Unit 2

Question 1

What are aspirations?

Answer 1

Hopes for the future

Question 2

What are values?

Answer 2

General feelings about desirable behaviour and goals.

Question 3

What are beliefs?

Answer 3

Beliefs are more specific and detailed than values. They are less about the way that people think things ought to be and more about the way they think they are.

Question 4

What are attitudes?

Answer 4

Attitudes refer to how, at a given time and place, people think and feel about another person, an event or an issue.

Question 5

What are three external factors that influence needs, wants and aspirations?

Answer 5

• marketing and advertising
• peer pressure
• trends, fashions and role models

Question 6

What is marketing?

Answer 6

• includes advertising, selling and delivering products to people
• everything a company does to acquire customers and maintain a relationship with them

Question 7

What is promotion?

Answer 7

• refers to paid-for marketing activities, includes advertising

Question 8

What is public relations (PR) ?

Answer 8

• specific part of promotion that is known as ‘below the line expenditure’, more implicit

Question 9

What is culture?

Answer 9

Norms - behaviour and attitudes across social groups.

The UK has a strong culture of home ownership.

Question 10

What is the feedback effect?

Answer 10

When people’s feelings affect how they behave. The link between thoughts, feelings and behaviour is clear and can be traced back to attitudes and so to our personal values.

Question 11

What are two main ways in which people use their savings or investment fund when it matures in the future?

Answer 11

• capital growth or income

Question 12

What is a portfolio?

Answer 12

The variety of different long-term savings and investments products an investor chooses.

Question 13

What are friendly societies?

Answer 13

Mutual organisations that offer their members a wide range of financial products.

Question 14

What are annuities?

Answer 14

A financial product that offers a guaranteed income stream, usually for retirees.

Question 15

What do stockbrokers do?

Answer 15

Carry out deals for people who want to buy and sell shares, bonds and other instruments.

Question 16

Why are NS&I products seen as being less risky than those offered by other providers?

Answer 16

Because they are 100% backed by the government.

Question 17

What are ‘gilts’?

Answer 17

Bonds issued by the UK government.
- regarded as very safe because it’s extremely unlikely the UK government will be unable to repay its capital or keep up the interest payments

Question 18

What are collective investment firms?

Answer 18

Specialist organisations that carry out investment on behalf on their clients, who are individuals with money to invest.

• collective investments are sometimes called ‘pooled investments’
• collective investments include unit trusts, investment trusts and OEICs

Question 19

What are advantages of collective investments?

Answer 19

• their risk is reduced because the fund invests in a large number of different types of company (diversification)
• the investor can take advantage of the expertise of the investment manager
• the cost of hiring the services of a skilled fund manager is shared among all the investors

Question 20

What are unit trusts?

Answer 20

Unit trusts are unincorporated mutual funds that pass profits directly to investors rather than reinvesting in the fund

• established under a trust deed
• open-ended, more units can be created when more money is invested
• not allowed to borrow money

Question 21

What are investment trusts?

Answer 21

• not trusts but public limited company
• they issue shares
• money received from share issues used to trade in other stocks and shares

Question 22

What are advantages and disadvantages of investment trusts?

Answer 22

• the number of shares they issue is limited by the investment trust’s constitution and cannot easily be increased so they are ‘closed-ended’
• allowed to borrow money
• investor has to take two levels of risk (of either set of shares falling in value)

Question 23

What are OEICs?

Answer 23

Open-ended investment company funds are a cross between unit trusts and investment trusts.

• issue shares but the number can vary and can be created or liquidated according to the number of buyers and sellers in the market
• managed by an authorised corporate director and there should be an authorised person called the depositary who is responsible for overseeing the operation of the company

Question 24

What is an endowment policy?

Answer 24

A life insurance contract that pays a lump sum after a specified term or if the insured person dies before this date.

Question 25

What is a personal pension?

Answer 25

• type of investment fund
• long-term savings plan that is tax-efficient
• purchased by an individual through their working life in order to save for their retirement

Question 26

Who are occupational pensions operated by?

Answer 26

Employers

Question 27

What are final salary schemes?

Answer 27

• type of occupational pension
• pay an employee a pension based on the number of years they have worked for the employer and linked to the amount of their salary at the time they retire
• employee knows future benefit
• greater risk to employer so are being substituted by money purchase schemes

Question 28

What are money purchase schemes?

Answer 28

• type of occupational pension
• the employee pays into the pension plan over their working life - the scheme is invested and provides the employee with the resulting lump sum on retirement
• amount received depends on how well the scheme has performed
• pose greater risk to employee (they don’t know how much the benefit will be)

Question 29

What are personal pension plans?

Answer 29

• long-term money-purchase products provided by banks, insurance companies and other providers to help customers build up a pot of money that they can use to buy an income when they retire (annuities)
• tax-efficient because there is tax relief at the basic rate of income tax on the payments made into the plan
• maximum annual amount a non-taxpayer can pay and receive the tax relief if £2,880
• a taxpayer will get tax relief on pension contributions of up to £40,000, known as annual allowance

Question 30

Pensions Act 2008

Answer 30

• most workers must be automatically enrolled by their employer into a workplace pension scheme, then have the option to leave if they wish

Question 31

What is NEST?

Answer 31

The National Employment Savings Trust is a large, trust-based, defined contribution, multi-employer pension scheme which aims to ensure that the majority of workers are enrolled in an occupational pension.
- means that when they retire, people don’t have to rely solely on the state pension

Question 32

What is the state pension?

Answer 32

• a regular payment made by the government to people when they reach state pension age and as long as they have paid or been credited with sufficient National Insurance contributions
• current pension age is 66 for men and women born between 6 December 1953 and 5 April 1960

Question 33

What is capital gains tax?

Answer 33

Tax on any profit made when someone disposes of an asset - when its sold, given away, transferred or exchanged to someone else.
- does not apply to someone’s main home, their car or personal possessions disposed of for £6,000 or less