Savings/Investment Part 2 Flashcards
What are savings accounts?
Low risk investments which offer a variable interest rate, and your funds can be easily accessed
What does a variable interest rate mean?
If the market rates go down, the amount of interest you earn will also go down
What are term deposits?
A secure, low risk investment which offers higher rates of interest in return for you agreeing to invest for a set period of time
What are the other features of term deposit accounts?
You lock away your money to earn interest at a fixed rate, therefore fluctuations in the market do not affect your funds, and you cannot make withdrawals or deposits until the term is up
Are shares a cash investment?
No, they are not a cash investment
Which investments are likely to use compound interest?
Savings accounts, credit cards and mortgages
Which investment is unlikely to use compound interest?
Term deposit accounts
Why can paying with cash instead of a credit card save you money?
Cash is limited to what you have on you, it eliminates the risk of debt and you cannot make online purchases
What happens if interest rates increase at the same rate as inflation?
You are no better or worse off financially
What do property and shares both provide?
Income stream and capital gain
What are government bonds?
Bonds issued by the government to raise funds from the general public in return for a fixed interest rate, over a very long period of time
Why do people purchase property?
In the hope that they will sell it at a higher price and make profit, or generate income in the form of rent
What happens when you buy shares?
You are buying part-ownership of a business, in return for access to an income stream in the form of dividends
What is superannuation?
A government requirement for employers to pay 9.5% of an employee’s wage into a specially designed fund to ensure that employees are financially secure when they retire
What are collectibles?
Items that are relatively rare in number, such as works of art, sporting memorabilia or antique furniture
What is an asset?
A resource which will hopefully provide future economic benefits
Why is a motor vehicle generally not considered an investment?
Because it is likely to lose value rather than gain value over time
What is the economic definition of an investment?
The process of capital creation or accumulation of stocks
What are some examples of investment goods as defined by an economist and why are they defined as such?
Machinery, vehicles, computers and technology, because they will assist in the production of other goods and services
Why do economists consider machinery as an investment?
Because it will assist in producing goods and services, which can be later sold for profit
Why is the purchase of shares not considered an investment by an economist?
Because shares do not assist in the production of goods and services
