Topic 7 - Dealing w Unforeseen Events Flashcards
What are financial budgets?
- forecasts
What are some examples of plans ppl make for their life that factor in their financial budgets?
- getting married
- going on holiday
- retiring
How can the events planned in someone’s life cycle differ from what they expected?
- happen but not at expected time
- happen but not in way they expected
- not happen at all
Why does flexibility need to be brought into every financial plan?
- so if an unfavourable event occurs, they’ll be partially prepared for it
What are some examples of life changing events that can cause financial problems?
- divorce
- redundancy
- illness
What does being flexible mean?
- being willing + able to change priorities
How is anticipating events a part of the skill of risk assessments?
- if likelihood/risk of something happening: should be able to access how likely it is to happen + posi. + neg. effects it has
What are examples of non-flexible savings + investments?
- fixed-term bonds
- life insurance policies
- personal pension funds
What are examples of non-flexible loan products?
- hire purchase
- fixed-interest mortgages
What do business owners need to be aware of?
- how their business interlinks w their personal finance
What’s an important factor business owners need to consider ab how their business interlinks w their personal finance?
- whether business is a limited company or not
Why does a business being a limited company of not matter to a business owner?
- if limited: liability of business for debt is limited to amount that can be raised by selling business assets
- if not limited: owners can be require to use personal possessions to pay business debts (may involve losing house or personal investments)
What does a business being insolvent mean?
- when value of its total assets is < value of its total liabilities
What is the need for flexibility also necessary for?
- to build into a plan
What has an impact on borrowing repayments + savings goals?
- changes in interest rates + other eco. variables
What is ‘what if’?
- a function on a spreadsheet so user can set out a table of calculations + change 1 variable to see effect on final results
What are examples of variables that change frequently + affect outcomes + are helpful in use of a ‘what if’ exercise?
- interest rates
- rate of inflation
- exchange rates
- benefits
Why is an inc. in interest rates a problem for ppl repaying a loan w variable rate of interest?
- bc their repayments will inc
What does the rate of inflation measure?
- speed at which prices inc.
What happens if ppl’s income rises more slowly than prices?
- suffer a fall in standard of living + not able to buy same amounts of goods + services
How should ppl factor inflation into their financial plans?
- assume an average rate of inflation (around 2-3%) + inc. income + expenditure by this amount /yr
Why would it be wise to raise expenditure by a higher % than income?
- to give a margin for error
What is the exchange rate of a currency?
- its price in terms of other currencies
When do exchange rates affect ppl?
- when they go abroad
- receive income/ make expenditure in a foreign country
If someone’s financial plan inc. an annual foreign holiday why is it wise to inc. the cost by a small % each yr?
- to reflect adverse exchange rate movements
Who is Disability Living Allowance (DLA) available for?
- ppl w disabilities who have difficulty walking or getting around or who need help looking after themselves
What does the Personal Independence Payment (PIP) benefit require?
- ppl to be assessed to see how much financial support they need
What is PIP designed for?
- to help ppl w LT ill-health or disability to pay for xtra costs their conditions collect
What is equity withdrawal?
- additional borrowing based on difference between value of a house + outstanding mortgage
What are diff types of debt? (not inc. equity withdrawal)
- hire purchases
- unsecured personal loans
- credit cards
- overdrafts
What is a student loan?
- provided under a gov. scheme allowing students to borrow at a low rate of interest + begin paying back when income reaches certain lvl
What does becoming over-indebted mean?
- owe > they can afford to repay + may never pay it back
When does debt become a problem?
- when someone fails to manage it properly
What are the consequences of poor debt management?
- personal problems, as ppl deep in debt struggle to pay for everyday necessities
- may have difficulty finding or keeping somewhere to live
- may be excluded from many financial products
- difficult to get credit
What what type customers may providers offer debt consolidation loans to?
- 1s that held a current account w provider for at least 12 months
- pay at least £1,000 into account every month
- managed their account well + have a good credit history
What may providers charge interest depending on?
- personal circumstances
- amount of loan
- repayment term
How can ppl improve their credit rating?
- keep up to date w payments on credit cards + loans
- set up direct debits for bills: paid on time
- make loan applications 1 at a time
- obtain copy of their credit report from a credit reference agency
- dispute any inaccuracies on credit report
- use credit from time to time: can manage it sensibly
- make sure they’re on electoral roll to prove address
- try pay off any outstanding debt
How long does a credit record remain?
- 6 yrs
How can you rebuild a credit history?
- once on top of outstanding debts, u can become solvent again
- can use the 6 yrs (when credit record remains) to pay off debts + get back into balance
What does majority of money being used in electronic form mean?
- most transactions go through computer databases + records are kept
- wage, salary, benefits usually paid by cheque/electric transfer: must use electronic system to withdraw cash
What do credit reference agencies do?
- note all credit taken out by customers + all payments of this credit
- sell a profile of each customer to a provider considering a loan application
What can a prospective lender see due to a financial footprint?
- previous borrowing (when + how often)
- inc. borrowing + by how much
- how many loan applications + results of them
- how, to what extent + when they paid off debts
- missed payments
- defaulted debts
When a person submits an application for a loan, what does the provider do?
- consult credit rating info + can see person’s profile
- helps decide whether to lend + if so helps determine rate of interest to charge
What impacts does a person’s financial footprint have on their financial future?
- whether able to borrow money: controls if able to buy mortgage, access hire purchase or set up a mobile phone contract
- price they pay for credit: may be charged higher rate of interest + loan more expensive
While a person is unemployed what are they entitled to?
- unemployment benefits
- maybe housing benefit
What 6 separate benefits does Universal Credit replace?
- income-based Jobseeker’s Allowance
- income-based Employment + Support Allowance
- Income support
- Working Tax Credit
- Child Tax Credit
- Housing Benefit

What does an unemployed person need to cut down on?
- discretionary expenditure (clothes, entertainment, holidays)
What is the best advice for an unemployed person?
- contact lender + ask for some forbearance
- may involve a payment holiday for few months: debt doesn’t accumulate
- mortgage term could be extended: dec. monthly payments
What may be the outcome of ppl splitting and 1 moving out + why?
- both parents must move out of original property + find separate, cheaper accommodation
- bc covering expenditure (food, gas, electricity bills) on 1 income may be impossible
How does separation + divorce arrangements become more costly?
- if parties can’t agree on terms of divorce + each has to pay for a solicitor
