functions + role of money Flashcards
unit of account
money serves as the common base of comparison that people use to present prices and record debts.
also provides a mesasure of which we can use to value different goods/services (if something is expensive = good quality)
you exchange money for an equivalent value in goods and services
means of exchange
money enables goods and services to be exchanged, transitions to be settled and debts to be paid.
money avoids the problems of barter
barter = exchange (goods/services) for other goods/services without using money. having to swap in order to trade.
store of value
money acts as a store of value over time. it enables individuals to transfer spending ti future time periods secure in knowledge it’ll have future value.
it can be stored in a bank and then used in the future to buy goods/services
legal tender
form of money that courts of law recognise as satisfactory payment for any money related debt.
accepted to buy goods + services
money allows people to pay for goods/services later, despite the payment taking place now.
personal attitudes towards risk + reward
some people are willing to take more risk - gamble or spend all their money
others will be more cautious with their money and save for the future.
rewards can be immediate or saving for a big commitment.
borrowing will allow for immediate rewards but will ensure a cost as it has to be paid back.
different life factors
life stages, childhood, financial priorities change, culture, religions + ethical beliefs.
different factors
external influences
events outside a persons control (state of the economy, people are less likely to spend, banks may be less willing to lend)
external factors
interest rates
low interest rates are good for borrowers, not savers. they may encourage more people to buy on credit.
high interest rates make money expensive to borrow but savers receive more interest on their deposit.
expenditure
the spending of money = outward flow.
expenditure
to avoid getting into debt
when a person spends more than they have
people may be spending on credit cards, using overdrafts, etc
debts will increase costs
expenditure
to control costs
set up budgets so you can control expenditure
planning in advance
shop around for the best deals
why plan expenditure?
control costs
avoid getting into debt
set financial targets and goals
avoid bankruptcy
counter the effects of inflation
generate income and savings
