Learning aim A Flashcards
Functions and role of money
What is unit of account (functions of money)?
It allows us to place monetary value on goods/service. The price of goods/services show the unit of account.
What is means of exchange (functions of money)?
It allows us to trade- businesses and customers can buy/sell goods using money
What is store of means (functions of money)?
It allows us to use money in the future as it keeps its value- may have money saved which you can use in the future to buy goods/services.
What is legal tender (functions of money)?
Legally recognized form of payment- it can be used to pay for a huge variety of things.
What are personal attitudes (role of money)?
Risk and reward, saving and borrowing, buy what you can afford or credit.
What are life stages (role of money)?
From childhood to old age, your financial needs change.
What is culture (role of money)?
Tradition, religion and ethical beliefs e.g. Christians pay tithes.
What are life events (role of money)?
University, travelling, getting married, family starting. Or things you can’t control such as illness, financial loss/gain.
What are external influences (role of money)?
The economy and Government. Two things you have little control over but can have a big impact e.g. tax, benefits.
What are interest rates (role of money)?
When low you may be more willing to borrow as less money to pay back, where as when high you are more likely to save as there would be more money to pay back.
What is debt?
When money is borrowed and you have to pay it back with interest added.
What is a credit rating?
A score that determines if a person will be able to get credit- based on their current and past amount of credit and how they’ve managed payments.
What does bankrupt mean ?
When all assets are sold to pay off debt, any remaining debt will be written off. In extreme cases, a person can be declared as bankrupt if debts have spiraled out of control.
What does solvent mean?
When assets are more than liabilities- you aren’t in any debt and can pay bills when they fall due.
Why should we budget and plan spending (11 reasons)?
- to avoid getting into debt
- to control costs
- avoid legal action and/or repossession
- remain solvent
- maintain a good credit rating
- avoid bankruptcy
- set financial goals/targets
- provide insurance against loss/illness
- counter the effects of inflation
- to manage money to fund purchases
- generate income/savings.
What is cash? 2 advantages and disadvantages?
Notes and coins in a wide range of denominations.
-Most widely accepted form of exchange, makes budgeting easier.
-Can be lost/stolen, cannot be used online.
What is a debit card? 2 advantages and disadvantages?
Issued by banks with payments for goods and services being deducted directly from a current account.
-No need to carry cash, secure method with low risk of theft
-Short time lapse between making transactions can result in overspending, not accepted/appropriate for small
transactions
What is a credit card? 2 advantages and disadvantages?
Issued by financial institutions allowing customers to delay payments for goods and
services.
-Allows a period of credit that is interest free, loyalty schemes are offered.
-Interest charged on balances not paid off within a month, encourages overspending= debt.
What is a cheque? 2 advantages and disadvantages?
A written order to a bank to make a payment for a specific amount of money from one person’s account to another account.
-Low risk form of payment as can only be cashed by named payee, widely accepted
-Easy for consumers to make mistake while writing cheque, time delay can cause customer to go overdrawn.
What is electronic transfer? 2 advantages and disadvantages?
Payment is transferred directly from one bank account to another. -Almost instantaneous, no additional costs
-Risk of loss if transfer is incorrectly set up, not appropriate for face to face transactions.
What is direct debit? 2 advantages and disadvantages?
An agreement made with a bank allowing a third party to withdraw money from an account on a set day to pay for goods or services received.
-Easy way to make regular payments, amount paid can vary to ensure the payment matches the amount required.
-If the payer makes a mistake and takes too much it is the payee’s responsibility to claim back the money, the payer determines the amount paid each time making it difficult for the payee to plan and budget.
What is a standing order? 2 advantages and disadvantages?
An agreement made with a bank to transfer a fixed sum of
money to a third party account
on a set date on a regular
basis.
-Easier for payee to plan and budget, easy both to set up and to
cancel
-Payments are taken regardless of customers balance- unplanned overdraft, payments will continue to be made unless cancelled.
What is a pre-paid card? 2 advantages and disadvantages?
Money is uploaded onto a card with transactions then being withdrawn to reduce the balance.
-Can set a budget in advance to avoid overspending, if lost or stolen the loss is limited to the remaining balance.
-No protection if lost, sometimes requires an initial fee to
purchase or set up the card.