Unit 3 - personal finance

Question 1

the 5 life stages

Answer 1

child, adolescents, young adult, middle aged, old age

Question 2

4 functions of money

Answer 2

unit of account
means of exchange
store of value
legal tender

Question 3

unit of account

Answer 3

Allows us to place monetary value on goods/services

E.g chocolate bar is 60p and car is £30,000

Question 4

means of exchange

Answer 4

It allows us to trade

People can buy/sell goods using money e.g buying lunch or going to the cinema

Question 5

store of value

Answer 5

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

Question 6

legal tender

Answer 6

It is a legally recognised form of payment

Money is widely recognised and used for all sorts of transactions

Question 7

6 factors influencing views on money

Answer 7

personal attitudes
life stages
life events
culture
interest rates
external influences

Question 8

personal attitudes

Answer 8

individuals vary in attitude towards risk and reward. Can be influenced by the people around you

Question 9

life stages

Answer 9

As you grow up, your financial needs change

Childhood, adolescence, young adult, middle aged, old age

Question 10

culture

Answer 10

Different cultures have different attitudes towards spending e.g older Chinese like to save

Question 11

life events

Answer 11

Events throughout your life will impact your attitude e.g uni/marriage (in control) or illness (out of control)

Question 12

interest rates

Answer 12

Low interest rates mean more likely to borrow
High interest rates mean more likely to save

Cost of borrowing and reward of spending

Question 13

external influences

Answer 13

Factors out of your control

E.g state of economy/government decisions

Question 14

childhood financial needs

Answer 14

toys, sweets

Question 15

adolescence financial needs

Answer 15

More independence, treats for yourself, cinema etc, social events

Question 16

young adult financial needs

Answer 16

18-30, mortgage/rent, uni, car, new family/marriage, supporting someone else

Question 17

middle aged financial needs

Answer 17

Supporting family, saving for future, uni debt, upgrade car/home, holidays, mortgage

Question 18

old aged financial needs

Answer 18

May downsize/retirement home, fewer financial needs but need more services, lower mortgage

Question 19

childhood implications

Answer 19

pocket money, gifts, b day

Question 20

adolescences implications

Answer 20

gifts/holidays, part time job, more likely to save for bigger purchases

Question 21

young adult implications

Answer 21

Full time job, savings, managing income, take loans, credit, set up pension

Question 22

middle aged implications

Answer 22

Full time job, planning retirement, highest income but highest expenditure

Question 23

old aged implications

Answer 23

Reliant on pension rather than salary

Question 24

5 reasons to plan for expenditure

Answer 24

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

Question 25

3 benefits of planning for expenditure

Answer 25

safety net interest savings can fund future purchases

Question 26

3 risks of not planning for expenditure

Answer 26

debt risk = poor credit score use it or lose it bankruptcy risk

Question 27

cash

Answer 27

Notes and coins in a wide range of denominations

Question 28

debit cards

Answer 28

Issued by banks with payments for goods and services being deducted directly from a current account

Question 29

credit card

Answer 29

Issued by financial institutions allowing customers to delay payments for goods and services

Question 30

cheque

Answer 30

A written order to a bank to make a payment for a specific amount of money from one person’s account to another account

Question 31

electronic transfer

Answer 31

Payment is transferred directly from one bank account to another

Question 32

direct debit

Answer 32

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

Question 33

standing order

Answer 33

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

Question 34

prepaid card

Answer 34

Money is uploaded onto a card with transactions then being withdrawn to reduce the balance

Question 35

contactless card

Answer 35

Cards containing antennae allow money to be transferred when the card touches a contactless terminal

Question 36

charge card

Answer 36

allows customer to delay payments for a short period of time; the balance must be paid off in full when a statement is issued

Question 37

store card

Answer 37

issued by a retail outlet so that customers can delay payments for goods/services (similar to credit cards but only accepted in specified stores)

Question 38

mobile banking

Answer 38

The ability to carry out financial transactions using mobile devices such as phones or tablets

Question 39

BACs

Answer 39

A system that allows the transfer of payments directly from one bank account to another

Question 40

CHAPS

Answer 40

A system that allows the transfer of payments directly from one bank account to another (faster than bacs, usually on same day)

Question 41

4 main types of current account

Answer 41

standard current account student current account package premium current account basic current account

Question 42

types of borrowing

Answer 42

``` overdraft personal loans hire purchase mortgages payday loan credit card ```

Question 43

2 credit card pros

Answer 43

.everyday use .lots of different types .can come with perks e.g travel cards

Question 44

credit card con

Answer 44

can negatively affect credit rating

Question 45

2 overdraft pros

Answer 45

.Short term e.g a purchase day before pay day | .not always interest

Question 46

2 overdraft cons

Answer 46

Short term High interest Lowers credit score

Question 47

2 personal loan pros

Answer 47

.Good for expensive things e.g buying car/home improvements .easy to manage - fixed each month .lower interest than credit cards

Question 48

personal loan con

Answer 48

Poor credit users will have high interest

Question 49

2 hire purchase pros

Answer 49

.Good for one off items e.g TV/fridge-freezer | .can have use of an item immediately

Question 50

2 hire purchase cons

Answer 50

.Missing payments negatively affect credit score | .items repossessed if not paid

Question 51

2 mortgage pros

Answer 51

.Good for assets that will maintain value .Good for assets that cant be paid for outright .cost effective

Question 52

mortgage con

Answer 52

.interest makes payments even more expensive

Question 53

2 payday loan pros

Answer 53

.Short term | .Don't check your credit score

Question 54

2 payday loan cons

Answer 54

Very high interest | .does not help build credit score