Lecture 11 - Borrowing Part 1 Flashcards
Income inequality OECD
Compared to 1981, 650 million fewer people living in extreme poverty is less than $1.25 a day
Even though population has risen by about 2 billion
China accounts for 1/2 a billion people moving out of extreme poverty
Income inequality
Oxfam calculated that 85 people owned as much wealth as the poorest half of the humanity
Growing economic inequality exacerbates social problems such as youth employment, gender based violence and many others
Also people their dignity and their voice, which deepens social frustration and the likelihood of conflict
At the same time, inequality entrenches wealth and power in the hands of a few, creating societies and structures that are shaped to represent the interests of the elite minority at the expense of the majority of society
Income (in)equality OECD PART 2
Richest 10% of the population earn 9.5 times the income of the poorest 10%, up from 7 x in the 1980s
Result has been slower, not faster growth
Rising inequality is estimated to have knocked more than
- 10% points off growth in Mexico and New Zealand
- nearly 9 in the UK, FINLAND AND NORWAY
- 6-7 points United States, Italy and Sweden
Income vs wealth
Income - flow of resources
Wealth - stock of economic resources
Wealth uk
Wealth uk £11.1 trillion total wealth (ONS)
Debt uk 2016 Sept
Average debt per adult in the UK
£55,442 per household
No. Of plastic card purchase transactions in July
41 million/£1.57 billion
Cash machine transactions made daily
£9.2million/381m
Outstanding mortgage lending
£1.31 trillion
How much did people own in 2016 U.K.
£1,496 trillion
Dentition of debt
Total amount owed at a particular point in time
Credit
An arrangement to receive cash, goods or services now and to pay for them in the future
Secured debt
Debt secured against an asset such as a home. If the debtor fails to make adequate repayments, the lender has the right to obtain money by selling the asset
Usecured debt
Debt not backed by any asset
Costs of debt financing
Purchases are more expensive Temptation to overspend Possible financial difficulties Possible loss of merchandise due to late or non-payment Ties up future income - true for governments and individuals
Benefits of debt financing
Current use of goods and services - buy now and pay later The ability to raise debt demonstrates financial stability Use for financial emergencies Convenience when shopping Safer than cash
Uk financial companies
Commonly subsidiaries of banks and building societies specialising in personal loans, car finance
Direct lenders
Commonly subsidiaries of banks, building societies and insurance firms who don’t have branches but deal with customers by phone or Internet
Credit unions
Small cooperative organisations run on a local basis. Tend to be work or community based
Banks
Mostly PLCs owned by shareholders including a number of former building societies
Building societies
Mutual organisations owned by their savers and borrowers (customers). Originally used to purchase land for home building and evolved to permanent organisations
Student loans company
Owned by the uk government and lends to students in higher education to enable them to meet their expenses
Alternative credit market
Aimed primarily at people on low incomes.
Includes door-to-door lenders, rental purchase shops and pawnbrokers.
Also covers unlicensed lenders (loan sharks) who provide loans at very high interest rates
Changes in the market
Lending activities changed dramatically since 1980's Demutualisation of building societies -joint ventures between banks and supermarkets In 2008/9 Nationalisation of banks - banks going bust (Lehman) - banks that should have gone bust - dramatic reduction in borrowing
Bank of England monetary policy committee
New labour government passed the power to set interest rates to the banks of England in May 1997 to make them less politically influenced
- base rate of interest is the rate at which the Bank of England will lend the other banks and sets the general level for the whole economy
- primary determinant of interest rates is government policy on inflation- currently a 2% target for the consumer price index
Variable rates
Can move up and down during the life of the loan and typically in line with the base rate
Common for overdrafts and credit cards
Fixed rates
When the rage is determined at the start of the loan.
Based on what the lender has to pay to obtain fixed rate funds of the same term. Common for personal loans
