Chapter P7, Problem 2RQ

To determine

The reasons why tracking spending helps the person to make better financial decisions

Explanation of Solution

There is a relationship between spending and the ability to build wealth because people spend according to their wealth or assets’ value. As when people feel more secure or financially strong, they spend more such as when the value of their properties or investment portfolios increases and then start purchasing more. It means when their ability to build up wealth increases, they prefer to spend more. And, if their ability to wealth decreases then they spend less and prefer to save more rather than spend more.

The relationship between spending and the ability to build wealth depends on the psychological effect as the value of an asset or ability to build wealth directly affects the spending of consumers by building or hurting their confidence in consumers.

Economics Concept Introduction

Introduction: Spending is the expenses that someone spends on different goods and services to buy or consume them. And, ability to build wealth refers to the potential to generate long-term income from different sources.