Learning Outcome B: Explore the personal finance sector Flashcards
Bank of England
The UK’s central bank with responsibility for maintaining a healthy level of financial stability for the UK as a whole
What do the responsibilities of the Bank of England include?
Issuing legal tender, setting interest rates and controlling the national debt
Banks
A bank is an organisation that handles financial transactions and stores money on behalf of its customers
What do the services offered by banks include?
Holding deposits, making payments when instructed to do so and supplying crdit
Building societies
These are organisations that handle financial transactions and store money on behalf ot heir members
Members, or account holders, of building societies are also what of the building society?
Part owners
What do building society members have the right to?
Vote and receive information on the running of the society
Unlike banks, building societies do/don’t have shareholders on a stock exchange
don’t
Unlike banks, building societies don’t have shareholders on a stock exchange which allows costs to be kept down/increases costs
allows costs to be kept down
True/False: Credit unions are for-profit organisations
False, they are not-for-profit
Credit unions
Not-for-profit organisations that handle financial transactions and store money on behalf of their members
Within credit unions often there is a responsibility or desire to support…
a community made up of its members
True/False: Members in a credit union are the owners and have a voting right
True
National Savings and Investments
A government-backed organisation that offers a secure saving option
National Savings and Investments offer a range of options such as…
ISAs, premium bonds and gilts and bonds
Insurance companies
Businesses that protect against the risk of loss in return for a premium
True/False: Insurance companies are not-for-profit
False, they are profit-making organisations
Pension companies
Businesses that sell policies to individuals, either privately or through employers, to allow them to save now to fund retirement in the future
What do pension companies normally do with the money paid to them?
Invest it in contributions in order to increase its value
True/False: Investments made by pension companies are risk free
False, they are not risk free
Pawnbrokers
Businesses or individuals who loan money against the security of a personal asset, e.g. an item of jewellery or piece of electronic equipment
What happens if an item given to a pawnbroker isn’t bought back within a specified period of time?
It will be sold on
Payday loans
Organisations that offer a short-term source of finance used to bridge the gap between now and next receiving a wage
Payday loans are usually available for relatively large/small amounts at very low/high rates
small amounts, high rates
When may payday loans be suitable?
In an emergency to meet cash shortages
Give 2 advantages of the Bank of England
Any 2 from it’s responsible for protecting the financial stability of the economy as a whole, sets interest rates at a level designed to help achieve a stable economy and lends to banks
Give a disadvantage of the Bank of England
Any from not a bank for members of the general public, and can raise interest rates making borrowing more expensive
Give 2 advantages of banks
Any 2 from offer a range of services and account types, provide a secure place to store money and pay interest on credit balances on most types of accounts
Give a disadvantage of banks
Any from savings are only protected up to the value of £75,000, so if a bank goes bankrupt savings above this would be lost and profit-making organisations owned by shareholders, therefore costs to individuals may be higher than necessary in order to fulfil shareholder objectives
Give 2 advantages of building societies
Any 2 from offer a range of services and account types, provide a secure place to store money, pay interest on credit balances on most types of accounts and owned by members and therefore costs can be kept down allowing for higher interest payments
Give a disadvantage of building societies
Any from savings are only protected up to the value of £75,000, so if a building society goes bankrupt savings above this would be lost and may lack the business drive of a commercial bank
Give 2 advantages of credit unions
Any 2 from offer a range of services and account types, provide a secure place to store money, owned by members and therefore costs can be kept down allowing for higher interest payments and often offer additional benefits to the community or a good cause
Give a disadvantage of credit unions
Any from savings are only protected up to the value of £75,000, so if a credit union goes bankrupt savings above this would be lost and may lack the business drive of a commercial bank
Give an advantage of National Savings and Investment
Any from government backed (therefore offering security on 100% of savings with no upper limit) and offers additional services/methods of saving e.g. premium bonds
Give 2 disadvantages of National Savings and Investment
Any 2 from rates are variable, not easy to access due to lack of a high street presence and often required to give notice on withdrawals
Give 2 advantages of insurance companies
Any 2 from protect against unexpected losses or financial expenses, easy and regular monthly payments make planning easy and wide range of services and levels of cover to suit the needs of individuals
Give a disadvantage of insurance companies
Any from premiums are assessed on the estimated degree of risk which may be seen to penalise some members or groups of society too harshly and they are profit-making organisations, therefore premiums will be charged to ensure shareholder needs are met
Give 2 advantages of pension companies
Any 2 from provides a structure to help pan for financial security after retirement, deductions can e taken directly from pay and be fully or partially matched by an employer’s contribution and experts are employed to make investment decisions
Give a disadvantage of pension companies
Any from poor investment decisions by the pension company may result in a disappointing return and money already invested in a pension cannot be released prior to the dates agreed in the policy
Give 2 advantages of pawnbrokers
Any 2 from a quick way of acquiring cash needed for a short period of time, the asset can be brought back within a set period of time and interest is not charged
Give a disadvantage of pawnbrokers
Any from the amount given for the asset is often substantially lower than its actual worth and if the money is not repaid within the agreed period, the asset will be sold on
Give an advantage of payday loans
A quick way of acquiring cash needed for a short period of time
Give a disadvantage of payday loans
Any from interest charges are likely to be very high and often results in paying back a final sum substantially higher than the initial amount borrowed
What is meant by branch when discussing a method that banks use to interact with customers?
Physical places where the customer will visit to carry out transactions which can be face to face, for example over the counter transactions or using computerised facilities, such as automatic teller machines (ATM)
What additional facilities do branches offer that can’t be offered by mobile banking?
Services such as ATMs and advice
Online banking
The use of the internet to carry out banking transaction
Telephone banking
When transactions are carried out over the telephone
Mobile banking
The use of mobile devices such as mobile phones and tablets to conduct financial transactions
Postal banking
The use of the postal service to carry out paper-based financial transactions
Give 2 advantages of branches as a method of banks communicating with customers
Any 2 from opportunity to build a relationship developing trust and brand loyalty, transactions can be conducted there and then, additional services such as advice can be offered and gives the customer a high level of confidence
Give 2 disadvantages of branches as a method of banks communicating with customers
Any 2 from need to travel to a branch which is likely to incur travel costs, e.g. parking or fares for public transport, restricted to bank opening hours and may be long queues plus travel time, making the process time consuming
Give 2 advantages of online banking as a method of banks communicating with customers
Any 2 from available 24/7, high degree of privacy and convenient
Give 2 disadvantages of online banking as a method of banks communicating with customers
Any 2 from takes time at the beginning to set up or apply for, not suitable for cash withdrawals, increased risk due to cyber crime and if just an online account, the facilities may be limited
Give an advantage of telephone banking as a method of banks communicating with customers
Any from convenient, especially to access basic functions such as checking a balance and no additional charges
Give 2 disadvantages of telephone banking as a method of banks communicating with customers
Any 2 from full access may be limited to set hours, call centres and automatic telephone systems can frustrate customers and higher risk of fraud and identity theft
Give 2 advantages of mobile banking as a method of banks communicating with customers
Any 2 from convenient, available 24/7 and no additional charges
Give 2 disadvantages of mobile banking as a method of banks communicating with customers
Any 2 from may need to download specific apps to access mobile banking for a particular bank, higher security risk due to increased risk of loss or theft of mobile devices and can be prone to hackers sending texts asking for bank details
Give an advantage of postal banking as a method of banks communicating with customers
Any from traditional method that many customers will feel comfortable with and does not require any additional technology or devices
Give a disadvantage of postal banking as a method of banks communicating with customers
Any from can be slow due to the postal system and post can get lost
True/False: There are laws and organisations responsible for protecting the rights of consumers.
True
In relation to personal finance, what are laws and organisations responsible for protecting the rights of consumers there to do?
Help ensure that the consumer is not treated unfairly or exploited
The FCA, FOS, FSCS and OFT are examples of organisations concerned with what?
Protecting consumer rights
True/False: The FCA is an independent organisation
True
The FCA is an independent organisation with a remit to do what?
Regulate the actions of providers of financial services
How is the FCA funded?
By membership fees charged to financial service providers
What does FCA stand for?
Financial Conduct Authority
The FCA’s work focuses on how many key areas?
3
What are the three key areas that the FCA focuses on called?
Authorisation, supervision and enforcement
What is meant when the FCA say they focus on authorisation?
Permitting financial service providers to trade
What is meant when the FCA say they focus on supervision?
Ensuring procedures and practices are in the interest of the consumer
What is meant when the FCA say they focus on enforcement?
Using powers to ensure standards are maintained
What does FOS stand for?
Financial Ombudsmen Service
Who is the FOS appointed by?
The government
What does the FOS represent?
The interests of the consumer in disputes with financial service providers
What funds the FOS?
Compulsory fees charged to all financial institutions plus additional fees when actions are taken against an institution
When do the FOS become involved in disputes?
Only if they cannot be satisfactorily sorted between the consumer and the financial institution prior to involving the FOS
Financial Services Compensation Scheme (FSCS)
The organisation in the UK that will pay compensation to a consumer of financial services if the service provider is unable to do so
What does FSCS stand for?
Financial Services Compensation Scheme
The FSCS protects all savers in banks and building societies up to how much?
£85,000
If a bank or building society goes bankrupt, who will savings be refunded by?
The FSCS
What does OFC stand for?
Office of Fair Traiding
True/False: The OFT is an independent organisation
False, it is a government organisation
What was the OFT established for?
To regulate all markets, including financial markets
What was the OFT’s aim?
To encourage fair practices and healthy competition between financial institutions
Since 2014 who has responsibility for financial institutions been passed to?
The FCA
Since 2014 responsibility for financial institutions has been passed from who to the FCA?
The OFT (Office of Fair Trading)
Who is consumer credit legislation passed by?
The UK government
Consumer credit legislation is passed by the UK government to…
enforce the regulation of any firm offering credit to consumers
Give an example of a firm offering credit
Any from leasing, hire purchase agreements, credit cards, etc.
Any firm offering credit must be registered with who under consumer credit legislation?
The FCA
Name 3 organisations or laws concerned with protecting consumer rights
Any 3 from the FCA, FOS, FSCS, OFT and legislation: consumer credit
Name 3 organisations which offer guidance and advice to individuals on personal finance
Any 3 from Citizens Advice, IFAs, price comparison websites, Money advice service UK, debt counsellors and IVAs bankrupty
True/False: All organisations which offer guidance and advice to individuals on personal finance are independent
False, there are a number of government-funded and independent organisations
Who is Citizens Advice run by?
Charities
What does Citizens Advice offer?
Advice on a wide range of issues both financial and non-financial
Advice from Citizens Advice is offered how?
At physical centres as well as online and via email and telephones
Give 3 examples of areas covered by financial advice from Citizens Advice
Any 3 from debt, benefits, banking, pensions and insurance
What does IFA stand for?
Independent financial advisor
Who are IFAs?
Professionals who offer independent advice to their clients on financial matters
Give 2 examples of financial matters that IFAs may give advice on
Any 2 from savings, investments, mortgages and pensions
Price comparison websites
These websites collate prices for similar goods and services within an industry allowing consumers to make comparisons easily and find the best deals
Money advice service is an independent/government organisation
government
What is the money advice service set up to do?
Offer free and impartial financial advice in the UK
Who are debt counsellors?
Professionals who offer independent advice on how best to manage debt
Individual voluntary arrangements (IVAs) bankruptcy is an independent/government organisation
government
What does IVAs bankruptcy allow?
Individuals to declare themselves bankrupt while agreeing to pay all or part of the money they owe to creditors through an insolvency practitioner
IVAs bankruptcy allows individuals to declare themselves bankrupt while agreeing to do what?
Pay all or part of the money they owe to creditors through an insolvency practitioner
True/False: IVAs bankruptcy allows individuals to declare themselves bankrupt while agreeing to pay all of the money they owe to creditors through an insolvency practitioner
False, it can be all or part of the money they owee
When declaring yourself bankrupt with IVA bankruptcy, who are regular payments made to?
The insolvency practitioner who then spreads this across the creditors deciding how much to pay each one
When declaring yourself bankrupt with IVA bankruptcy, regular payments are made to the insolvency practitioner who then does what?
Spreads this across the creditors deciding how much to pay each one
Give 2 advantages of Citizens Advice
Any 2 from it is a free service and offers face to face as well as online and telephone advice and a wide range of areas are covered
Give a disadvantage of Citizens Advice
Trained volunteers are not necessarily professionals in financial issues and therefore knowledge may be limited
Give 2 advantages of an IFA
Any 2 from advice is offered by professionals in the field, services offered are regulated by the FCA and FOS and advisors will take time to understand an individual’s full financial situation
Give a disadvantage of an IFA
Any from services will be charged for and advice offered is not guaranteed to be 100% up to date or unbiased
Give an advantage of a price comparison website
Any from easy to access 24/7 and free service
Give 2 disadvantages of price comparison websites
Any 2 from not guaranteed to be 100% up to date, accurate or unbiased, do not always cover all of the available options and potential for bias
Give an advantage of money advice service
Any from government-funded therefore advice is free and impartial and covers a wide range of financial matters
Give 2 disadvantages of money advice service
Any 2 from advice is only available online or over the telephone - no physical presence, can take time to find and understand the exact advice that is being searched for and advice can be generic rather than personal
Give an advantage of debt counsellors
Any from advice is offered by a professional who specialises in debt management and services offered are regulated by the FCA and FOS
Give a disadvantage of debt counsellors
Any from services will be charged for and advice will focus just on debt management rather than the whole package of financial concerns
Give an advantage of Individual Voluntary Arrangements (IVAs) bankruptcy
Any from helps manage debt repayment with regular payments making budgeting easier and independent advice, without bias
Give a disadvantage of Individual Voluntary Arrangements (IVAs) bankruptcy
Any from set up and handling fees are charged for the service and will affect future credit ratings
