Learning Aim A Flashcards
What are the 4 functions of money?
Unit of account
Means of exchange
Store of value
Legal tender
What is Unit Of Account?
Allows the use of money to place value on goods and services
What is Means Of Exchange ?
Money is used to sell, buy or trade goods and services.
What is Store Of Value ?
Money has value and can be stored, e.g. in banks.
What is Legal Tender ?
Money is the legal means to pay for goods and services. It is the national currency of a country.
Role Of Money (6) ?
Personal attitudes
Life stages
Culture
Life events
External influences
Interest rates
Why plan expenditure?
- Control costs
- Avoid debt
- Set financial targets and goals
- Avoid bankruptcy
- Counter the effects of inflation
- Generate income and savings
- Maintain good credit rating
- Remain solvent
- Avoid legal action
- Insurance against loss or illness
Different ways to pay ?
Cash
Debit Card
Credit Card
Cheque
Electronic transfer
Direct debit
Standing order
Pre-paid card
Contactless card
Charge card
Store card
Mobile banking
BACS
CHAPS
Advantages of paying with Cash?
Most widely accepted form of exchange
Physical not virtual
Makes budgeting easier
Consumers feel more confident when using
Disadvantages of paying with Cash?
Can be lost or stolen
Threat of counterfeit
Only really appropriate on purchases up to a certain amount
Cannot be used online
Advantages of paying with Debit Card?
No need to carry cash
Secure method of payment with low risk of theft
Widely accepted
Offers degree of protection on purchases
Suitable for online transactions
Disadvantages of paying with Debit card ?
Short time lapse between making transaction and money being withdrawn from customers account
May result in overspending
Not accepted or appropriate for small transactions
Advantages of paying with Credit card ?
Allows period of credit, interest free
Most cards widely accepted
Loyalty schemes often offered
Offers degree of protection on purchases
Suitable for online transactions
Disadvantages of paying with Credit card ?
Interest is charged on balances not paid off within one month
Can encourage overspending and may lead to debt
Interest charged on cash withdrawals
Limit set on amount of credit allowed
Advantages of paying with a Cheque ?
Low risk form of payment as the cheque can only be cashed by named payee
Widely accepted for face-to-face and postal transactions
No need to provide change as can be written for exact amount
Disadvantages of paying with Cheque?
Expensive for consumer if bank refuses to clear cheque
Time delay between writing and receiving cheque may cause overdraft
Old fashioned
Easy to make errors when writing, creating problems when cashing out
Advantages of paying through Electronic transfer ?
Almost instantaneous
Provides record of payment
No additional costs incurred
Easy to use for one-off and more frequent transactions
Disadvantages of paying through Electronic transfer ?
Risk of loss is the transfer is incorrectly set up
Not appropriate for face-to-face transactions
Advantages of paying with Direct debit ?
Easy way to make regular payments E.g. utility bills
Amount paid can vary to ensure the payment matches the required amount
Quick and easy to set up
Disadvantages of paying with Direct debit ?
If mistakes are made, it’s payees responsibility to claim back lost money
The payer determines amount paid each time therefore making budgeting and planning harder for payee
Advantages of paying through Standing order ?
Same amount paid each time
Easy to set up and cancel
No need to remember to make regular, standard payments
Disadvantages of paying through Standing order ?
Payments taken regardless of consumers balance, potentially leading to overdraft
Payments will continue until cancelled
Advantages of paying with a Pre-paid card ?
Can set budget in advance
If lost or stolen, the loss is limited to the remaining balance
Effective way of controlling amount spent by E.g. children for school etc.
Disadvantages of paying with a Pre-paid card ?
No protection if lost
May require initial fee to set up or purchase card
Advantages of paying with a Contactless card ?
Gaining in popularity
Secure method of making payments
Disadvantages of paying with a Contactless card ?
Often only accepted for relatively small transactions
Still not widely accepted as seen as new technology
If lost or stolen and card hasn’t been cancelled, it can still be used
Advantages of paying with a Charge card ?
Reduces risk of running up debts
Allows a short period of credit
Avoids need to carry cash
Often offers additional perks
Disadvantages of paying with a Charge card ?
Must be paid in full amount each month
Often an annual fixed fee is applied
Advantages of paying with a Store card ?
Allows for short period of credit that is interest free
Offer loyalty schemes, discounts and special promotions or privileges
Disadvantages of paying with a Store card ?
Only accepted in issuing store or linked associations
Interest is paid on outstanding balances
May encourage overspending- resulting in debt
Advantages of paying through Mobile Banking ?
Convenient, can be used anytime anywhere
Secure method of payment
Disadvantages of paying through Mobile banking ?
Features are limited and hence mobile banking doesn’t offer all functionality of online banking
Advantages of paying through BACS ?
Faster payment allows almost instant transfers, guaranteed within 2 hours
Can be accessed in number of ways E.g. in branch, over phone and online
No additional costs
Disadvantages of paying through BACS ?
Faster payment isn’t offered by all banks and branches- therefore leading to default BACS with up to three days transfer time
Limit is set on amount that can be transferred at a given time
Advantages of paying through CHAPS ?
Transfers can be made the same day assuming instructions are received prior to a set time e.g. 2pm at Barclays
No limit to how much can be transferred at any given time
Disadvantages of paying through CHAPS ?
Usually a fixed charge per transaction regardless of amount transferred
4 types of Current accounts ?
Standard
Packaged premium
Basic
Student
What is a Standard current account ?
Normal account offered to customers with a reasonable credit rating. Includes standard features such as ability to pay and withdraw money, cheque book, debit card, interest payments on positive balances and pre-agreed overdraft limit.
What is a Packaged premium current account ?
Account offers additional features to a standard account such as, car and house insurance, credit card protection, breakdown cover and cash back on certain transactions.
What is a Basic current account?
Account offers limited features, designed for those who may find it difficult to open a bank account due to poor credit rating. Will not offer overdraft facility and won’t pay interest or positive balances.
What is a Student Current account ?
Account designed specifically to meet the needs of learners. Include agreed overdraft limit and incentives to join bank E.g. free rail cards or cash.
Advantages of Standard Current account ?
No charges on credit balances
Offers holder wide range of facilities E.g. cheque book, debit/cash card and possible overdraft facility
Convenient for receiving regular payments E.g. wages and making regular withdrawals
Disadvantages of Standard current account ?
Potential high charges on the use of an overdraft facility
Standard features online e.g. no additional perks
Advantages of a Packaged premium account ?
-no charges on credit balances
-offers wide range of facilities E.g. cheque book, debit/cash card and possible overdraft facility
-Convenient for regular payments E.g. wages and making withdrawals
- offers additional perks at packaged price, cheaper than acquiring them individually
Disadvantages of a packaged
Premium account ?
-additional monthly charge is frequently applied
-package offered may not offer value for money or meet the needs of the individual account holder
Advantages of a basic account ?
- available to customers with low credit rating
-offers easy first step for individuals to gain access to basic banking facilities E.g. ability to pay in and withdraw cash
Disadvantages of a basic account ?
- limited facilities E.g. no debit card or overdraft facility
Advantages of a student account ?
-course fees and student loans can be handled easily
-bonuses offered are designed to meet the needs of the learners e.g. discounts on travel or small lump sum of cash payment
Disadvantages of a student account ?
-overdraft facilities could encourage overspending
-charges for overspending are high
-limited facilities
Different types of borrowing (6) ?
Overdraft
Personal loan
Hire purchase
Mortgage
Credit card
Payday loan
Advantages of an overdraft ?
Interest is charged only on the amount outstanding
Overdraft facility can be pre-arranged and only used if needed
Provides a short term solution to cash flow problems
Disadvantages of a overdraft ?
When used, interest charges can be high
Penalty charges for going over a prearranged limit are often high
Not the cheapest form of borrowing
May encourage overspending
Advantages of personal loans ?
Regular pre agreed payments make planning and budgeting easier
Usually only issued to individuals who can prove their ability to make the repayments
Useful when looking to purchase a specific item of medium to high value E.g. a car or home improvement
Disadvantages of a personal loan ?
May have to be secured against and asset meaning of payments aren’t made the asset can be taken away
Not really suitable for short term loans
Advantages of hire purchase ?
Spreads the cost of an expensive item over a period of time
Credit is secured against a specific item
Often allows customer to afford something now that they couldn’t otherwise afford e.g. 4 years interest free on furniture
Disadvantages of hire purchase ?
Interest charges may be higher than other traditional loans
Ownership of an asset may be legally kept by seller until final payment is made
Agreements can be manipulated to make a purchase seem appealing
Advantages of mortgages ?
Allows customer to spread cost or expensive items over long period of time E.g. purchase of a house is often spread over 25 years
Interest rates can sometimes be fixed or tracked against a standard rate of interest, reducing the risk of fluctuations
Disadvantages of mortgages ?
Interest payments can vary- this therefore seriously affects the borrowers ability to repay or meet other expenses
Failure to meet repayments may lead to loss of a home and seriously affect an individual’s future credit rating
Penalties may apply to early repayment
Advantages of credit cards as form of borrowing ?
Card holder can pay above minimum rate if they wish therefore speeding up the rate or repayment and reduce interest incurred
Can be used for items of multiple sizes and value, to a limit without the need to secure against and asset
Provides some protection on purchases
Disadvantages of borrowing through credit cards ?
Can encourage overspending- leading to debt
Interest rates are often higher than on a personal loan
Advantages of a payday loan ?
Help solve immediate short term cash flow problems
Relatively easy to secure
Disadvantages of a pay day loan ?
Interest rates are very high and the amount to be repaid can quickly spiral out of control
Different types of saving and investment (6) ?
Individual savings accounts (ISA’s)
Deposit and savings accounts
Premium bonds
Bonds and gilts
Shares
Pensions
Advantages of individuals savings accounts (ISAs) ?
Tax is not charged on interest earned allowing the saver to keep all of the rewards for saving
Interest rates are sometimes slightly higher than in alternative savings accounts
Disadvantages of individuals savings accounts (ISAs) ?
Notice is often required to make withdrawals and a limit may be set on the amount of withdrawals made
If more withdrawals are made than set out in agreement then a penalty may cancel out tax savings
Limit set on annual amount that can be placed in an ISA
Advantages of deposit and savings accounts ?
Interest is earned on positive balances
Accounts sometimes require regular deposits of a set amount - forcing the saver to follow a savings plan
Disadvantages of deposit and savings account ?
Interest earned is taxed
Percentage range of interest paid on savings is likely to be lower than interest on borrowing therefore benefits of savings are lost if the customer is borrowing at the same time
Advantages of premium bonds ?
Chance of winning more than could be earned in interest
Can be easily withdrawn with no loss or penalty
Disadvantages of premium bonds ?
No guaranteed return on investment
Maximum amount reviewed annually by government
Amount invested loses value due to inflation
Advantages of bonds and gilts ?
Regular fixed returns
Spreads risk across range of markets
Disadvantages of bonds and gilts ?
Risk of losing value on investment of bond or gilt value falls
Interest payments may not be recieved if issuer is unable to make payments
Advantages of shares ?
Share prices fluctuate offering potential high reward
Shareholders returns can include dividend payments and increase is share value
As part owners, additional benefits may include discounts and special offers
For some, shared ownership is more than just saving, it may create interest, it’s a pastime
Disadvantages of shares ?
Share prices fluctuate- creating high risk
No guarantee on any reward or return as all of an investment can be lost
Advantages of pensions ?
Encourages people to save throughout their working life for retirement
Depending upon policy, savings may be boosted by employers contributions
Regular payments deducted therefore they are tied into making regular contributions- helping save more
Disadvantages of pensions ?
Movement between jobs may cause policy to stop and another start. Therefore potentially reducing overall outcome of savings
Final outcome is hard to predict
If compulsory, payments are deducted, potentially affecting short term living standards
Risks involved with saving money ?
Low risk as money is saved and guaranteed to be available in future
Inflation may reduce the spending power of money saved
Rewards of saving money ?
Interest payments
Financial security
Peace of mind
Risks of investments ?
May go wrong and all or some of the value may be lost
No guarantee on return
Rewards of investment?
If successful, potential for high financial return
Can be exciting. People will invest in hope of high returns
Different types of insurance products (6) ?
Car
Home and contents
Life assurance and insurance
Travel
Pet
Health
Advantages of car insurance ?
Meets legal requirements
Protects self against theft of damage
Protects against damage caused to third party
Disadvantages of car insurance?
Premiums can be high depending on assessed level of risk E.g. expensive for young drivers
Potential excess to be paid E.g. first £500 of damage is still responsibility of car owner
Advantages of home and contents insurance ?
Protects against damage which may otherwise be too expensive to repair, resulting in loss of home
Contents are protected both when inside and outside of home
Disadvantages of home and contents insurance ?
Premiums are an additional expense to home ownership
Some items cannot be replaced due to value E.g. a painting or inherited piece or jewellery
Advantages of life assurance and insurance ?
Provides peace of mind to family following bereavement of home owner
Helps family deal with financial aspect of the death
Disadvantages of life assurance and insurance ?
If policy holder doesn’t die within the period of life insurance, then no payment is made
Advantages of travel insurance ?
Provides protection for personal belongings while away from home
Covers medical costs on holiday
Protects against cancellation and sometimes delays
Disadvantages of travel insurance ?
Person who has lost the items is likely to have to pay upfront to replace and cover medical costs then reclaim later
Additional cost when travelling abroad
Advantages of pet insurance?
Avoids expensive vet fees
If vet fees are too high, pet insurance can help prevent the pet being put down
Disadvantages of pet insurance ?
Additional Monthly expense to protect against the unexpected
Advantages of health insurance?
Some compensation is provided when I’ll which can reduce the financial burden and stress, allowing patient to concentrate on recovery
If used for private care, often results in quicker treatment and better facilities
Disadvantages of health insurance?
Pay for something you hope you won’t use
Premiums can be expensive depending on the degree of cover wanted
Will not cover pre-known conditions
