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Business BTEC A Level - Finance > Section A Understand The Importance Of Managing Personal Finance > Flashcards

Section A Understand The Importance Of Managing Personal Finance Flashcards

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1
Q

What is interest rate?

A

The proportion of an amount that is charged as interest to the borrowers

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2
Q

What is credit rating?

A

A score given to individuals on how likely they are to repay debts based upon their previous actions

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3
Q

What is solvent?

A

The ability to meet day-to-day expenditure and repay debts

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4
Q

What is debt

A

Money owed

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5
Q

What does it mean to be bankrupt?

A

When an individual or organisation legally states its inability to repay debts

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6
Q

What are the 4 functions of money; explained.

A

Functions of money:
Legal tender -
• It is a legally recognised form of payment
•Money is widely recognised and used for transactions such as buying goods/services, paying a deposit for a house, receiving wages

Unit of account -
• It allows us to place a monetary value on goods and services
• The price of goods and services show the unit of account
Means of exchange -
• it allows us to trade
•businesses and customers can buy and sell goods and services using money eg pay for lunch
Store of value -
• it allows us to use it in the future as it keeps its value
•you can have money in a bank account or at home which can be used to buy goods and services in the future

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7
Q

How does personal attitude influence the view of money?

A

Individuals will vary their attitudes towards money/spending. Examples:

Risk averse - avoid taking risks
Likely to take risks - enjoy potential rewards
Focus on saving - influenced by family attitudes

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8
Q

How do life stages influence the view of money?

A

Young people are less concerned about money whereas when you grow older, with debts etc., your attitudes change.

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9
Q

How does interest rates, costs of borrowing versus reward of saving, influence the view of money?

A

Interest rates are the proportion of an amount that is charged as interest to the borrower .
When interest rates are low = more likely to borrow money or spend on credit

When rates are high = more of an incentive to share

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10
Q

What are the financial needs in childhood and where would the money come from?

A

Financial needs:
Food/drinks
Clothes
Toiletries
Nappy’s
Toys

Source of finance:
From parents/carers
Pocket money
Gifts

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11
Q

What are the financial needs in adolescence and where would the money come from?

A

Financial needs:
Food/drinks
Clothes
Toiletries
Electronics

Source of finance:
From parents/carers
Pocket money
Gifts
Part time job in late adolescence

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12
Q

What are the financial needs in young adulthood and where would the money come from?

A

Financial needs:
Food/drinks
Clothes
Toiletries
Electronics
Taxes
Rent
Education
Insurance
Pension
Transport

Source of finance:
Jobs
Gifts
Help from parents

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13
Q

What are the financial needs in middle age and where would the money come from?

A

Financial needs:
Food/drinks
Clothes
Toiletries
Electronics
Taxes
Rent or mortgage
Insurance
Pension
Transport
Dependence from children

Source of finance:
Jobs
Inheritance

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14
Q

What are the financial needs in old age and where would the money come from?

A

Financial needs:
Food/drinks
Clothes
Toiletries
Electronics
Mortgages or rent
Insurance
Dependence from kids
Transport

Source of finance:
Pension inheritance

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15
Q

How can planning your spending help you avoid getting into debt?

A

Allows you to save money to pay for bills and taxes and many more

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16
Q

How can planning your spending help you to control costs?

A

-Allows you to save money for the future
-Helps with organisation
-Helps you know what you have to pay

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17
Q

How can planning your spending help you avoid legal action and /or repossession (take something away)

A

-makes you look good with money to banks and businesses so you can earn their trust to lend money
- means you always have money in your banks count

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18
Q

How can planning your spending help you remain solvent (have enough money to spend)

A

-saves money
- having multiple savings
- allows you to be able to pay for bills
-manage debts

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19
Q

How can planning your spending help you maintain a good rating?

A

-save money
-pay money back on time, loans and bills and more

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20
Q

How can planning your spending help you avoid bankruptcy

A

-allows you to have enough money to keep you alive
-save money

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21
Q

How can planning your spending help you manage money to fund purchases

A

-saves money and helps organisation so you know what to pay

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22
Q

How can planning your spending help you generate income and savings

A

Helps save your money and not spend it all at once. Allowing more income in your savings

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23
Q

How can planning your spending help you set financial targets and goals

A

Helps allow you to plan the future and organise what money you will need ahead of time for your goals

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24
Q

How can planning your spending help you provide insurance against loss or illness

A

-if you spend less and plan what you spend insurance companies will see you more liable
-if something breaks insurance will help cover the costs financially

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25
Q

How can planning your spending help you counter the effects of inflation

A

-save money for inflation
-spend carefully
-find cheaper dupes

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26
Q

What is a current account? Include types.

A

A current account is an account with a bank or building society that is designed for frequent use. Money can be paid in and withdrawn on a daily basis without the need to give notice.

Types:
Standard
Packaged, premium
Basic
Student

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27
Q

Give pros and cons to a STANDARD current account

A

pros:
- No charges on credit balances
- Offers the holder a wide range of facilities.
- Convenient for receiving regular payments
cons
- potentially high charges on the use of an overdraft facility
- standard features only

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28
Q

Give pros and cons to a PACKAGED PREMIUM current account

A

pros
- no charges on credit balances
- offers wide range of facilities
- convenient for receiving regular payments
- offers the holder additional perks at a packaged price cheaper than acquiring them individually
cons
- additional monthly charge is frequently applied
- package offered may not offer value for money or meet the needs of the individual account holder

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29
Q

Give pros and cons to a BASIC current account

A

pros
- available to customers with a low credit rating
- offers an easy first step for individuals to gain access to basic banking facilities
cons
- limited facilities

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30
Q

Give pros and cons to a STUDENT current account

A

pros
- course fees and student loans can be easily handled
- bonuses offered are designed to meet the needs of learners
cons
- overdraft facilities could encourage overspending
- charges for overspending are high
- limited facilities

31
Q

Give advantages and disadvantages of using cash

A

Advantages:
- Most widely accepted form of exchange
- Makes budgeting easier

Disadvantages:
- Can be lost or stolen
- cannot be used online

32
Q

What is a debit card

A

A payment card that deducts money straight away from your account when you make a payment

33
Q

Give advantages and disadvantages of Using a debit card

A

Advantages:
- Accepted almost everywhere
- Good to keep track of money

Disadvantages:
- Can only spend what is in your bank account

34
Q

What is a credit card

A

A payment card that is used for purchases but can be paid for later

35
Q

Give advantages and disadvantages of using a credit card

A

Advantages:
- Accepted everywhere
- Can pay later if you have an insufficient amount

Disadvantages:
- Must pay interest
- Could lead to debt

36
Q

Give advantages and disadvantages of using a cheque

A

Advantages:
- It is secure because nobody else can cash it off but the recipient
- No change has to be given

Disadvantages:
- Can be lost or stolen
- It’s a long process

37
Q

What is an electronic transfer

A

the processing of money online into another account

38
Q

Give advantages and disadvantages of using an electronic transfer

A

Advantages:
- Can pay someone instantly
- easy and quick

Disadvantages:
- Potential scammers and fraud
- If details are wrong money may go to a different person

39
Q

What is direct debit

A

An arrangement made with a bank that allows a third party to take money at an agreed date

40
Q

Give advantages and disadvantages of using direct debit

A

Advantages:
- Can be a varying amount
- Done automatically

Disadvantages:
- Wrong money may come out
- There is no warning because it is automatic so you are unaware

41
Q

What is a standing order

A

It is like direct debit but it is set up by you and it is a set amount every month

42
Q

Give advantages and disadvantages of using a standing order

A

Advantages:
- You have more control
- Set up personally by the payer

Disadvantages:
- It will keep going until you cancel it even if you don’t have sufficient amount of money

43
Q

What is a prepaid card

A

Pre-paid cards, sometimes called everyday spending cards, are debit cards that operate on a pay-as-you-go basis. You can simply top it up with money whenever you want to use it and spend as you would normally.

44
Q

Give advantages and disadvantages of using a prepaid card

A

Advantages:
- Can set a budget in advance to avoid overspending
- If lost or stolen the loss is limited to the remaining balance

Disadvantages:
- Sometimes requires an initial fee to purchase the card

45
Q

Give advantages and disadvantages of using a contactless card

A

Advantages:
- Don’t have to remember the pin
- quick and easy process

Disadvantages:
- Can be stolen and used to pay

46
Q

What is a charge card

A

It is similar to a credit card, you buy things, pay back later with high interest

47
Q

Give advantages and disadvantages of using a charge card

A

Advantages:
- Can pay later

Disadvantages:
- can lead to debt
- Must pay interest

48
Q

What is a store card

A

It is like a credit card but for a particular store

49
Q

Give advantages and disadvantages of using a store card

A

Advantages:
- No spending limit

Disadvantages:
- Must pay back a monthly charge, if not you pay high interest

50
Q

Give advantages and disadvantages of using mobile banking

A

Advantages:
- Easy and quick
- Can be accessed no matter where you are
Disadvantages:
- Cannot do everything on the app
- hard to access customer service

51
Q

What is banker’s automated clearing service (BACS) faster payment

A

It is a system that allows the transfer of payments directly from one bank account to another

52
Q

Give advantages and disadvantages of using a banker’s automated clearing service

A

Advantages:
- Money will be in account within two hours
- Can be accessed online or in a bank branch
Disadvantages:
- You can only transfer a certain amount

53
Q

What is a clearing house automated payment system (CHAPS)

A

It is a system that allows the transfer of payments directly from one bank account to another

54
Q

Give advantages and disadvantages of using a clearing house automated payment system

A

Advantages:
- No limit to transfer
- Can be accessed online or in a bank branch
Disadvantages:
- Time limit to transfer money; for example, you must transfer by two PM or will be transferred next day

55
Q

What is insurance premium

A

What you must pay for your insurer to insure you

56
Q

What is insurance excess

A

Insurance excess is the amount you have to pay towards the overall cost of an insurance claim. It’s usually a pre-agreed amount. Your insurer will then contribute the rest

57
Q

What affects how much your insurance will cost

A

Risk affects how much your insurance will cost, and how many times you claim

58
Q

What are the two types of car insurance and what are they

A
  1. Comprehensive
    If you crash it covers both cars involved. It covers theft, fires etc.
  2. Third party
    Only covers The other car involved in the crash
59
Q

An overdraft is a type of borrowing. Give pros and cons

A

Pros
- It is flexible and simple to arrange
Cons
- Limits to how much you can borrow
- Usually high interest
- The bank decides when you must pay back by

60
Q

A personal loan is a type of borrowing. Give pros and cons

A

Pros
- Higher borrow limit
- Builds a credit score
Cons
- Still interest added
- Potential credit score damage

61
Q

A hire purchase is a type of borrowing. Give pros and cons

A

Pros
- Pay in small amounts
- Payment flexibility
- No taxes charged
Cons
- Higher cost of financing
- Loss of any returned goods

62
Q

A mortgage is a type of borrowing. Give pros and cons

A

Pros
- Different types of mortgages available
- Gradual payments
Cons
- Takes awhile to process before it can start
- Puts you into a lot of debt

63
Q

A credit card is a type of borrowing. Give pros and cons

A

Pros
- Fraud protection
- Paying for purchases over time
Cons
- Pay interest
- Credit can be damaged
- Could overspend and get into debt

64
Q

A payday loan is a type of borrowing. Define what it is

A

It is a short time loan for small amounts of money

65
Q

A payday loan is a type of borrowing. Give pros and cons

A

Pros
- Flexibility
- Small amounts paid easily
Cons
- High interest
- Not for long term

66
Q

Premium bonds are a type of saving/investment. Define what it is

A

An investment product where you can win money in monthly draws

67
Q

Bonds and gilts are a type of saving/investment. Define what it is

A

Investing into the business or if a gilt - the government, to help with public spending – in return you receive interest.

68
Q

Individual savings accounts are a type of saving/investment. Give pros and cons

A

Pros
-greater flexibility
-easy to transfer
-easy to open and access
-inheritance benefits
-potential to earn interest
Cons
-income tax implications
-no quick investments
-not easy to withdraw funds

69
Q

Deposit and savings accounts are a type of saving/investment. Give pros and cons

A

Pros
-steady interest
-keeps money safe
-enables instant pay services
-automated bills payment
Cons
-Variable interest rates may change
-transaction limits may apply
-fees may be charged depending on the bank
-interest rates typically lower

70
Q

Pensions are a type of saving/investment. Give pros and cons

A

Pros
-lower overall charges
-tax relief on contributions
-easier management of pension savings with just one scheme.
Cons
-lack of access until you are of age
-risk of poor returns
-not all pensions are transferable
-risk of company bankruptcy

71
Q

Premium bonds are a type of saving/investment. Give pros and cons

A

Pros
-have a prize draw and can win a large amount of money
-backed by government
-tax free
-easy access
-easy withdraw led anytime
-no risk of losing money
Cons
-don’t earn any interest
-risk of overpayments
-no regular income

72
Q

Bonds and gilts are a type of saving/investment. Give pros and cons

A

Pros
-investment returns are fixed
-offers regular interest payments
-safe investment
Cons
-exposed to inflation
-low risk
-if the business doesn’t do well, you can lose your money

73
Q

Shares are a type of saving/investment. Give pros and cons

A

Pros
-limited liability for the debts of the company
-ability to invest in different sectors
-ownership stake of a business
-claims on assets and dividends of a company
Cons
-risk of losing money
-privacy issues
-taxes on dividends

Business BTEC A Level - Finance (7 decks)

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