A - Understand importance of managing personal finance
Functions + role of money
➔ Flows in 2 directions: into ownership + out
➔ Comes from sources wages, gifts, savings, sales, bank loans, day expenses, fund
expansion
➔ Used for: necessities + wants
1. Unit of account
● Place monetary value on goods + services
● Price of goods + services show unit of acc chocolate bar = 60p/new car =£30 k
● Exchange money for equivalent value of goods = shown in price
● UK unit of account = pounds £ + pence - p
2. Means of exchange
● Allows to sell, buy, trade goods + services
● Businesses + customers buy + sell goods, services. Pay for cinema / buy lunch
● Used to avoid bartering = swap products / services in order to trade
3. Store of value
● Use in future as keeps value
● Have money saved bank account, piggy bank = buy goods + services
4. Legal tender
● Legally recognised + official method of payment - national currency of
country
● Used for all transactions
Role of money
Varies between person / situation life event - change as person grows older
1. Personal attitudes
● Vary in attitude to risk, rewards, saving + borrowing | keep balance betw
them
● Risk averse = try to avoid risk / take more risks - enjoy bc incentivised by
potential rewards
● Some more / less likely save m than spend it - depend family’s attitudes told
savings essential / save for when needed
● Infl by attitude to borrowing = live in own means / only buy what afford / use
credit cards to borrow m + get item sooner than later.
2. Life stages | financial needs + implications
● Financial needs change-each stage diff implications-affect needs+attitude m
● C
○ limited needs, reliant on parents, sweets ---> money from presents
spent bc attitude = buy what want, encouraged to save by parents -
savings acc, rely on pocket money
● Adolescence
, ○ more indep,less reliant on parents socialise ---> part-time job, partially
reliant pocket m,cash gifts, will save up smaller am bigger purchases
● Young A
○ uni/ start career, more indep, buy car/rent flat/house, settle down,
married/ fam ---> student loan, borrow m pay for car, mortgage, earn
m - support, credit/d cards
● Middle age
○ Supp fam,save children’s futures-uni, improve lifestyle car, additional
m for lux hol ---> savings acc specific purposes, mortgage, pensions/
retir, income peaks, high exp
● Old age
○ Fewer depen downsize fam home to r home,few finan assets-healthc
---> mortgage p stop/lower,less i reliant pension than salary
3. Culture
● Affected by tradition, religion, ethical beliefs, diff attitudes. Older gen of
Chinese ppl saving As country wealthier = y ppl spend more + buy on credit
4. Life events
● Within control uni, travelling abroad,married, fam/outside - illness, financ
loss
5. External influences
● Outside control - economy, impact wages, availability of jobs, prices of goods
+ services, gov decisions on tax - affect ability save + spend
6. Interest rates
● Low = more willing borrow m / spend on credit. High = incentive to save
Planning expenditure
● Common principles - avoid overspending = financial diffic, control costs = avoid debt.
● Spending too high=more m out rather out=expe inter charg-not paid credit rating
● Poor cr = inability borrow - bankrupt
● Remain solvent = set financial targets+goals - how much m earn, spend. Save i = gen
in insurance against loss / injury. Inflation=rise in prices - counter effects val m
falling.
Common principles:
1. Avoid getting into debt
2. Control costs
3. Avoid legal action +/repossession
4. Remain solvent
5. Maintain good credit rating
6. Avoid bankruptcy
7. Manage m to fund purchases
8. Generate income + savings
9. Set financial targets + goals
, 10. Provide insurance against loss / illness
11. Counter effects of inflation
Different ways to pay
Method of Features ADV DIS
payment
Cash Notes + coins diff - Widely accepted form of exchange - Lost / stolen
denomination - Physical not virtual - Threat of counterfeit
- Conf when using / makes - Appro purchases limit / not used
budgeting easier online
Debit card Issued banks paym - No need carry cash / widely - ST lapse trans, m withdr=
goods deducted accepted overspending
directly current acc - Secure method paym = low risk - Not accepted / approp small
theft transa
- Degree protec purchases / online
transa
Credit card Financial inst delay - Period credit interest free 1 m / - Interest charged bal not paid
paym goods online tran within m
- Widely accepted / degree protec - Overspend + debt / but limit
purchase credit allo
- Loyalty schemes cashback/points - Interest on cash withdrawals
Cheque Written order to bank - Low risk only cashed by named - Expensive if bank refuses clear
specific am 1 person’s payee bounces
acc to another - Widely accepted face-face + postal - Time delay written + cashed =
trans overdraw
- No change bc written exact am - Easy errors / old fashioned
Electronic Paym trans directly 1 - Instantaneous / record of paym - Risk loss if incorrectly set up
transfer bank to another - No addi costs/easy to use 1 off + - Not approp face-to-face transa
freq trans
Direct debit Agreement made bank - Easy make regular paym utility bills - Payer make mistake + take too
allow 3rd party - Amount paid vary paym matches much = payee’s resp claim back m
withdraw m acc on set am req vendor - Payer determines am paid each
day for services/g - - Quick + easy set up time - difficult payee plan +
bills budget
Standing Agreem bank transfer - Sam am paid each t easier payee - Paym taken regardless bal =
order fixed sum m to 3rd plan + bu overdraft
party acc set date - Easy set up + cancel - Paym continue unless cancelled
regul bas m mobile c - No need rem make regular,
standard paym
Pre-paid card M uploaded card trans - Set budget in advice = avoid - No protection if lost
withdrawn reduce bal overspending - Initial fee to purchase / set up
, - Lost / stolen - lim remaining bal card Oyster travelcard
- Effective control am spent children
Contactless Cards - antennae - m - Gain popularity - Accepted for small trans
card transf card touc - Secure method paym - Not widely accepted = new tech
contactl terminal
Charge card Financial insti delay - Financial insti = delay paym short - Reduce risk running up debts
paym short period; bal period; bal must paid off in full when - Short period of credit
paid off in full when statement issued - Avoid need carry cash / addi
statement issued perks
Store card Retail outlet - delay - Short period of credit interest free - Accepted issuing store / linked
paym = accepted 1m assoc
specific stores - Offer loyalty schemes, disc, promo - Interest paid outstanding bal
- Overspe = debt if multiple cards
Mobile Financial trans using - Convenient = used any time / place - Features limited - mobile banking
banking mobile devic - Secure not offer all functionality internet
phone/tablet banking
BACS System transfer paym - Faster paym = instant transfers - Faster paym not offered by all
dire from 1 bank acc guar 2 hrs banks + BACS = 3d transfer paym
to another - Accessed num ways; branch, tel, - Limit on am transferred in 1
online trans
- No additional costs
CHAPS Transfer of paym - Transfers same d if instru prior set t - Fixed charge per trans regardless
directly from 1 bank 2pm Barclays / No limit on am transf of am transferred
acc to another single trans
Current accounts
● M paid in + withdrawn on daily basis without need give notice wages paid into,
cheques, bills, cash wi
● Features:
○ Rate interest paid on any positive balance
○ Rate of interest charged on a negative bal
○ Overdraft limit
○ Charges on unauthorised overdrafts
○ Additional incentives
Type of Features ADV DIS
CA
Standard Normal acc offered c with - No charges credit bal - High charges on use overdraft
reasonable credit rating. - Offers holder range facili cheque facility
book, debit/cash card + overdraft - Standard f no additional perks
