libf

• Needs


  Essential 'must-haves' needed for survival. Needs are quite limited
• Wants


  Optional, 'Nice-to-haves' that are desirable but not essential. They cannot fulfil their wants until their needs have been met. There is no limit to what someone can want
• Needs and wants


  Related to the price of products and to peoples ability to buy them
• As people become better off

  Items that used to be wants become needs as they become used to them
• Aspirations


  Hopes for the future. Wishes for the medium / long term future
• As people move through the life cycle, their needs, wants and aspirations change according to: Lifestyle, Prevailing culture of society which they live in, Size of their family, Ability to afford products
• Need to be able to finance needs, wants and aspirations
• Ways to finance needs, wants and aspirations

  • Medium and Long term savings
  • Investments
  • Pensions
  • Long term borrowing
  • Insurance
• Values


  General feelings about a desirable behaviour and goal
• Beliefs


  Beliefs are more specific and detailed than values. They are less about the way. Absolute beliefs = "Its acceptable to charge a reasonable amount of interest on a loan but its not acceptable to charge too much". Casual beliefs = explains how one event causes another event happens. Eg if interest rates rise, people will borrow less.
• Attitudes


  How at a given time, people think / feel about another person / event. Attitudes can be changed by a persons circumstances
• Perceptions


  Peoples perceptions represent their understanding of the world around them and can be gathered from sensory inputs (sound, smell, sight, touch, taste) or non-sensory
• Preferences


  People have preferences for different products depending on their personal values, beliefs and attitudes – this means businesses / financial services must have a good range of products with different features to suit peoples preferences. One way in which customers can express a preference about financial products is the distribution channel they choose to use (Phone, branch or online)
• Marketing


  Can influence people in subtle ways. For Example, if a case of a dissatisfied bank is reported, people may form the impression that all customers are dissatisfied with all banks. Marketing can be sub-divided into Promotions and Public Relations
• Peer Pressure


  'wanting to fit in'
• Trends in Role models

  Found in financial services and affects the way in which people pay for goods, attitudes to savings and how people view using credit. A good example is peoples attitudes to saving
• Culture


  Norms in social groups/ what is acceptable. In the UK, there is a strong culture of home ownership. In Germany there is a strong culture of renting
• Promotions


  Paid for marketing aimed to inform, communicate and persuade. Eg. BOGOF, Cash back to customers who choose its credit card or through media. These are all examples of advertisements that cost the bank money. (People should always read the T&C's)
• Public Relations


  Specific part of promotion known as 'below the line' expenditure. It is advertising not paid for directly but it keeps the businesses product in the public eye. Eg. A Magazine photo showing a star carrying a bag with the banks logo written on it or a business can feature a celebrity in its public events – people identify with celebrities
• Product Placement and Sponsorship

  Product appears in a tv show or a film. Sponsorship involves a business paying for a sporting or entertainment event
• Feedback effect and expectations


  The link between our thoughts, feelings and behaviour is clear and can be traced back to our attitudes and so to our personal values. It refers to the fact that peoples own attitudes mean that they effect the outcome of events. Eg. Someone confident about taking an exam who has a positive attitude will be more likely to pay attention to what they have to do to pass. Examples in financial market: If people expect the share price to fall, they will start to sell their shares
• Influence of Personal values on financial decisions

  • Ethical investing
  • Managing Finance
  • Religious beliefs
• Affordability


  When someone purchases a financial product they are entering a relationship with the financial provider that has implications for a specified time period. Customer must be able to afford to meet their obligations. Eg. No point buying a car when you cannot afford to insure it
• Setting priorities - Choose between needs, wants and aspirations
• Attitudes to risk


  Risk tolerant / adverse
• Why people save medium/long term: They can hope for capital growth, They can use their fund for income
• Difference between savings and investments

  General rule is that higher risk is greater return. Savings is less risky. Savings accounts - Savers deposit money and earn interest. The capital sum they deposit is not at risk and they will not get back less money than paid in. Even if provider fails, FSCS protect up to £85,000. Investors hope the capital value of the investment will grow - They are higher risk because their value at any time depends on the performance of the assets in which the money has been placed in. Many investors use a variety of long term saving/investment products to build up a 'portfolio'
• Providers of long term savings and investment products

  • Friendly societies
  • Credit unions
  • Insurance companies
• Capital Growth


  Someone who wants capital growth from an investment is trying to make the total sum grow overtime. They can choose an investment product that will reinvest the returns in order for the fund to grow more quickly
• Income


  Someone who wants income from an investment is using a sum of money that they have already accumulated to give them an annual return. They sacrifice growth in order to take out income and spend it. Another example, is buying an annuity when someone retires - This means they hand over their lump sum over to an insurance company, and in return they are paid income for the rest of their lives
• Different types of investment providers which offer packaged products that can be tailored for the private investor

  • Unit Trusts
  • Open Ended investment companies (OEICs)
  • Investment trusts
• Other investment providers


  • Portfolio managers
  • Stockbrockers
• Fixed term savings accounts

  High interest without risk. Usually available for 6 months to 5 years. Interest penalty may be posed if withdrawal occurs. Minimum investment is £1 and maximum investment is £2,000,000. Fixed interest rate
• National Savings and Investments (NS&I)

  NS&I children bonds can be brought for a child under 16 by a parent. Minimum investment is £25 and maximum investment is £3,000. Bonds can be cashed in early but penalty is equivalent to 90 days interest. Other product is income bonds designed for over 16s, interest calculated daily and you can open with £500 minimum and can hold up to max of £1 million. 100% Backed by government!
• Investment products - Assets


  • Stocks and shares
  • Property
  • Stocks and Shares ISA
  • Corporate and government bonds
• Stocks and Shares


  Shares are also known as equities. They can be brought from the company or on the stock market from a previous owner. They hope to receive a dividend (share of annual profits)
• Stocks and Shares ISA

  Allows a person to put money into different types of investments on a tax – efficient basis (free of uk income tax and capital gains tax that would have been paid on an investment outside of an ISA). Advised to only use it if they are willing to tie up the money for at least 5 years. The investor can: 1) Buy a readymade product from the provider and let the provider manage the investment 2) Choose and buy their own shares and put them into an ISA 'Wrapper'
• Corporate and Government Bonds

  Bonds issued by the government and by companies are traded on the financial market and their values fluctuate. Bond holders receive income in the form of interest on their bond. Best known bonds - 'Gilt-edged bonds' or 'Gilts'. These are issued by the UK government and very safe because its extremely unlikely that the government will be unable to repay its capital or to keep up the interest payments
• Property

  Property is seen as a good investment proposition because property prices tend to move upwards in the long term. But it is quite risky because prices fall in an economic downturn. Some people buy additional properties by taking out a buy-to-let mortgage. They can benefit from an increase in the capital value of the properties + rent=income
• Commodities


  Eg. Gold, fine wines, antiques. Gold is seen as safest asset - It is scarce, durable and tends to keep its value. But the price is volatile (fluctuates)