20s spend money differently than those in their 50s. Personal factors such as age, income, gender, and education level will influence a person’s spending and saving patterns.
Economic factors are another important influence on financial planning. Economics is the study of how wealth is created and distributed. The economic environment includes various institutions, businesses, labor force, and government, that must work together to satisfy our needs and wants. In our society, the forces of supply and demand play an important role in setting price levels. Price level will change a person’s consumption pattern, so do their investment and others. Labor force will determine our income and various institutions and other businesses are the users of the labor force. Their activities will shape the economy and eventually affect our financial decisions. Interest rates are among economic condition that affects our decision in handling our money matters. Interest rate measure cost of money or credit and return of investment. Increase in interest rate will make credit more expensive and discourage borrowing. With high interest rate, people are more likely to invest their money to earn interest than take higher risk to do business. Excessive investment from investor with inability of bank lending to third party will create over supply of fund which will lower the interest rate eventually. It is wiser to set up higher emergency fund and reduce debt rather than having to pay back