1 - Methods Of Payment

Question 1

What are the 4 functions of money?

Answer 1

1. Unit of account 2. Means of exchange 3. Store of value
2. Legal tender

Question 2

What are the 6 roles of money?

Answer 2

1. Personal attitudes 2. Life stages 3. Culture 4. Life events 5. External influences 6. Interest rates

Question 3

How can an individuals personal attitude affect the role of money?

Answer 3

1. More or less likely to be risk averse or incentivised by rewards.
2. More or less likely to save than spend money.

Question 4

[ Life stages and the role of money ]

Give one financial need and implication in childhood.

Answer 4

Financial need: Mainly rely on parents for sweets or toys

Financial implications: Encouraged to save. Savings account set up by guardian.

Question 5

[ Life stages and the role of money ]

Give one financial need and implication in adolescence.

Answer 5

Financial need: To want more independence

Financial implications: May look for a part-time job

Question 6

[ Life stages and the role of money ]

Give one financial need and implication as a young adult.

Answer 6

Financial need: To go to university or starting career

Financial implications: Student loan for university

Question 7

[ Life stages and the role of money ]

Give one financial need and implication in middle age.

Answer 7

Financial need: To support family

Financial implications: Savings account for specific purposes

Question 8

[ Life stages and the role of money ]

Give one financial need and implication in old age.

Answer 8

Financial need: Downsize from family to retirement home

Financial implications: Less income as reliant on pension than salary

Question 9

Give two examples of how culture affects the role of money.

Answer 9

1. Chinese people culture of saving

2. Islamic belief how money doesn’t have an intrinsic value

Question 10

Give two examples of how Life events affects the role of money.

Answer 10

1. In your control: Going to university

2. Out of your control: Illness

Question 11

Give two examples of how Interest rates affects the role of money.

Answer 11

State of the economy affects interest rates.
Low interest rates = borrow or spend on credit.
High interest rates = save.

Question 12

Give four reasons why planning expenditure important?

Answer 12

1. Avoid debt 2. avoid bankruptcy 3. Set financial goals/targets 4. Remain Solvent

Question 13

What are 2 advantages of using cash?

Answer 13

1. Instant

2. Most accepted form of exchange widely

Question 14

What are 2 disadvantages of using cash?

Answer 14

Can be lost or stolen

Can’t be used for online purchases

Question 15

What are 2 advantages of using a debit card?

Answer 15

No need to carry cash

Widely accepted, a secure method of payment

Question 16

What are 2 disadvantages of using a debit card?

Answer 16

A short time-lapse between a transaction

Isn’t appropriate for small transactions

Question 17

What are 2 advantages of using a credit card?

Answer 17

Allows an interest-free credit period

Suitable for online transactions

Question 18

What are 2 disadvantages of using a credit card?

Answer 18

Interest is charged on balances not paid off

Can encourage overspending

Question 19

What are 2 advantages of using a cheque?

Answer 19

A low-risk form of payment, the cheque can only be cashed by the payee
Widely accepted for face-to-face/postal transactions

Question 20

What are 2 disadvantages of using a cheque?

Answer 20

Viewed as old-fashioned

Easy to make errors when writing the cheque

Question 21

What are 2 advantages of using electronic transfer?

Answer 21

Almost instantaneous

Provides a record of payment

Question 22

What are 2 disadvantages of using electronic transfer?

Answer 22

Risk of loss if the transfer is set up incorrectly

Not appropriate for face-to-face transactions

Question 23

What are 2 advantages of using direct debit?

Answer 23

Easy way to make regular payments

Payment varies to match the amount required

Question 24

What are 2 disadvantages of using direct debit?

Answer 24

Payee’s responsibility to claim the money back if the payer makes a mistake
Payer determines the amount each time, making it difficult to budget

Question 25

What are 2 advantages of using a standing order?

Answer 25

Same amount is paid each time, making it easy to budget for the payee
Easy to set up and cancel as required