Home › Finance › Start here
Case study · Run your own money
The Okoro household reads the economic news
A case study for the economics side of "Run your own money": a news report on growth, jobs and inflation, turned into what it means for one household's pay, savings and choices.
General education, not financial advice.
Ade and Funmi Okoro read the news report below over breakfast. The people and figures are made up, but the report is written the way real ones are. This is a worked example, not advice for your situation. Work through the task with the lessons open, then compare your answers with the solution.
Economy grows slowly as prices keep rising
The economy grew 0.4% last year after adjusting for inflation, official figures show. Consumer prices rose 4.0% over the year, while average pay rose 3.0%. Unemployment edged up to 4.2% from 3.9%. "The government should cut taxes now to support families," said one business leader.
Their situation
| Item | Figure |
|---|---|
| Take-home pay | 2,500 a month, up 3% this year |
| Savings | 6,000 in easy access at 3.5% a year |
| Essential costs | about 1,800 a month |
| Car loan | 3,000 left at 2% a year |
Your task
- Did the Okoros' pay keep up with prices? Work out the real change.
- What is the real return on their savings?
- What does the rise in unemployment suggest about their emergency fund?
- They wonder whether to use savings to clear the car loan. What is the trade-off at the margin?
- Which sentences in the report are facts that could be checked, and which is an opinion?
Solution
Try the task first, then open one step at a time and compare.
Step 1: real pay
Pay rose 3% while prices rose 4%. Real change ≈ 1.03 ÷ 1.04 − 1 ≈ −1.0%. They can buy about 1% less with their pay than a year ago, even though the number on the payslip went up.
Step 2: real savings return
1.035 ÷ 1.04 − 1 ≈ −0.5% a year. The savings grow in money terms but lose a little buying power. That doesn't make saving pointless: the money is there for emergencies, and it loses far less than cash earning nothing would (about 4%).
Step 3: what the jobs figure suggests
Unemployment rising from 3.9% to 4.2% is a small move, but it is a sign the job market is getting harder. Their 6,000 covers about 6,000 ÷ 1,800 ≈ 3.3 months of essentials, within the common three-to-six-month guide. With jobs getting harder to find, keeping it intact, and adding to it, makes more sense than spending it.
Step 4: the car loan, at the margin
Clearing the loan saves 2% a year on 3,000, at most about 60 (less in practice, as the balance falls with each payment). Keeping the money in savings earns 3.5%, about 105, and keeps it reachable. The opportunity cost of paying off the loan is the 105 they'd give up, plus their safety margin. Because the loan is cheap, keeping the savings is the better trade-off here; with costly debt, such as a card at 25%, the answer would flip.
Step 5: facts and opinions
- Positive (could be checked against official figures): growth of 0.4%, inflation of 4.0%, pay up 3.0%, unemployment 4.2%.
- Normative (an opinion about what should happen): "The government should cut taxes now to support families." It may be right or wrong, but no figure can prove it on its own.
Check yourself
Nothing here is graded or saved.