Finance Flashcards
Unit of Account
Money can be used to place a value on goods and services. You exchange money for an equivalent value in goods and services.
Means of Exchange
Money is used to sell, buy, or trade goods and services. Money makes it simple to do this: otherwise you would have to swap products or services in order to trade
Store Value
Money has a value. It can be stored, e.g. in a bank, and then used in the future to buy goods and services
Legal Tender
Money is the legal means you use to pay for goods and services. Legal tender is the national currency of a country. It is the official method of payment
Role of Money - Personal Attitudes
Your attitudes towards risk and reward.
How you balance the way you borrow, spend and save.
Role of money - life stages
As you go through each five life stages (childhood, adolescence, young adult, middle age and old age) - your financial priorities and needs will change
Role of Money -Life events
Major life events such as moving home or being made redundant can affect your view of the importance of money
Role of Money - culture
Your background or culture, including religious beliefs or ethical principles, may shape your view of money
Role of Money - External influences
These include events outside your control, such as the state of the economy or the availability of jobs in your area
Role of Money - Interest rates
Can have a big impact on whether you decide to save or borrow. Low interest rates are good for borrowers but not for savers, while high interest rates make money expensive to borrow but savers receive more interest on their deposits
Why plan expenditure?
Avoid getting into debt
Control cost
Remain solvent
Maintain a good credit rating
Avoid bankruptcy
Generate income and savings
Set financial targets and goals
Counter the effects of inflation
Benefits of Planning Expenditure
Good credit rating means you will be able to borrow money to fund a large purchase such as a car or your home
Money not spent on essentials can be saved and earn interest to generate an income
Savings can be used to fund purchases or be available to pay for unexpected expenses
Risks of not planning
Getting into debt because you cannot pay bills
Having legal action taken against you for non-payment of loans or losing goods that you are unable to pay for
A poor credit rating, which affects your ability to borrow money
Ways to pay - cash
Accepted in most places
Can be stolen or counterfeited
Cannot be used for online purchases
Ways to pay - Debit Card
Payment is taken directly from the cardholder’s bank account
Secure method
Contactless cards
Small risk of cardholder overspending
Ways to Pay - Credit Card
Goods and services are paid for directly by the card issuer
Cardholder receives short interest-free period, usually a month on amount borrowed
Ways to Pay - cheque.
A written order to pay a sum of money from a bank customer’s account to another person or organisation
Fairly secure
Takes at least three days for the amount to be available in the payees account
Some retailers no longer accept cheques
Ways to Pay - Electronic transfer
Payment is made directly between accounts
Easy to set up and use
Transfer is instant
Bank details of third party must be correct
Ways to Pay - Standing Order
Instruction to a bank from an account holder to make regular set payments to a person or organisation.
Payments do not change.
Payer must have sufficient funds in their bank account to cover the payment.
Ways to Pay - Direct Debit
Instruction to a bank authorising a third party to collect varying amount of money from the person’s bank account.
Simple way to pay regular bills - the amount is deducted automatically from the payer’s bank account.
Payee may vary amounts making it difficult for payer to plan expenditure.
Payee must have sufficient funds in their bank account to cover the payment
Ways to Pay - Prepaid cards
Cash loaded into a card which can be used to make purchases.
Widely accepted.
Cannot spend more than the amount of cash in card.
If lost/stolen, the money is lost.
Some cards have set-up and transactions fees.
Ways to Pay - Contactless Cards
Payment is made when card touches terminal.
Fast, easy, and secure.
Usually for amounts less than £30.
Risk of overspending
Ways to Pay - Charge Cards
Issued by financial companies.
ST interest fee loan. Cardholder can but goods and services without paying for them immediately. Must be paid in full at the end of every month.
Annual fee is payable, certain level of annual income.
Ways to Pay - Store Cards
Issued by retailers.
Only accepted by store that issues it.
May benefit from discounts and loyalties schemes.
Interest payable on balance.
Risk of overspending.
Ways to Pay - Mobile Banking
Manages account through smartphone or tablet.
Allows holder to check balances. make payments and transfers.
Secure.
Service limited compared with internet banking.
May not be able to access the full range of banking services.
Ways to Pay - BACS and Faster Payments
Electronic payment from one bank account to another.
BACS - 3 days to transfer payment.
Faster Payments - 2 hours.
Usually no fee.
Ways to Pay - CHAPS
Electronic payment from one account to another.
Guaranteed same-day transfer as long as bank instructed by certain time.
A fee is charged.
