topic 6

• Short-term plans


  Plans that run up to 1 year, could be monthly or weekly
• Medium-term plans


  Plans for different wants at different stages of life cycle
• Long-term plans


  Financial budgeting is an ongoing process with plans at different timescales and life cycle stages
• Mortgage


  • 25 year term, affects short-term and medium-term plans due to repayment obligations
• Savings for retirement


  • Can span 40-50 years of working life, budgeted for at all stages
• Informed choices


  Carefully considering wants, aspirations, risk/reward spectrum, financial situation, age, life cycle stage, personality
• Risk assessment


  Considering impact, severity and probability of risks
• All financial products carry risks, no risk-free options
• Risk spectrum


  From low risk/low return to high risk/high return
• Self-insurance


  Saving money to have something to fall back on in case of risk event
• Saving and investing


  • Not a risky product, but provider could fail and nominal value eroded by inflation
• Borrowing


  • Always risky as have to commit to repayments
• Insurance


  • Helps manage risks, but insurer could fail and not pay out
• Product mixes


  • Savings and investment
  • Borrowing
  • Insurance
• Derived demand


  People buy financial products to achieve their wants
• Factors affecting amount saved

  Income, current consumption, necessity of savings, attitude to saving
• Factors affecting amount borrowed

  Income, expenditure, time of loan, necessity of borrowing, attitude to borrowing
• Saving and borrowing


  Many people do both, have complex product portfolio
• Joint account


  • Two complementary products bought together
• External factors


  • Inflation
  • Interest rates
  • Unemployment
  • House/asset prices