Unit 3 - personal finance Flashcards
the 5 life stages
child, adolescents, young adult, middle aged, old age
4 functions of money
unit of account
means of exchange
store of value
legal tender
unit of account
Allows us to place monetary value on goods/services
E.g chocolate bar is 60p and car is £30,000
means of exchange
It allows us to trade
People can buy/sell goods using money e.g buying lunch or going to the cinema
store of value
Allows us to use money in the future as it keeps its value
E.g you can save money in a piggy bank to use later
legal tender
It is a legally recognised form of payment
Money is widely recognised and used for all sorts of transactions
6 factors influencing views on money
personal attitudes life stages life events culture interest rates external influences
personal attitudes
individuals vary in attitude towards risk and reward. Can be influenced by the people around you
life stages
As you grow up, your financial needs change
Childhood, adolescence, young adult, middle aged, old age
culture
Different cultures have different attitudes towards spending e.g older Chinese like to save
life events
Events throughout your life will impact your attitude e.g uni/marriage (in control) or illness (out of control)
interest rates
Low interest rates mean more likely to borrow
High interest rates mean more likely to save
Cost of borrowing and reward of spending
external influences
Factors out of your control
E.g state of economy/government decisions
childhood financial needs
toys, sweets
adolescence financial needs
More independence, treats for yourself, cinema etc, social events
young adult financial needs
18-30, mortgage/rent, uni, car, new family/marriage, supporting someone else
middle aged financial needs
Supporting family, saving for future, uni debt, upgrade car/home, holidays, mortgage
old aged financial needs
May downsize/retirement home, fewer financial needs but need more services, lower mortgage
childhood implications
pocket money, gifts, b day
adolescences implications
gifts/holidays, part time job, more likely to save for bigger purchases
young adult implications
Full time job, savings, managing income, take loans, credit, set up pension
middle aged implications
Full time job, planning retirement, highest income but highest expenditure
old aged implications
Reliant on pension rather than salary
5 reasons to plan for expenditure
counter inflation effects remain solvent maintain good credit rating avoid too much debt avoid bankruptcy control costs provide insurance against loss or illness manage money to fund purchases avoid legal action/repossession set financial targets/goals generate income/savings
3 benefits of planning for expenditure
safety net
interest
savings can fund future purchases
3 risks of not planning for expenditure
debt risk = poor credit score
use it or lose it
bankruptcy risk
cash
Notes and coins in a wide range of denominations
debit cards
Issued by banks with payments for goods and services being deducted directly from a current account
credit card
Issued by financial institutions allowing customers to delay payments for goods and services
cheque
A written order to a bank to make a payment for a specific amount of money from one person’s account to another account
electronic transfer
Payment is transferred directly from one bank account to another
direct debit
An agreement made with a bank allowing a third party to withdraw money from an account on a set day to pay for goods/services e.g. pay a gas bill
standing order
An agreement made with a bank to transfer a fixed sum of money to a third party account on a set date on a regular basis e.g. pay £30 for a phone contract each month
prepaid card
Money is uploaded onto a card with transactions then being withdrawn to reduce the balance
contactless card
Cards containing antennae allow money to be transferred when the card touches a contactless terminal
charge card
allows customer to delay payments for a short period of time; the balance must be paid off in full when a statement is issued
store card
issued by a retail outlet so that customers can delay payments for goods/services (similar to credit cards but only accepted in specified stores)
mobile banking
The ability to carry out financial transactions using mobile devices such as phones or tablets
BACs
A system that allows the transfer of payments directly from one bank account to another
CHAPS
A system that allows the transfer of payments directly from one bank account to another (faster than bacs, usually on same day)
4 main types of current account
standard current account
student current account
package premium current account
basic current account
types of borrowing
overdraft personal loans hire purchase mortgages payday loan credit card
2 credit card pros
.everyday use
.lots of different types
.can come with perks e.g travel cards
credit card con
can negatively affect credit rating
2 overdraft pros
.Short term e.g a purchase day before pay day
.not always interest
2 overdraft cons
Short term
High interest
Lowers credit score
2 personal loan pros
.Good for expensive things e.g buying car/home improvements
.easy to manage - fixed each month
.lower interest than credit cards
personal loan con
Poor credit users will have high interest
2 hire purchase pros
.Good for one off items e.g TV/fridge-freezer
.can have use of an item immediately
2 hire purchase cons
.Missing payments negatively affect credit score
.items repossessed if not paid
2 mortgage pros
.Good for assets that will maintain value
.Good for assets that cant be paid for outright
.cost effective
mortgage con
.interest makes payments even more expensive
2 payday loan pros
.Short term
.Don’t check your credit score
2 payday loan cons
Very high interest
.does not help build credit score
