Define cognitive dissonance and provide an example. How might cognitive dissonance impact a future home purchase? Car purchase? What, if any, resolutions would be possible?

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Reid WolffLv2

28 Sep 2019

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You may have heard a salesperson tell you âThis product pays for itself!â While this is probably rare for most products, sometimes there are future savings in money from certain products that will offset some of the costs. For example, if you buy a newer, more reliable, and more fuel-efficient car it may save you on repair bills and gas prices over your old car. If you are a coffee connoisseur, buying a $100 espresso machine might save you money over buying $4 drinks at your local Starbucks.

Think of a purchase you are planning to make or have recently made. How much did it cost? Also, how much per year do you think you will save from this purchase and for how many years will you get these savings? Estimate the present value of the savings, and subtract the cost of the product. Note that it is rare that any purchase will âpay for itselfâ (e.g. have a positive NPV). But are the savings enough that the product becomes a lot âcheaperâ and more worthwhile for you to buy?

The Brocks now have two preschool-age children. Their household income has declined with Pam providing full-time care for the children. To compensate for their lower monthly income, Pam and Josh have cut back to spend money on basics only. As a result of this action, the Brocks have managed to pay down their liabilities over the past four years. The Brocks are considering purchasing a second automobile. Currently, Pam must drive Josh to the train station (creating many inconveniences for her and the children) if she wants to use the car for various business and education activities. Housing needs are changing for the Brocks as their family increases in size. At present, they pay $750 in rent for a two-bedroom apartment. To purchase a home for a comparable monthly payment, the Brocks would have to relocate farther from Josh's place of employment. With a second car and public transportation as available options, Pam and Josh are starting to consider this home purchase. Questions Q1. What major factors could affect the Brocks' spending on transportation? Q2. What strategies and research should they use to save on transportation costs while fulfilling family transportation needs? Q3. Although the Brocks may have good reasons for continuing to rent, what factors might make it desirable for an individual or a family to buy a home? Q4. What actions might the Brocks take to enhance their home-buying and financing activities?

Provide an example scenario with rationale of an area in your personal life in which you would like to apply, or have already applied, time value of money concepts. What might you do differently to effect a more financially sound future

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