Learning Outcome A: Understand the importance of managing personal finance Flashcards
What are the four functions of money?
Unit of account, means of exchange, store of value, legal tender
Unit of account allows us to…
place a monetary value on goods and services
What does the price of goods and services show?
The unit of account
A chocolate bar is 60p or a new car is £30,000. This is an example of which function of money?
Unit of account
Means of exchange allows us to…
trade
Means of exchange allows businesses and customers to do what?
Buy and sell goods and services using money
Store of value allows us to…
use it in the future as it keeps value
You might have money saved in a bank account or ‘piggy bank’ which you can then use to buy goods and services in the future. Which function of money is this an example of?
Store of value
Legal tender
A legally recognised form of payment
Money is widely recognised and used for all sorts of transactions from buying an ice cream or getting a haircut to paying a deposit on a house and receiving your wages. Which function of money is this an example of?
Legal tender
Give 5 examples of factors that affect the role of money
Any 5 from personal attitudes, life stages, culture, life events, external influences and interest rates
How can personal attitudes impact the role of money?
Individuals will vary in their attitude to risk and reward as well as saving and borrowing. You may be risk averse so you will try to avoid risk, or you may be willing to take more risks and may even enjoy risk taking as you are incentivised by the potential rewards. Equally, you may be more or less likely than others to save your money rather than spend it. This can, in part, depend on your family’s attitude to money, for example whether you were brought up being told savings were good and encouraged to save for a rainy day. You will also be influenced by your attitude to borrowing. You might like to live within your own means and only buy what you can afford. Alternatively, you might be happy to buy goods and services on credit or to borrow money in order to get what you want sooner rather than later
How can life stages impact the role of money?
As you grow up from childhood to adulthood, your financial needs change. Each stage of your life has different implications that will affect not just your needs but also your attitude to money
How can culture impact the role of money?
Different cultures, affected by tradition, religion, ethical beliefs, will have different attitudes to money. The older generation of Chinese people, for example, have a culture of saving. However, as the country becomes wealthier, young people are more willing to spend and even buy on credit
How can life events impact the role of money?
Events throughout your life will impact on your attitude to money. These events may be within your control, for example going to university, travelling abroad, getting married or starting a family, or may be outside your control for example illness, financial gains or losses
How can external influences impact the role of money?
Factors outside your control, including the state of the economy, will have an impact. For example, the state of the economy will impact on wages, availability of jobs and the prices of goods and services. Decisions by the government will affect the amount of tax you pay or the amount you receive in benefits. These all directly affect your ability to spend and save
How can interest rates impact the role of money?
When interest rates are low you may be more willing to borrow money or spend on credit. When interest rates are high there is more of an incentive to save.
What are the financial needs of someone in the childhood stage of their life?
Limited needs - they are mainly reliant on parents. May want to buy sweets or toys
What are the financial needs of someone in the adolescence stage of their life?
Want to be more independent - slightly less reliant on parents as want to socialise away from family
Which life stage is a big stage which can encompass a wide range of different scenarios depending upon life choices?
Young adult
What are the financial needs of someone in the young adult stage of their life?
University or starting a career and looking to be more independent. Buying a car / buying or renting a flat or house. Looking to settle down and maybe get married or start a family
What are the financial needs of someone in the middle age stage of their life?
Support family, start saving for children’s futures e.g. university, weddings, etc. Look to improve own lifestyle, e.g. new car or move house. Enjoy having access to additional money to spend on luxuries such as foreign holidays
What are the financial needs of someone in the old age stage of their life?
Fewer dependents, may downsize, e.g. move from family home to a smaller retirement home. Fewer financial needs for assets but may be higher for assets but may be higher for services such as healthcare
Give 2 examples of financial implications during the childhood stage of life
Any 2 from money received from presents may be spent as attitude will be that this is to buy things you want, may be encouraged to save or parents or grandparents may set up a savings account for you into which they make regular payments, and may rely on pocket money.
Money received from presents may be spent as attitude will be that this is to buy things you want. Which stage of life is this a financial implication of?
Childhood
May be encouraged to save or parents or grandparents may set up a savings account for you into which they make regular payments. Which stage of life is this a financial implication of?
Childhood
May rely on pocket money. Which stage of life is this a financial implication of?
Childhood
Give 2 examples of financial implications during the adolescence stage of life.
Any 2 from may look for a part-time job, still partially reliant on pocket money and more likely to receive cash as gifts and may be willing to save up smaller amounts in order to make bigger purchases.
May look for a part-time job. Which stage of life is this a financial implication of?
Adolescence
Still partially reliant on pocket money. Which stage of life is this a financial implication of?
Adolescence
More likely to receive cash as gifts and may be willing to save up smaller amounts in order to make bigger purchases. Which stage of life is this a financial implication of?
Adolescence
Give 3 examples of financial implications during the adolescence stage of life
Any 3 from may take a student loan if going to university, borrow money to pay for a car or purchase one on a finance deal, may be looking at taking out a mortgage, need to earn money to support self and others, eligible for credit and debit cards
May take a student loan if going to university. Which stage of life is this a financial implication of?
Young adult
Borrow money to pay for a car or purchase one on a finance deal. Which stage of life is this a financial implication of?
Young adult
May be looking at taking out a mortgage. Which stage of life is this a financial implication of?
Young adult
Need to earn money to support self and others. Which stage of life is this a financial implication of?
Young adult
Eligible for credit and debit cards. Which stage of life is this a financial implication of?
Young adult
Give 3 examples of financial implications during the middle age stage of life
Any 3 from savings accounts for specific purposes, paying a mortgage, planning for own future through pensions and retirement plans and likely to be the stage of life when income peaks but matched with high expenditure.
Savings accounts for specific purposes. Which stage of life is this a financial implication of?
Middle age
Paying a mortgage. Which stage of life is this a financial implication of?
Middle age
Planning for own future through pensions and retirement plans. Which stage of life is this a financial implication of?
Middle age
Likely to be the stage of life when income peaks but matched with high expenditure. Which stage of life is this a financial implication of?
Middle age
Give an example of financial implication during the old age stage of life
Any from mortgage payments stop or become lower and less income as reliant on pension rather than a salary
Mortgage payments stop or become lower. Which stage of life is this a financial implication of?
Old age
Less income as reliant on a pension rather than a salary. Which stage of life is this a financial implication of?
Old age
Having limited needs is a financial implication of which stage of life?
Childhood
Mainly reliant on parents is a financial implication of which stage of life?
Childhood
May want to buy sweets or toys is a financial implication of which stage of life?
Childhood
Want to be more independent is a financial implication of which stage of life?
Adolescence
Slightly less reliant on parents as want to socialise away from family is a financial implication of which stage of life?
Adolescence
University or starting a career is a financial implication of which stage of life?
Young adult
Looking to be more independent is a financial implication of which stage of life?
Young adult
Buying a car and buying or renting a flat or house is a financial implication of which stage of life?
Young adult
Looking to settle down and maybe get married or start a family is a financial implication of which stage of life?
Young adult
Supporting family is a financial implication of which stage of life?
Middle age
Starting saving for children’s futures e.g. university, weddings, etc is a financial implication of which stage of life?
Middle age
Looking to improve own lifestyle e.g. new car or move house is a financial implication of which stage of life?
Middle age
Enjoying having access to additional money to spend on luxuries such as foreign holidays is a financial implication of which stage of life?
Middle age
Having fewer dependents is a financial implication of which stage of life?
Old age
May downsize, e.g. move from family home to a smaller retirement home is a financial implication of which stage of life?
Old age
Having fewer financial needs for assets but may be higher for services such as health care is a financial implication of which stage of life?
Old age
Interest rate
The proportion of an amount that is charged as interest to the borrower
Debt
Money owed
Credit rating
A score given to individuals on how likely they are to repay debts based upon their previous actions
Bankrupt
When an organisation or individual legally states its inability to repay debts
Solvent
The ability to meet day-to-day expenditure and repay debts
You should look to control costs in order to avoid getting into ____ in the future
debt
If your spending is too high this may mean more money is going out than coming in which will lead to what?
The build-up of debt
True/False: Interest is charged on debt
True
If debts are not paid or not paid on time, this will affect your ______ rating
credit
What will a poor credit rating affect?
Your ability to borrow in the future
In extreme cases, an individual may be declared ________ if their debts have spiralled out of control
bankrupt
To remain _______, you should set financial targets and goals
solvent
What should financial targets and goals consider?
How much money you want to earn and place limits on how much you will spend
What do savings help to provide?
A safety net for the future, for example to provide insurance against loss or injury
Inflation in general rises/falls
rises
Give 6 examples of common principles of planning personal finances
Any 6 from avoid getting into debt, control costs, avoid legal action and/or repossession, remain solvent, maintain a good credit rating, avoid bankruptcy, manage money to fund purchases, generate income and savings, set financial targets and goals, provide insurance against loss or illness and counter the effects of inflation
One common principle to be considered in planning personal finance is avoid getting into ____
debt
One common principle to be considered in planning personal finance is control _____
costs
One common principle to be considered in planning personal finance is avoid legal action and/or ____________
repossession
One common principle to be considered in planning personal finance is remain _______
solvent
One common principle to be considered in planning personal finance is maintain a good ______ rating
credit
One common principle to be considered in planning personal finance is avoid __________
bankruptcy
One common principle to be considered in planning personal finance is manage money to ____ purchases
fund
One common principle to be considered in planning personal finance is generate ______ and _______
income and savings
One common principle to be considered in planning personal finance is set financial _______ and _____
targets and goals
One common principle to be considered in planning personal finance is provide insurance against ____ or _______
loss or illness
One common principle to be considered in planning personal finance is counter the effects of _________
inflation
Give 7 examples of different methods of payment
Any 7 from 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
Explain the payment method of cash
Notes and coins in a wide range of denominations
Explain the payment method of debit cards
Issued by banks with payments for goods and services being deducted directly from a current accoutn
Explain the payment method of credit cards
Issued by financial institutions allowing customers to delay payments for goods and services
Explain the payment method of cheques
A written order to a bank to make a payment for a specific amount of money from one person’s account to another account
Explain the payment method of electronic transfer
Payment is transferred directly from one bank account to another
Explain the payment method of direct debit
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, e.g. pay a gas bill
Explain the payment method of standing order
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, e.g. pay £30 for a phone contract each month
Explain the payment method of pre-paid card
Money is uploaded onto a card with transactions then being withdrawn to reduce the balance
Explain the payment method of contactless card
Cards containing antennae allow money to be transferred when the card touches a contactless terminal
Explain the payment method of charge card
Issued by financial institutions allowing customers to delay payments for goods and services for a short period of time. The balance must be paid off in full when a statement is issued
Explain the payment method of store card
Issued by a retail outlet so that customers can delay payments for goods and services (similar to a credit card but only accepted by stores specified)
Explain the payment method of mobile banking
The ability to carry out financial transactions using mobile devices such as phones or tablets
Explain the payment method of BACS
A system that allows the transfer of payments directly from one bank account to another
Explain the payment method of CHAPS
A system that allows the transfer of payments directly from one bank account to another
Give 3 advantages of the payment method: cash
Any 3 from most widely accepted form of exchange, physical not virtual, consumers feel confident when using and makes budgeting easier
Give 3 advantages of the payment method: debit card
Any 3 from no need to carry cash, secure method of payment with low risk of theft, widely accepted, offers a degree of protection on purchases and suitable for online transactions
Give 3 advantages of the payment method: credit card
Any 3 from allows a period of credit that is interest free, e.g. one month, most cards are widely accepted, loyalty schemes are often offered, e.g. collection points or cash back, offers a degree of protection on purchases and suitable for online transactions
Give 2 advantages of the payment method: cheque
Any 2 from low risk form of payment as the cheque can only be cashed by the named payee, widely accepted for face-to-face and postal transactions and no need to provide change as it can be written for an exact amount
Give 2 advantages of the payment method: electronic transfer
Any 2 from almost instantaneous, provides a record of payment, no additional costs incurred and easy to use for one-off and more frequent transactions
Give 2 advantages of the payment method: direct debit
Any 2 from an easy way to make regular payments, e.g. utility bills, amount paid can vary to ensure the payment matches the amount required by the vendor and quick and easy to set up
Give 2 advantages of the payment method: standing order
Any 2 from the same amount is paid each time making it easier for the payee to plan and budget, easy both to set up and to cancel and no need to remember to make regular, standard payments
Give 2 advantages of the payment method: pre-paid card
Any 2 from can set a budget in advance to avoid overspending, if lost or stolen the loss is limited to the remaining balance and an effective way of controlling the amount spent by children and where money is spent, e.g. upload money for school lunches or transport
Give 2 advantages of the payment method: contactless card
Any 2 from gaining in popularity, secure method of making payments and quick and easy
Give 2 advantages of the payment method: charge card
Any 2 from reduces risk of running up debts, allows a short period of credit, avoids the need to carry cash and often offers additional perks
Give 2 advantages of the payment method: store card
Any 2 from allows a short period of credit that is interest free, e.g. one month and often offer loyalty schemes, discounts and special promotions or privileges
Give 2 advantages of the payment method: mobile banking
Any 2 from convenient as can be used at any time and place and secure
Give 2 advantages of the payment method: BACS
Any 2 from faster payment allows almost instant transfers that are guaranteed within 2 hours, can be accessed in a number of ways including in a branch, over the telephone and online and no additional costs
Give 2 advantages of the payment method: CHAPS
Any 2 from Transfers can be made the same day assuming instructions are received prior to a set time, e.g. 2pm at Barclays and there is no limit on the amount that can be transferred in a single transaction
Give 2 disadvantages of the payment method: cash
Any 2 from can be lost or stolen, threat of counterfeit, only really appropriate on purchase up to a certain amount and cannot be used online
Give 2 disadvantages of the payment method: debit card
Any 2 from short time lapse between making the transaction and the money being withdrawn from the customer’s account may result in overspending and not accepted or appropriate for small transactions
Give 2 disadvantages of the payment method: credit card
Any 2 from interest is charged on balances not paid off within a month, can encourage a customer to overspend and get into debt, interest is charged on cash withdrawals and a limit will be set on the amount of credit allowed
Give 2 disadvantages of the payment method: cheque
Any 2 from expensive for the consumer if the bank refuses to clear the cheque, i.e. it ‘bounces’, the time delay between writing the cheque and it being cashed could cause a consumer to go overdrawn, viewed as old fashioned and easy for the consumer to make errors when writing the cheque which will create problems for both the consumer and the recipient
Give 2 disadvantages of the payment method: electronic transfer
Any 2 from risk of loss if the transfer is incorrectly set up and not appropriate for face-to-face transactions
Give 2 disadvantages of the payment method: direct debit
Any 2 from if the payer makes a mistake and takes too much it is the payee’s responsibility to claim back the money and the payer determines the amount paid each time making it difficult for the payee to plan and budget
Give 2 disadvantages of the payment method: standing order
Any 2 from payments are taken regardless of the customer’s balance which could lead to the unplanned use of an overdraft facility and payments will continue to be made unless cancelled
Give 2 disadvantages of the payment method: pre-paid card
Any 2 from no protection if lost and sometimes requires an initial fee to purchase or set up the card, e.g. Oyster travelcards
Give 2 disadvantages of the payment method: contactless card
Any 2 from often only accepted for relatively small transactions and still not widely accepted as seen as new technology
Give 2 disadvantages of the payment method: charge card
Any2 from must be paid in full each month and often an annual fixed fee is applied
Give 2 disadvantages of the payment method: store card
Any 2 from only accepted in issuing store or linked associations, interest is paid on outstanding balances and can encourage overspending and result in a consumer getting into debt - particularly if they hold multiple cards
Features of mobile banking are still limited and hence mobile banking does not offer all of the functionality of…
internet banking
Give 2 disadvantages of the payment method: BACS
Any 2 from faster payment is not offered by all banks or branches and the customer may therefore have to default to BACs which can take three days to transfer payments and a limit is set on the amount that can be transferred in any single transaction
Give a disadvantage of the payment method: CHAPS
Normally, there is a fixed charge per transaction regardless of the amount transferred
Current account
An account with a bank or building society that is designed for frequent use
With a current account, money can be paid in and withdrawn how often?
On a daily basis
True/False: You need to give notice to pay in and withdraw from a current account
False, there is no need to give notice
Give 2 examples of things that people may use a current account for?
Any 2 from to get wages paid into, to pay cheques into and out of, pay bills and other frequent expenses and to withdraw cash
Give 3 examples of features of current accounts
Any 3 from rate of interest paid on any positive balance, rate of interest charged on a negative balance, an overdraft limit, charges on unauthorised overdrafts and additional incentives
This is the normal current account offered to customers with a reasonable credit rating. It includes standard features such as the ability to pay and withdraw money, cheque book, debit card, interest payments on positive balances and a pre-agreed overdraft limit. Which type of current account does this describe?
Standard
This account offers additional features to a standard account, for example car and house insurance, credit card protection, breakdown cover and cash back on certain transactions. The bank may have additional charges for these accounts so it is important that you check whether you are being offered a good deal or not. Which type of current account does this describe?
Packaged/premium
This account offers only limited features designed for those customers who may otherwise find it difficult to open a bank account due to poor credit ratings. It will not offer an overdraft and will not pay interest on positive balances. Which type of current account does this describe?
Basic
This account is designed specifically to meet the needs of learners. Common features include an agreed overdraft limit and incentives to join the bank, for example free rail cards or cash. Banks are keep to attract learners because once a young person has joined a bank they tend to stay with that bank for life. However, this is less often the case now due to the availability of information on the Internet and the ease with which banks can be changed. Which type of current account does this describe?
Student
Give 2 advantages of a standard current account
Any 2 from no charges on credit balances, offers the holder a wide range of facilities including a cheque book, debit/cash card and possibly an overdraft facility, convenient for receiving regular payments e.g. wages and making regular withdrawals
Give 2 disadvantages of a standard current account
Any 2 from potentially high charges on the use of an overdraft facility and standard features only, i.e. no additional perks
Give 2 advantages of a packaged, premium current account
Any 2 from no charges on credit balances, offers the holder a wide range of facilities including a cheque book, debit/cash card and possibly an overdraft facility, convenient for receiving regular payments, e.g. wages and making regular withdrawals, offers the holder additional perks at a packaged price cheaper than acquiring them individually (standard additional features include things such as holiday/travel insurance, break down cover and phone protection)
Give 2 disadvantages of a packaged, premium current account
Any 2 from additional monthly charge is frequently applied and the package offered may not offer value for money or meet the needs of the individual account holder
Give 2 advantages of a basic current account
Any 2 from available to customers with a low credit rating and offers an easy first step for individuals to gain access to basic banking facilities, i.e. the ability to pay in and withdraw cash
Give a disadvantage of a basic current account
Limited facilities e.g. no debit card or overdraft facility
Give 2 advantages of a student current account
Any 2 from course fees and student loans can be easily handled and bonuses offered are designed to meet the needs of learners, e.g. discounts on travel or small lump sum cash payment
Give 2 disadvantages of a student current account
Any 2 from overdraft facilities could encourage overspending, charges for overspending are high and limited facilities
An overdraft allows you to…
withdraw money that you do not have from a current account
What kind of needs may an overdraft be suitable for?
Short term needs such as shortage of cash just before payday
What do personal loans give you the ability to do?
Borrow a set amount of money, normally for a specific purpose, to be repaid in regular instalments with interest
True/False: Personal loans have no interest
False, they do
Why do most people take out personal loans?
For a specific purpose
How are personal loans paid off?
In regular instalments with interest
What may a personal loan be suitable to fund the purchase of?
A high price item such as a car or to make home improvements
What does hire purchase allow you to do?
Have use of an item immediately it pay for it in regular instalments
How do you pay off higher purchase?
In regular instalments
What is hire purchase suitable for?
One-off or infrequent purchases, for example a TV or fridge freezer
Is a mortgage a short or long-term loan?
Long-term
What are mortgages usually to fund?
The purchase of assets
What are mortgages usually secured against?
A house
What are mortgages suitable for?
Assets that will maintain value for a long time and cannot normally be paid for outright
Describe how a credit card works
Goods are paid for by card and can be paid for either at the end of a set period, normally a month, when a statement is issued or over time with the card provider stating a minimum payment each month. The minimum payment will be a percentage of the balance on the credit card
When are credit cards paid for?
At the end of a set period, normally a month
When may credit cards be suitable?
When buying high price goods or services, for example a holiday, or at times when expenses are higher than usual, for example Christmas, to spread the costs of spending
Credit cards may be used for convenience and safety as an alternative to using what?
Cash
Are payday loans a short or long-term loan?
Short-term
What are payday loans used for?
To bridge the gap between now and receiving a wage
Payday loans are normally only available for relatively small/large amounts at very low/high rates
small, high
When may payday loans be suitable?
In an emergency to meet cash shortages
Give 2 advantages of an overdraft
Any 2 from interest is charged only on the amount outstanding, can be paid off without penalties, an overdraft facility can be prearranged and only used if needed and provides a short term solution to cash flow problems
Give 2 advantages of personal loans
Any 2 from regular, pre-agreed payments make planning and budgeting easy, as a general rule these would only be issued to individuals who can prove their ability to make the repayments and useful when looking to purchase a specific item of medium to high value, e.g. a car or home improvement
Give 2 advantages of hire purchase
Any 2 from spreads the cost of an expensive item over a period of time, credit is secured against a specific item and often allows a customer to afford something now that they could not otherwise afford, e.g. four years interest free on furniture
Give an advantage of a mortgage
Any from allows the customer to spread the cost of expensive items over a long period of time, e.g. the purchase of a house is often spread over 25 years and interest rates, depending upon the mortgage deal, can sometimes be fixed or tracked against a standard rate of interest reducing the risk of fluctuations
Give 2 advantages of a credit card
Any 2 from the credit card holder can pay above the minimum rate if they wish and hence speed up the rate of repayment and reduce interest incurred, can be used for items of multiple sizes and add value, to a limit, without the need to secure against an asset and provides some protection on purchases
Give an example of a payday loan
Any from help solve immediate short term cash flow problems and relatively easy to secure
Give 2 disadvantages of an overdraft
Any 2 from when used, interest charges are often high, additional penalty charges for going over a pre-arranged limit are often very high, not the cheapest form of borrowing and the ease with which these can be obtained could encourage overspending
Give a disadvantage of personal loans
Any from may have to be secure3d against an asset which means if payments are missed the asset may be taken to cover the outstanding debt and not really suitable for short-term loans
Give 2 disadvantages of hire purchase
Any 2 from interest charges may be higher than other traditional loans, ownership of the asset may legally be kept by the seller until the final payment is made and agreements can be manipulated to make a purchase seem deceptively appealing
Give 2 disadvantages of mortgages
Any 2 from interest payments, although sometimes fixed for a short period of time, can vary - this seriously affects the borrower’s ability to repay or meet other expensive, failure to meet repayments may lead to a loss of a home and seriously affect an individual’s future credit rating and penalties may be applied to early repayment
Give a disadvantage of credit cards
Any from can encourage overspending, sometimes on unnecessary purchases, and can lead to debt problems and interest rates are often higher than on a personal loans
Give a disadvantage of a payday loan
Interest rates are very high and the cumulative amount to be repaid can quickly spiral out of control
What does ISA stand for?
Individual savings accounts
Individual savings accounts (ISA)
This is a type of saving account where the holder is not charged income tax on the interest received
Deposit and savings accounts
These are accounts where interest is paid on the balance and normally the holder needs to give notice before withdrawing funds
Premium bonds
A government scheme that that allows individuals to save up to a set amount by buying bonds. The bond holder does not receive interest on their savings but each bond is placed into a regular draw for cash prizes
Bonds and gilts
These are fixed term securities where the lender (the individual) lends money to companies and governments in return for interest payments. The money is invested for a specified period of time
Shares
Shares involve investment in a business in return for equity, i.e. the shareholder becomes a part owner of the business. The shareholder will receive dividends from the company’s profits and will also want the value of the shares to increase
Pensions
These are long-term savings plans where individuals make regular contributions, called premium payments, throughout their working life. This is then repaid as either a lump sum, regular payments or a combination of the two upon retirement. Pensions can be state, company or private.
Expenditure
The amount of money you need to cover all your expenses/outgoings, e.g. your mortgage and bills.
Shareholder
Someone who has invested in a company in return for equity, i.e. a share of the business
True/False: ISA account holders are charged income tax on the interest received
False: they are not charged income tax on the interest received
True/False: Deposit and savings account holders usually need to give notice before withdrawing funds
True
Premium bonds are a __________ scheme
government
Premium bonds allow individuals to save up to a set amount by…
buying bonds
With premium bonds, does the bond holder receive interest on their savings?
No
With premium bonds, each bond is placed into a regular…
draw for cash prizes
Bonds and gilts are fixed term securities where the lender lends money to who?
Companies and governments
Bonds and gilts are fixed term securities where the lender lends money to who companies and governments in return for what?
Interest payments
How long are bonds and gilts invested for?
A specified period of time
Shares involve investment in a business in return for what?
Equity
Equity
The shareholder becomes a part owner of the business
What does a shareholder receive from a company’s profits?
Dividends
Why will a shareholder want the value of shares to increase?
It will receive dividends
Pensions are short/long-term savings plans
long
Pensions are long-term savings plans where individuals make regular contributions called what through their working life?
Premium payments
How can pensions be repaid?
As a lump sum, regular payments or a combination of the two upon retirement
Pensions can be s____, c______ or p______
state, company or private
Give an advantage of an ISA as a type of saving and investment
Any from tax is not charged on interest earned allowing the saver to keep all of the rewards for saving and interest rates are sometimes slightly higher than in alternative savings accounts
Give 2 disadvantages of an ISA as a type of saving and investment
Any 2 from notice is often required to make withdrawals and according to the agreement there may be a limit set on the number of withdrawals made, if the saver makes more withdrawals than set out in the agreement then the penalty may cancel out the tax savings and there is a limit set on the annual amount that can be placed in an ISA
Give an advantage of deposit and savings accounts as a type of saving and investment
Any from interest is earned on positive balances and accounts sometimes require regular deposits of a set amount forcing the saver to follow a savings plan
Give a disadvantage of a deposit and savings account as a type of saving and investment
Any from interest earned is taxed and the percentage rate of interest paid on savings is likely to be lower than interest to be paid on borrowing, therefore the benefits of savings are lost if the customer is borrowing at the same time
Give an advantage of premium bonds as a type of saving and investment
Any from chance of winning substantially more than could be earned in interest and can be easily withdrawn with no loss or penalty
Give 2 disadvantages of premium bonds as a type of saving and investment
Any 2 from no guaranteed return on investment, maximum amount reviewed annually by the government and the amount invested, assuming zero or low returns, loses value due to inflation
Give an advantage of bonds and gilts as a type of saving and investment
Any from regular fixed returns and spreads risk across a range of markets
Give a disadvantage of bonds and gilts as a type of saving and investment
Any from risk of losing some or all of the value of the investment if the bond or guilt value falls and interest payments may not be received if the issuer is unable to make payments
Give 2 advantages of shares as a type of saving and investment
Any 2 from share prices fluctuate offering a potential high reward, shareholders’ returns can include dividend payments and an increase in share value, as part owners in a business there may be additional benefits including discounts and special offers and for some investors share ownership is more than just a way of saving - it is a pastime and creates interest
Give 2 disadvantages of shares as a type of saving and investment
Any 2 from share prices fluctuate offering a potential high risk and there is no guarantee of any reward or return as all of an investment can be lost
Give 2 advantages of pensions as a type of saving and investment
Any 2 from encourages individuals to save throughout their working life for retirement, depending upon the policy, an individual’s savings may be boosted by an employer’s contributions increasing the final value of the saving and regular payments are deducted, sometimes at source, meaning the individual is tied into making regular contributions
Give 2 disadvantages of pensions as a type of saving and investment
Any 2 from movement between jobs may mean that one policy stops and another starts, thus reducing the overall cumulative value of the savings, final outcome is difficult to predict and if compulsory payments are deducted this may affect short-term living standards
Saving and investment both involve forfeiting current spending in the hope of gaining what?
Greater wealth in the future
Saving
Placing money in a secure place so that it grows in value and can be used in the future
Investment
Speculative commitment to a business venture in the hope that it generates a financial reward in the future
Saving involves placing any extra money in a secure place where what happens?
It will hopefully grow as it gains interest
Why do most people save their money?
Often with a view to buying a specific good in the future or to support a planned future lifestyle
Why do many parents start to save when a child is born?
To pay future college fees or to support the child as he or she grows up
Investment involves making a commitment to a project in the hope that what?
It is successful and a healthy return is made on the investment
Which is the most risky: saving or investing?
Investing
Which can be the most rewarding: saving or investing?
Investing
Which is the least risky: saving or investing?
Saving
Outline the risks involved when saving
Low/zero risk as money saved is guaranteed to be available in the future, however inflation can reduce the spending power of money saved
Outline the rewards involved when saving
Interest payments and financial security/peace of mind
Outline the risks involved when investing
Investments can go wrong and all or some of the value may be lost. There is also no guarantee of a return
Outline the rewards involved when saving
if successful, there is potential for a high financial return (significantly higher than could be earned in interest) and investing can be exciting. Some people will invest in shares, antiques, art or foreign currencies, for example, in the hope of high returns
Insurance
An agreement with a third party to provide compensation against financial loss in line with the conditions laid down in the policy agreement
Premiums
Regular payments made by an individual or company to an insurance provider in return for protection
Insurance policies cover the costs of loss, damage or illness up to prearranged levels in return for regular payments called what?
Premiums
Give 5 examples of types of insurance that are available
Any 5 from car, home and contents, life assurance and insurance, travel, pet. mobile and health
When can insurance be taken out?
Against anything deemed to have a worth or where there is a risk of financial loss
True/False: A common type of insurance now is against mobile devices such as your mobile phone
True
The premium paid on insurance will vary depending upon what?
The amount of cover provided and the amount of risk as assessed by the insurance provider
True/False: It is a legal requirement to insure any car that is on the road
True
True/False: Car insurance doesn’t cover theft
False, it covers theft and accidents
What does the degree of cover with car insurance depend on?
Whether the policy is third party or fully comprehensive
Who does car insurance protect?
The drier, passengers and other road users
What does home insurance cover?
The physical building, for example against fire
What does contents insurance cover?
Physical items in a house including electrical equipment, furniture and personal items
If there are individual items of high value in a house, when it comes to contents insurance these may need to be _________ on the ______
specified, policy
True/False: With home and contents insurance, items can be insured when a person is using them away from home as well as when inside the house
True
Life assurance is an ongoing policy to pay…
a lump sum upon death
True/False: Life insurance is a policy for a set period of time
True
Life insurance is a policy for a set period of time to pay a lump sum if what happens?
You die within that time period
True/False: Mortgage lenders prefer for people to not have life insurance
False, they often insist upon life insurance
Why do mortgage lenders often insist upon life insurance for the same period as the mortgage?
To secure repayment of the mortgage if the holder dies while monies are still owed
What does travel insurance do?
Protects individuals or groups while abroad
Give 2 examples of different ways travel insurance policies can be purchased
Any 2 from to cover a specific trip, multiple trips or for all trips within a year
What does travel insurance cover generally include?
Loss or theft of property, illness, cancellation and emergencies up to predetermined limits
Why do specific types of holiday or activities such as skiing or extreme sports require additional travel insurance cover?
Due to the high level of risk associated
What does pet insurance protect pet owners against?
Some or all of the expenses associated with treating ill or injured pets, i.e. vets’ fees
What does health insurance cover individuals, families or employees against?
Medical expenses including assessments, treatments and loss of earnings
Why may people in the UK wish to take out health insurance?
To receive payments if, for example, time is spent in hospital, or to receive private treatment
True/False: Health insurance can include payment plans to cover routine visits such as to the dentist or optician with a percentage of expenses paid
True
Give 2 advantages of car insurance
Any 2 from meets legal requirements, protects self against theft or damage and protects against damage caused to a third party
Give a disadvantage of car insurance
Any from premiums can be high depending upon assessed level of risk, e.g. expensive for young drivers and normally there is an excess that must be paid, e.g. first £500 of all damages is still the responsibility of the car owner
Give an advantage of home and contents insurance
Any from protects against damage which may otherwise be too expensive to repair resulting in the loss of a home and contents are protected both when inside the house and outside
Give a disadvantage of home and contents insurance
Premiums are an additional expense to home ownership and some items cannot be replaced due to a value beyond the financial worth, e.g. a painting or inherited piece of jewellery
Give an advantage of life assurance and insurance
Provides peace of mind to family following the bereavement of a homeowner
Give a disadvantage of life assurance and insurance
If the policy holder does not die within the period of life insurance no payment is made (could be seen as an advantage)
Give 2 advantages of travel insurance
Any 2 from provides protection for personal belongings when away from home, covers medical costs when on holiday and protects against cancellation and sometimes delays
Give a disadvantage of travel insurance
Any from the person suffering the loss is likely to have to pay upfront to replace items or cover medical costs and then reclaim later and an there is an additional cost when travelling abroad
Give an advantage of pet insurance
Any from avoids expensive vet fees and if vet fees are too high, there may be no alternative to having the pet put down - insurance can avoid this
Give a disadvantage of pet insurance
An additional monthly expense to protect against the unexpected
Give an advantage of health insurance
Any from some compensation is provided when ill which can reduce the financial burden and stress allowing the patient to concentrate on recovery rather than financial worries and if used to fund private care, this often results in quicker treatment and better facilities
Give 2 disadvantages of health insurance
Any 2 from you are paying for something that you hope you will not use, premiums can be expensive depending upon the degree of cover required and will not cover pre-known conditions
