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LIBF Unit 2 > Topic 6 - Financial Planning + Informed Choices > Flashcards

Topic 6 - Financial Planning + Informed Choices Flashcards

1
Q

How long my a ST plan run for?

A
  • just over 1 yr
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2
Q

When can MT plans be achieved?

A
  • after a few yrs
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3
Q

What do ppl use MT plans for?

A
  • diff. wants at diff. stages of their life cycle
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4
Q

What are 2 examples of long term plans?

A
  • buying a home + paying back a mortgage
  • saving for retirement
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5
Q

What should a person look carefully at in order to make an informed choice ab choosing the right products?

A
  • their wants + aspirations
  • their position on risk/reward spectrum
  • risk/reward spectrum of product
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6
Q

What does the products chosen by an individual partly depend on?

A
  • their risk profile which partly depends on their personality, financial situation + age
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7
Q

What is closely linked to how much a person is prepared to risk in their financial plan?

A
  • how much they’re prepared to lose
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8
Q

What are the factors depending where an individual stands on the risk/reward spectrum?

A
  • their personality
  • amount of money they have at their disposal
  • stage of life cycle
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9
Q

What is a form of self-insurance?

A
  • when ppl save some money to fall back on in case the risk event happens
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10
Q

What are the factors that depend the extent ppl practice self insurance?

A
  • whether there’s a legal/operational obligation to insure risk
  • cost of insurance when balanced w risk
  • perception of degree of risk
  • ability to access insurance
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11
Q

What are the 2 main decisions, concerning the product group + product band, that a prospective customer needs to make?

A
  • risk associated w a particular type of product
  • risk profile of a specific brand
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12
Q

How does saving reduce future risk?

A
  • ensures they have a lump sum they can use in an emergency + that they’ll have a sufficient income in retirement
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13
Q

What are the risks associated w saving?

A
  • based on fact that a saver hands money to a provider to look after
    - provider may fail + saver may lose uninsured deposits
  • nominal sum of money saved eroded by inflation over yrs
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14
Q

Why is borrowing always risky?

A
  • borrower must commit to repaying out of future income but may not have enough over repayment term to settle debt in full
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15
Q

What does the risk associated w a particular loan product vary according to?

A
  • amount of interest charged
  • possibility of interest rate rising during loan period
  • number of yrs for repaying loan
  • terms + conditions
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16
Q

What is the risk w insurance?

A
  • insurance company might fail + not be able to pay compensation
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17
Q

What factors does a customer need to know when considering a provider’s risk profile?

A
  • how safe + stable provider is
  • reputation it has for good + reliable service
  • how it’s regulated
  • how it can be accessed
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18
Q

What is the 1st step when making an informed choice of the product + provider?

A
  • consider strength or want + aspiration
  • thank ab benefit they will get from fulfilling it
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19
Q

What is the 2nd step of making an informed choice of the product + provider?

A
  • look at own risk profile according to financial circumstances
  • consider risk profile of product
  • consider risk profile of provider selling product
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20
Q

What is the 3rd step of making an informed choice of the product + provider?

A
  • find out charges + any penalties, flexibility, terms + conditions
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21
Q

What is the 4th step of making an informed choice of the product + provider?

A
  • consider extent to which it fits in w own values
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22
Q

What is the most important factor when someone is choosing a financial product?

A
  • to match product to its intended purpose + characteristics of person buying it
23
Q

What should a product be suitable in term of?

A
  • intended purpose
  • timescale
  • affordability
  • attitude to risk + risk profile of product + brand
  • how product fits into overall product mix
24
Q

What are the various product groups relating to MT + LT financial requirements?

A
  • saving + investment
  • borrowing
  • insurance
25
Q

What are financial products examples of?

A
  • derived demand
26
Q

Why do ppl save + invest in the M + LT?

A
  • bc they’re aiming to eventually spend money on an item/life event
  • bc they want to provide for own or children’s future
27
Q

What does the amount someone saves depend on?

A
  • their income
  • amount of current consumption in their ST plan
  • necessity of saving
  • ppl’s attitude to saving
28
Q

What factors does the amount someone borrows depend on?

A
  • income
  • other expenditure, especially mandatory + necessary items
  • time period of loan
  • necessity of borrowing
  • ppl’s attitudes to borrowing
29
Q

What does joint demand mean?

A
  • that 2 products are bought together bc they’re complementary
30
Q

What are examples of product pairs?

A
  • personal loan to buy a car + motor insurance
  • fixed-term savings bond + instant access savings account
  • interest-only mortgage + investment product to cover capital payment
  • mortgage to buy a home + personal loan to buy furniture to put in home
31
Q

What is competitive demand?

A
  • a situation where 2 or more products fulfil the same need or want + so are in competition w each other for customer’s money
  • opposite to joint demand
32
Q

What are some examples of product competition?

A
  • savings product + borrowing products
  • diff. types of product under same product heading
  • diff. product brands under same product heading being offered for sale by diff. providers
  • diff. product brands under same product heading being offered by same provider
33
Q

Why is savings products v borrowing products an example of product competition?

A
  • have a neg. relationship between them
34
Q

What are the differences between savings products?

A
  • some savings + some investments
  • products have diff. maturity dates, interest rates + terms + conditions
  • providers inc. comp. between products by product differentiation
35
Q

What are ‘add ons’ on financial products?

A
  • additional features making a product look more attractive
36
Q

What is the brand?

A
  • name of a provider + is v. powerful as it inspires loyalty from customers
37
Q

What does a market segment contain?

A
  • ppl similar in terms of income, age, attitude to risk, + lifestyle
38
Q

What are internal factors?

A
  • factors that originate in a person themselves
  • e.g. personal priorities, health, state of mind
  • affect only that person + their family
39
Q

What are external factors?

A
  • factors that originate from outside a person + come from external envi.
  • beyond their control + affect many ppl
40
Q

What do external factors affect?

A
  • ppl’s wants + aspirations, plans + ability to succeed in those plans
41
Q

What are examples of external eco. factors that can affect a financial plan?

A
  • inflation
  • interest rates
  • unemployment
  • house prices
42
Q

What is inflation?

A
  • the gradual inc. in the general lvl of prices in an economy over a period of time + dec. purchasing power of money
43
Q

How does inflation affect savers + borrowers?

A
  • saver’s money loses value as prices rise unless interest rate they receive is > rate of inflation
  • borrowers gain as money borrowed loses value but pay interest which is > rate of inflation
44
Q

What is the interest rate change according to?

A
  • eco. + financial condition of country
45
Q

What does the Bank of England make changes in its bank rate according to?

A
  • whether it wants to slow down or speed up economy
46
Q

What does saving + borrowing decisions depend on?

A
  • current level of interest rates + how ppl expect interest rates to change in future
47
Q

What does under employment stem from?

A
  • lvl of eco. activity in country slowing down or country becoming less competitive in export markets: less demand for goods to be produced
48
Q

Why is unemployment a particular problem for anyone already owing money?

A
  • bc they won’t have income to meet loan repayments
49
Q

What is a key indicator of the state of an economy?

A
  • house prices
50
Q

When my house prices rise + fall?

A
  • rise: in growing economy + demand inc
  • fall: if economy slows + there’s more uncertainty ab future
51
Q

What is the advantage + disadvantage on 1st time buyers for a house if economy slows down?

A
  • advantage: may make easier to buy house as cheaper
  • disadvantage: greater risk of losing job + mortgage higher to obtain
52
Q

What is the disadvantage of falling house prices on ppl who alr. bought their own home?

A
  • value of house falls + may become < amount owed on mortgage (negative equity)
  • problem if wanting to move as proceeds of sale won’t cover debt still outstanding
53
Q

What will a person in negative equity have to do if they want to move house?

A
  • buy cheaper property + ask bank to finance any difference
  • wait until market improves
54
Q

What does a fall in the stock market mean?

A
  • you get less for your shares if selling them
  • if companies not doing well, you receive lower dividends

LIBF Unit 2 (10 decks)

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