It is important to know when and how often different expenditures have to be paid. Goods and services can be paid for:
• Every week (e.g. travel costs). • Once a month (e.g. rent). • Every two months (e.g. electricity bill). • Once a year (e.g. car tax).
EXPENDITURE PRIORITIES
In chapter 1, we considered how our income allows us to pay for the things that we need and want. When we are deciding how to spend our money, it is important that we buy the things we need first. We should only buy the things we want if we have money leftover. For example, a household should pay its bills before buying a new TV.
Opportunity Cost and Financial Cost
For many people, money is scarce or limited. We cannot always buy everything that we want. This means that we must think carefully and make choices about how to spend our money.
We will learn more about opportunity cost in chapter 29
GO
Often the choice we have to make is between items. The item that we do not buy is called the opportunity cost.
i
Opportunity cost is the item that we did not buy because we chose another item.
Example
Noah has €60. He has the option to buy a video game or a ticket for a rugby match. Noah chooses the rugby match, so the opportunity cost is the video game.
The financial cost of an item is the amount of money that is paid for the item. The financial cost to Noah is €60. The financial cost of an item is the amount of money paid for it.
i IMPULSE BUYING
Impulse buying is when we buy items without planning and without asking ourselves if we can afford or need them. It is spur-of-the-moment spending.
