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BTEC Business > A4: Managing Personal Finance > Flashcards

A4: Managing Personal Finance Flashcards

1
Q

Overdraft definition

A

the facility to overspend on a current account up to an agreed sum

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2
Q

personal loans definition

A

a set amount of money provided for a specific purpose, to be repaid with interest over a set period of time

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3
Q

hire purchase definition

A

allows an individual to have use of an item immediately but pay for it in regular instalments. the property is only owned by the individual when the final instalment has been paid.

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4
Q

mortgages definition

A

a long term loan to fund the purchase of a property and is repaid over a long period of time e.g. 25 years.

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5
Q

credit cards definition

A

allows an individual to pay for goods or services on a card with with a statement issued at the end of each month. the balance can be paid in full without incurring interests or in smaller amounts with interest charge

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6
Q

payday loans definition

A

a short term source of finance that can help to bridge the gap between the present moment in time and receiving a wage

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7
Q

advantages of overdraft

A

Interest is charged only on the amount outstanding

Can be paid off without penalties

Can be prearranged and only used if needed

Provides a short-term solution to cash flow problems

Don’t lose ownership of the business

Easy to get

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8
Q

advantages of personal loans

A

Pay over a large period of time

Can budget as it’s the same amount every time

Don’t have to ask family or friends

Don’t lose ownership

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9
Q

advantages of hire purchase

A

Spreads the cost of an expensive item over a long period of time

Credit is secured against a specific item

Allows the customer to afford something that they wouldn’t otherwise be able to

Own the product once the final instalment has been paid

Don’t lose ownership of the business

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10
Q

advantages of mortgages

A

Allows the customer to spread the cost of an expensive property over a long period of time

Interest rates may be fixed depending on the mortgage deal

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11
Q

advantages of credit cards

A

If repaid quickly can avoid or reduce interest

Can be used for items of multiple sizes and value, to a limit, without need to secure against

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12
Q

advantages of payday loans

A

Help secure immediate short term cash flow problems

Relatively easy to secure

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13
Q

disadvantages of overdraft

A

Interest is often high

High Penalties for going over prearranged limit

Could encourage overspending

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14
Q

disadvantages of personal loans

A

Interest charged

If not paid can lead to poor credit rating

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15
Q

disadvantages of hire purchase

A

Interest charged

Ownership of the product is the sellers until final payment is made

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16
Q

disadvantages of mortgages

A

Payments can fluctuate

May not be accepted if have poor credit rating

Requires a substantial deposit e.g. 20%

Risk of repossession if payments aren’t met

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17
Q

disadvantages of credit cards

A

Can encourage overspending

Higher interest rates than on other sources of finance

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18
Q

disadvantages of payday loans

A

Very high interest rates

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19
Q

Individual Savings Accounts (ISAs) definition

A

a tax-free way to save or invest

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20
Q

Deposit and savings accounts definition

A

an account where interest is paid on the balance

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21
Q

Premium bonds definition

A

a government scheme that allows individuals to save, up to a set amount, in bonds. no interest is earned but the bond is placed into a regular draw for cash prizes

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22
Q

Bonds and gilts definition

A

these are fixed term securities where the individual lends money to companies and governments in return for interest payments

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23
Q

Shares definition

A

investments in business in return for equity. the shareholder becomes a part owner of the business

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24
Q

Pensions definition

A

long term savings plans where individuals make regular contributions through their working life. this is then repaid upon retirement, either as a lump sum or in regular payments

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25
Q

advantages of Individual Savings Accounts (ISAs)

A

no tax charged on interest

interest rates can be higher than standard savings accounts

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26
Q

advantages of Deposit and savings accounts

A

interest earned on positive balances

Accounts sometimes require regular deposits of a set amount forcing the saver to follow a savings plan

27
Q

advantages of Premium bonds

A

Chance of winning large amounts of money

28
Q

advantages of Bonds and gilts

A

Regular fixed returns

spread risks across range of markets

29
Q

advantages of Shares

A

Share prices fluctuate offering potential high reward

can get payed in dividends

30
Q

advantages of Pensions

A

Encourages individuals to save throughout their working life

Depending on policy individuals’ savings can be boosted by employer’s contribution

31
Q

disadvantages of Individual Savings Accounts (ISAs)

A

Notice may be required to make a withdrawal

Can be a limit of number of withdrawals per year if not obeyed penalty’s my come into place

limit set on annual amount you can put in every year

32
Q

disadvantages of Deposit and savings accounts

A

Interest earned is taxed

The percentage rate on savings is likely to be lowered than interest to be paid on borrowing, therefore the benefits of savings are lost if the customer is borrowing at the same time

33
Q

disadvantages of Premium bonds

A

No guaranteed return on investment

can only get interest if you win

34
Q

disadvantages of Bonds and gilts

A

Risk of losing value of investment if value falls

Interest payments may not be paid if unable to make payment

35
Q

disadvantages of Shares

A

share prices fluctuate leading to potential high risk

no guarantee of reward

36
Q

disadvantages of Pensions

A

movement between jobs can lead to different policies stopping and starting

If compulsory payments are deducted it can affect living standards

37
Q

types of insurance

A

Car, Home and contents, life assurance and insurance, travel, pet, health

38
Q

car insurance definition

A

to cover both theft and accidents - there is a legal requirement to insure any car that is on the road and this protects the driver, passengers and other road users

39
Q

Home and contents insurance definition

A

Home - covers the physical building against events like a fire or flood damage

contents - covers the physical items inside the house and when they are used away from home.

40
Q

life assurance and insurance definition

A

Life assurance - an ongoing policy to pay a lump sum upon death

life insurance - a policy for a set period of time (e.g. mortgage term) to pay a lump sum if you die within that period

41
Q

travel insurance definition

A

protects individuals or groups while abroad. cover usually includes illness, loss or theft of property, cancellation and emergencies up to predetermined limits

42
Q

pet insurance definition

A

protects the owners of pets against some or all of the expenses associated with treating an injured or sick animal e.g. vet fees

43
Q

health insurance definition

A

covers individuals, families or employees against medical expenses including assessments, treatments and loss of earnings. in the uk, this can pay for private treatment or payment plans for routine visits e.g. to the dentist

44
Q

6 Types of borrowing

A 
Overdraft
Personal loans
Hire purchase
Mortgage
Credit card
Payday loans
45
Q

Net current assets

A

Current assets - current liabilities

46
Q

Current assets

A

Things a business owns which can be turned into cash quickly/easily

47
Q

Current liabilities

A

Things a business owes which have to be paid quickly

48
Q

Examples of current liabilities

A

Overdraft, trade credit, trade payables

49
Q

risks of saving

A

Low or zero risk as money saved is guaranteed to be available in the future

Inflation can reduce the spending power of money saved

50
Q

risk of investment

A

Investments can go wrong and all or some of the value may be lost

No guarantee of return

51
Q

rewards of saving

A

Interest payments

Financial security/peace of mind

52
Q

rewards of investment

A

If successful, there is a potential for high financial return

Can be exciting

53
Q

car insurance advantages

A

Meets legal requirement

Depending on cover can protect form damage to your vehicle, third party vehicle fire and theft

54
Q

car insurance disadvantages

A

Premiums can be high depending on an assumed level of risk, premium is always higher for younger drivers.

Normally there is an excess e.g. first £500 has to be payed by you and rest is covered by insurance company

55
Q

home and contents insurance advantages

A

Protects against damage that may be expensive to repair if something did happen

Contents are protected both inside and outside of the home

56
Q

home and contents insurance disadvantages

A

Premiums are an additional expense to owning a home

some items cant be replaced due to a value beyond wealth (if their sentimental) such as inherited jewellery

57
Q

life assurance and insurance advantages

A

Provides a peace of mind to family following the bereavement of a homeowner

58
Q

life assurance and insurance disadvantages

A

If the homeowner doesn’t die in the period of life insurance no payment is made

59
Q

travel insurance advantages

A

Provides protection for belongings

Covers medical costs when on holiday

Protects against cancellation

60
Q

travel insurance disadvantages

A

The person suffering is likely to have to pay upfront costs to replace items or cover medical costs

61
Q

pet insurance advantages

A

Avoids expensive vet fees

If fees are too high, they may have no choice but to put the pet down, insurance can prevent this

62
Q

pet insurance disadvantages

A

An additional monthly expense to protect them against the unexpected

63
Q

health insurance advantages

A

Provides some compensation to ill patients allowing them to focus on recovering rather than having the burden of their finances on their mind.

Some people can even have private healthcare which often results in better facilities and quicker treatment

64
Q

health insurance disadvantages

A

Paying for something that you hope you won’t have to use

Premiums can be expensive and it won’t cover pre known conditions

BTEC Business (3 decks)

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