1.6 The Effects Of Personal Values On Individual Behaviour And Decisions

Question 1

Hi
Hey there
Fancy seeing y ou here
Wish I wasn’t here, I wanted to nap

Answer 1

Same

Question 2

What is the feedback effect, in relation to expectations?

Answer 2

The way that attitudes and personal values link to thoughts, feelings, behaviour

Question 3

What are expectations?

Answer 3

What people expect to happen

Question 4

Financial examples of feedback effect are called…?

Answer 4

Expectations-led events

Question 5

Give examples of feedback effect (expectation-led events)

Answer 5

• If people expect a share price to fall, they will start to sell the shares - if enough people sell them, the price will fall.
• If interest rates are expected to rise, people will save more money and borrow less - banks therefore have to pay out more interest and gain less from lending, and may therefore raise interest rates in order to maintain level of income.
• If people expect increased employment, they may save more for future and reduce / delay spending. As a result, businesses need to produce fewer goods / services to meet demand, they then need fewer workers -> unemployment rises.

Question 6

Name the examples of how values can affect an individuals thoughts, feelings, behaviour and decision making

Answer 6

Ethical investing
Managing finance
Religious beliefs

Question 7

What is ethical investing?

Answer 7

Involves someone choosing to save in a way that means the money will be used for what that individual considers to be a good purpose.

Question 8

What are ethics?

Answer 8

A set of ideas about what people believe is right.

The moral code they aim to live by.

Question 9

What are a persons financial choices affected by?

Answer 9

What they borrow.
What they spend.
What they invest.
How they manage the costs and consequences.

Question 10

How can people manage their finances?

Answer 10

By forward planning / budgeting in order to be able to afford to repay any debt eg buying a house.

Question 11

What factor influences the amount that someone is willing to invest?

Answer 11

Attitude to risk and reward

Question 12

Give an example of how religious beliefs might affect someone’s financial choices

Answer 12

Islamic law (Sharia law) -> prohibits the payment of interest on a debt, meaning Muslims are not allowed to borrow money via a Western type mortgage / loan.
All major banks now provide Sharia-compliant financial products.

Question 13

What must a customer be aware of when buying a financial services product?

Answer 13

The implications of the product.
Whether it is short, medium or long term.
The affordability of the product.

Question 14

Give an example that represents the importance of affordability

Answer 14

Borrowing money.

Eg pay off credit card by end of month.
Repay personal loan over several years.
Pay off mortgage over 25 years.

Question 15

What might affect someone’s certainty of whether a particular product is affordable for them?

Answer 15

Whether it is short, medium, or long term.

Long term - their circumstances might change.

Question 16

Which type of products must especially take into account affordability?

Answer 16

Insurance.

Saving.

Question 17

Why must affordability be considered in relation to insurance policies?

Answer 17

It can be v expensive.

Some eg motor insurance are compulsory, others are optional

Question 18

Why must affordability be considered in relation to saving?

Answer 18

Assessing whether you can afford to save anything.

Interest rates on different savings products.

Question 19

Why must people decide their priorities?

Answer 19

Because nobody can afford to buy everything they need, want or aspire to have

Question 20

How does attitude to risk affect people’s financial choices?

Answer 20

Cautious people avoid risk and take precautions.
Others take more risks and do not think of what might go wrong.
Most people have some middle degree of risk tolerance.