Unit 2 1.6

• Feedback effect


  The fact that people's own attitudes mean that they affect the outcomes of events
• Expectations


  What people expect to happen, which can be self-fulfilling
• Financial examples of the feedback effect

  • If people expect a share price to fall, they will start to sell the shares
  • If interest rates are expected to rise, people will save more money and borrow less
  • If people expect increased unemployment, they may save more and reduce spending
• Ethical investing


  Choosing to save in a way that means the money will be used for what that individual considers to be good purposes
• Managing finance


  A person's financial choices are affected by what they borrow, spend or invest, and how well they feel they can manage the costs and consequences
• Religious beliefs


  Islamic law (Sharia law) prohibits the payment of interest on a debt
• Affordability


  An important concept in helping people to choose financial products, based on their ability to make the required payments
• Buying a financial services product

  1. Entering into a relationship with the provider that has implications for a specified time period

  2. The customer must be aware of these implications and be able to afford to meet their obligations
• Borrowing money


  The person must be reasonably certain they will be able to make the agreed payments, and not take on an unaffordable amount of debt
• Buying insurance


  The person must consider whether they can afford the premiums, and whether they are buying too many policies
• Saving


  The person must consider whether they can afford to save, how much, and the type of account to use
• Setting priorities

  Since nobody can afford to buy everything, they need to choose between alternatives and decide on their priorities
• Attitudes to risk


  • Cautious people avoid risky situations and take precautions
  • Risk-takers find it exciting to take risks and do not think of what might go wrong
  • Most people have some degree of risk tolerance but try to limit the risk they are exposed to