A1 function and roles of money Flashcards
what are the 4 functions of money?
Unit of account, means of exchange, store of value, legal tender
unit of account
anything that allows the value of something to be expressed in an understandable way, and in a way that allows the value of items to be compared.
means of exchange
money allows good and services to be traded without the need for a barter system.
Store of value
Allows us to use money in the future.
People can save now and fund spending later.
legal tender
legally recognized form of payment.
Money issued by monetary authority or government which cannot be refused by any person in payment for transactions.
What is the role of money influenced by?
-personal attitudes
-external influences & trends
-life stages
-culture
-life events
-interest rates
personal attitudes
-individuals have their own attitudes towards money
-risk, reward, borrowing, saving
-could depend on your family’s attitude towards money
Culture
-your religious beliefs/ethical views may shape how you view and use money
-older generation of chinese people have a culture of saving
life events
-importance of money may change depending on life events
-events may be within your control e.g university, weddding
-or out of your control e.g. illness, financial loss
interest rates
-Impact what you decide to do with your money
external influences and trends
-state of the economy, job availability and the price of goods and services
-out of your control
life stages
-as you grow up financial needs and perception of money changes
- 5 pinnacle life stages
what are the 5 life stages
childhood, adolesence, young adult, middle age, old age
what are the financial needs of someone in the childhood life stage
- limited needs
- reliant on parents
- purchases sweets and toys
what are the financial implications of someone in the childhood life stage
-money from parents in the form of pocket money
-spent on non-essentials
-may be encouraged to save
what are the financial needs of someone in the adolescent life stage
-Want independance
-less reliant on family
-start socialising away from home
what are the financial implications of someone in the adolescent life stage
-Still reliant mainly on money from parents
-may look for a job
-get cash as gifts and save for larger purchases
what are the financial needs of someone in the young adult life stage
-University/ early career
-more inpedendant
-buying cars, renting homes
-starting a family/getting married
what are the financial implications of someone in the young adult life stage
-student loan
-car finance and borrowing
-job and mortgage
-eligible for credit cards
what are the financial needs of someone in the middle age life stage
-support family
-improve lifestyle
-save for the future
what are the financial implications of someone in the young adult life stage
-paying a mortgage
-paying into a pension
-high income and high expenses
what are the financial needs of someone in the elderly life stage
-fewer dependants
-fewer financial needs
-may downsize
what are the financial needs of someone in the elderly life stage
-no mortgage payments
-income from pension not salary
what are the consequences of not planning expenditure and personal finance?
-may end up in debt
-may end up bankrupt
-can get assets taken away
-lower quality of life
-poor credit rating which affects ability to borrow in the future
why plan expenditure- Good credit rating
- How trustworthy you are at paying off debts, which makes borrowing easier.
why plan expenditure- Provide insurance against loss or illness
-Having money set aside for unseen circumstances to cover your expenses over a period of time
why plan expenditure- Control costs
-allows you to control costs making adjustments to your finances
why plan expenditure- Generate income and savings
-money saved from planning finances can generate further income
why plan expenditure- manage money to fund purchases
-avoids borrowing as you have ot save to fund purchases
why plan expenditure- avoid bankruptcy
-Unable to pay off debts
why plan expenditure- avoid legal action and repossesion
-not planning expenditure makes it harder to pay bills
-this could lead to legal action to reclaim the cost of unpaid items or repossession of that item
why plan expenditure- remain solvent
-you have the ability to meet financial obligations
-you can cover costs
-avoid borrowing and have a good credit rating
what are the benefits of managing personal finance?
-surplus money to save
-savings can provide security
-good credit rating
-avoid debt
what are the risks of not managing personal finance?
-get in debt
-poor credit rating so cannot borrow
-no savings/security
-unable to pay bills
