Topic 7 Flashcards
What forms have the changes in the financial system taken?
• New organizations have been established.
• Institutional roles and responsibilities have been redefined.
• Legislation and regulation introduced in the EU and UK.
• Increased consumer protection measures implemented.
• Industry guidelines updated
What benefits have these changes brought to consumers?
• Greater protection and safety in financial systems.
• Increased transparency of operations and financial information.
• More competitive fees for services and products
What are some key impacts of recent financial changes?
• Low interest rates affecting savings and investments.
• Changes in eligibility criteria for financial products and services.
• Changes in the state pension age.
• Modifications to the benefits system, requiring consumers to adapt financial plans for long-term sustainability
What is the state pension age for men and women based on their birth year in the UK
Birth year 1950 Men: 65 / Women: 60
Birth year 1960 66
Birth year 1970 67
Birth yeah 1980 onward 68
How has increased access to technology influenced financial services? And What do these tools offer consumers?
• Financial information and services are now widely available online or via mobile apps.
• Development of tools like budget apps, text services, and advice websites
• Easier ways to manage money.
• Free, unbiased, and reliable financial advice
Name examples of new financial providers, products, and services. And Why should consumers consider these options?
• Providers: Metro Bank.
• Products: Individual Savings Accounts (ISAs), basic bank accounts.
• Services: Current Account Switch Service
• To better plan, choose, and operate their financial products
What is personal financial sustainability affected by?
A: It is affected by the sustainability of the economy in which an individual lives
Which key economic factors influence personal financial sustainability?
A: Interest rates, inflation, house prices, and unemployment rates
How did the government influence economic factors before 1997?
A: By setting monetary policy implemented by the Bank of England
What significant change occurred in 1997 regarding the Bank of England?
A: It was made independent of the government and tasked with setting monetary policy to ensure monetary stability
What did the Bank of England Act 1998 formalize?
It gave the Bank of England responsibility for setting the Bank rate
What was the intention behind giving the Bank of England control over the Bank rate?
A: To use the Bank rate as a tool to meet a Consumer Prices Index (CPI) inflation target of 2%
What is the ultimate goal of setting monetary policy?
A: To deliver stable prices and help create a stable, sustainable economy
How did the Bank of England respond to the 2008 financial crisis?
A: The Monetary Policy Committee (MPC) reduced the Bank rate to 0.5% in March 2009 to stimulate the economy
What further change occurred to the Bank rate in August 2016?
A: It was lowered to 0.25% following the Brexit referendum
What happened to the Bank rate in March 2020 during the COVID-19 pandemic?
A: It was reduced to an historic low of 0.1%
Why was the Bank rate reduced to 0.1% in 2020?
A: In response to the economic instability created by COVID-19
What are the effects of an extremely low Bank rate on savings and borrowing products?
A: It leads to low returns on savings products and low charges on borrowing products
How do savers and borrowers view a low Bank rate differently?
A: Savers wish for an increase in the Bank rate to gain higher returns, while borrowers hope it remains low to keep borrowing costs down
Why is predicting when the Bank rate will increase difficult?
A: Economic conditions and future monetary policy decisions are unpredictable
What are the long-term concerns for individuals regarding a low Bank rate?
A: People are uncertain whether their financial plans are sustainable in the long term. Savings may offer greater returns in the future, and borrowing costs are likely to rise, but the timing is unclear
What announcement did Mark Carney, the governor of the Bank of England, make in August 2013? And Why was this announcement significant?
A: He stated that an increase in the Bank rate would only be considered if the UK unemployment rate fell to 7% or below
It addressed uncertainty and provided a clear economic indicator for a potential increase in the Bank rate.
What are the key factors affecting home affordability?
A:
1. Private rental prices: Moderate increase.
• Evidence: Increased by 1.7% in the 12 months to November 2021 (UK).
2. Average earnings compared to property price: Slight increase.
• Evidence: In 2020, property prices grew faster than earnings in England.
3. Regional differences: Greater affordability challenges in England than Wales.
• Evidence: In 2020, full-time employees in England spent 7.8 times their annual earnings on buying a home, compared to 5.9 times in Wales.
How do low interest rates affect older adults?
A:
• Low interest rates reduce income from savings, making it harder to sustain living expenses.