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Name: Ivy Patterson

Credit Decisions Scenario A


Feathering the Nest or Building a Nest Egg?
Lisa has just graduated from college and has been hired by a bank for the
management training program.
Lisas furniture is mostly borrowed from her parents basement. She would like a
new couch and a proper bedroom suite, but she is not sure about the smartest way
to use her money. The furniture she wants will cost $1200.00.
Financial Information
Annual Salary
Annual Take-Home Pay
Rent
Monthly Expenses
Monthly Student Loan Payment
Savings

$25 000.00
$19 300.00
$750.00
$600.00
$150.00
$100.00

Sources of Money
VISA with an $800.00 limit and no unpaid balance, 17% interest rate
Two year bank loan at 6% interest
Furniture store offering, Dont pay for 12 months at 28.8% interest
Facts
Gross Monthly Income
Deductions
Income Tax
Employment Insurance
Canada Pension
Monthly Take-Home Pay
Monthly Expenses Lisa has to Consider
Rent/Utilities
Food
Grooming/Hygiene
Telephone
Transportation
Credit Payments
Household Incidentals
Questions (1 mark each)

$2083.00
$362.85
$60.42
$52.41
$1607.32

1. List at least 5 options for Lisa to consider in purchasing new furniture.


a. Lisa could consider lowering her monthly costs by looking for new rent,
transportation, or other variable costs.
b. Lisa could pool her savings after one year to purchase the furniture.
c. Lisa could talk to her bank representative about creating a budget focused towards
her goal of purchasing furniture.
d. Lisa could consider asking her parents or her bank for a loan to purchase the
furniture.
e. Lisa could lower her expenses to increase her savings percentage to get the
furniture sooner.

2. Review Lisas monthly expenses. List any other expenses she might have
overlooked.
Rent- $750
Other- $600
Student Loan Payment- $150
Towards Savings- $100
Emergency Expenses- ?
Gifts for friends-?
Going out/restaurants/movies/entertainment-?
3. Create a list of ways in which she could reduce costs and increase
available cash.
-Carpool to work
-sell unused items
-unplug unused devices
-cancel club memberships
-look for free entertainment options
-cancel unnecessary subscriptions
-meal plan
-do not eat out
-use coupons
-spend less on personal items
-move somewhere with cheaper rent
-consider renting to a roommate for a monthly rent

4. Imagine you are asked to advise Lisa. What would you say to her? Which
is her best option and why?
I would advise Lisa to request a loan for a monthly fee she is certain she can pay,
while at the same time lowering her monthly expenses with the tips above. This
way, by consistently paying off her loan, Lisa is building up good credit, she quickly
gets her furniture, and her monthly expenses are lower so she is not under too
much pressure to budget.

Credit Decisions Scenario B


Transportation Which Way To Go?
Lisa has just graduated from college and has been hired by a bank for the
management training program.
Lisa thinks that it would be safer and more convenient to have a car than to take
the bus or pay for taxis.
Financial Information
Annual Salary
Annual Take-Home Pay
Rent
Monthly Expenses
Monthly Student Loan Payment
Savings

$25 000.00
$19 300.00
$750.00
$600.00
$150.00
$100.00

Options
1. Buy a new Honda Accord @ $25 600.00 + tax = $29 184.00
2. Lease an Accord @ $370.00/month + tax = $426.00 per month for four years
3. Buy a used, four year old Honda Accord @ $16 000.00 + tax = $18 400.00
Additional Costs
Insurance, repairs, maintenance and fuel for the year = $5400.00
Facts
Gross Monthly Income
Deductions
Income Tax
Employment Insurance
Canada Pension
Monthly Take-Home Pay

$2083.00
$362.85
$60.42
$52.41
$1607.32

Monthly Expenses Lisa has to Consider


Rent/Utilities
Food
Grooming/Hygiene
Telephone
Transportation
Credit Payments

1.
a.
b.
c.
d.
e.

Household Incidentals
Questions (1 mark each)
List at least 5 options for Lisa to consider concerning transportation.
wait to purchase a car until you have gotten into a more natural pattern of paying
your monthly expenses.
use public transportation
borrow a car from a close friend
get a loan from the bank
put savings towards your car

2. Using 2 columns, compare the advantages and disadvantages of buying a


new car.

Advantages of Buying New Car

Disadvantages of Buying New Car

technology

your car loses value over time

warranty

insurance is an added cost

low interest rates

if you choose to sell the vehicle, you


wont gain a profit

https://smartasset.com/auto/the-pros-and-cons-of-buying-a-new-car

3. Using 2 columns, compare the advantages and disadvantages of buying a


used car.
Advantages of Buying Used Car

Disadvantages of Buying Used Car

you save money because used cars


values have gone down, and therefore
cost less money.

your car will not last as long as a used


one

dealerships with used cars have often


done the necessary repairs before
selling the vehicle.

often means no warranty coverage if


you buy from an individual

if your car is within its original warranty


period, it will often transfer.

it will be an added cost to get a report


like that of CarFax, but it is necessary.

http://www.silverstatecu.com/life-planning/buying-a-car/pros-and-cons-of-buyingused-cars.aspx

4. Imagine you are asked to advise Lisa as to her best transportation option.
What would you tell her? Why?
Again, I would advise Lisa to plan with her banker. They are the professionals and it
is their expertise that will contribute the most towards a safe investment. I would
suggest that Lisa make a strict and solid budget and carefully evaluate whether it is
safe to purchase a vehicle.