Summary
Summary UNIT 3 - AIM A - PERSONAL FINANCE - BTEC BUSINESS - LEVEL 3 - PEARSON
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- PEARSON (PEARSON)
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A1 FUNCTIONS AND THE ROLE OF MONEYThe ability to increase money coming in and to control money
going out id a fundamental requirement for personal and
business success. Money performs 4 functions:
1. Store of value (keeps its value over time)
2. Unit of account (money helps us to measure value, value
is divisible)
3. Medium/means of exchange (set term for exchange for
a service/object)
4. Legal tender (by law its accepted to be money)
Why should individual plan their expenditure?
1. Ensure income is greater than Expenditure
o Avoids bankruptcy
o Avoids getting into debt
o Avoids legal action / repossession of belongings
o Remains solvent / individual has enough income to
pay all expenditures
2. Plan for the future
o Making investments to counter the effects of inflation
e.g., buy shares which are paying returns greater
than rate of inflation
o Saving for future large expenditure items e.g.,
deposit for a home or a car
o Take out a loan to cover future costs e.g., student
loan to cover university fees
o Contribute to a pension scheme
o Put money into long term investments e.g., banks will
pay higher interest on savings if the individual
commits to keep the savings untouched for a certain
period e.g., 12 months or more. During this time the
individual cannot make withdrawals.
3. Plan for unforeseen events
o Insurance to cover mortgage payments if they lose
their job
o Life insurance – this policy pays out money on the
death of an individual which can be used to cover
funeral costs, mortgage costs or clear the individuals’
, debts so their dependents (children) do not have to
pay them
o Medical insurance to pay for unexpected health costs
A2 FACTORS THAT INFLUENCE THE USE OF MONEY
The role of money is affected and influenced by several factors
such as:
o Personal attitudes – Individuals have different attitudes to
risk and reward. Some individuals save money and avoid
credit others will have little or no savings and buy
numerous items on credit.
o Life stages* popular Q - example of life stages; ask to
explain how this affects spending – Individuals financial
needs change as they move different stages of their life.
Middle aged individuals may need to obtain finance to
move home whereas during old age individuals may
downsize their properties to a smaller house and pass on
funds to children or grandchildren
o Culture – Different cultures and religious beliefs can
influence individuals’ attitude to money e.g. The Chinese
used to have a culture of saving but this has changed
recently with younger generations buying shares and
purchasing items on credit.
o Life events – Key events in an individual’s life can change
their view of money e.g., saving for a wedding or changing
financial plans after starting a family
o External influences – The economy can impact on an
individuals view of money. During recession jobs are
difficult to find and this can make individuals cautious
whereas during periods of growth individuals can be more
willing to take on debt
o Interest rates – The interest rates set by the bank of
England can have an impact on individuals’ attitude to
money. If interest rates are high, individuals are more
likely to save and less likely to buy items on credit. If
interest rates are low the opposite is true.
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