A1 Business

• Functions of money


  • Unit of account - allowing a value placed on goods & services
  • Means of exchange - It allows trade
  • Store of value - maintains a value in the future
  • Legal tender - Legally recognised form of payment
• Attitudes to money


  • Personal attitudes - individual attitudes vary to risk vs reward, saving vs borrowing
  • Life stages - Financial needs change as you grow up & so will attitude to money
  • Culture - different cultures may have different attitudes to money
  • Life events - events throughout your life will impact upon attitude to money
  • External influences - economic factors may impact wages, prices & employment
  • Interest rates - the level of interest will influence saving & borrowing
• Common principles in planning personal finance


  • Set financial targets & goals
  • Manage money to fund purchases
  • Generate income & savings
  • Remain solvent
  • Avoid getting into debt
  • Counter the effects of inflation
  • Provide insurance against loss or illness
  • Maintain a good credit rating
  • Control costs
• Interest rate


  The cost of borrowing or the reward for saving
• Debt


  Money owed to CREDITORS, hence the term CREDIT
• Credit rating


  A score given to individuals on how likely they are to repay debts based upon their
• Bankrupt


  When an individual or organisation legally states its inability to repay debts
• Solvent


  The ability to meet day-to-day expenditure & repay debts
• Economy


  The state of a country or region in terms of the production and consumption of goods and services
• Inflation


  The general rise in prices
• Payment methods


  • Cash
  • Debit card
  • Credit card
  • Cheque
  • Electronic transfer
  • Direct debit
  • Standing order
  • Pre-paid card
  • Contactless card
  • Charge card
  • Store card
  • Mobile banking
  • Bankers Automated Clearing Service (BACS) Faster Payment
  • Clearing House Automated Payment System (CHAPS)
• Current account


  An account with a bank or building society that is designed for frequent use. Money can be paid in & withdrawn on a daily basis without the need to give notice
• Overdraft


  The ability to withdraw money that you do not have from a current account
• Types of current account


  • Standard
  • Packaged premium
  • Basic
  • Student
• Types of borrowing


  • Overdraft
  • Personal loans
  • Hire purchase
  • Mortgage
  • Credit cards
  • Payday loans
• MORTGAGE


  A long-term loan to fund the purchase of assets, normally paid back over a longer time. It is secured against an item e.g. a house.
• MORTGAGE


  • Allows the customer to spread the cost of expensive item over a longer period of time e.g.25ys
  • Interest rates can be fixed or tracked
  • Interest payments, although sometimes fixed for a short period of time can vary – this effects disposable income
  • Failure to meet payments may result in a repossession
• CREDIT CARDS


  Issued by financial institutions allowing customers to pay by card & delay payment.
• CREDIT CARDS


  • Allows period of credit e.g. 1 month
  • Card holder can pay above minimum rate & pay back credit faster
  • Can encourage overspending & lead to debt problems
  • Interest rates are higher than on personal loans
• PAYDAY LOANS


  A short term source of finance used to bridge the gap between now & next receiving a wage.
• PAYDAY LOANS


  • Helps solve immediate short term cash flow problems
  • Relatively easy to secure
  • Interest rates are very high & the cumulative amount can spiral out of control
• EXPENDITURE


  The amount of money you need to cover all your expenses/ outgoings e.g. your mortgage & bills.
• SHAREHOLDER


  Someone who has invested in a company in return for equity. i.e. a share of the business.
• INDIVIDUAL SAVINGS ACCOUNTS (ISAs)


  A type of saving account where the holder is not charged income tax on the interest received.
• INDIVIDUAL SAVINGS ACCOUNTS (ISAs)


  • Tax is not charged on interest earned allowing saver to keep all of the reward for saving
  • Interest rates are sometimes slightly higher than in alternative savings accounts
  • Notice required to make withdrawals
  • If the saver makes more withdrawals than set out in agreement then the penalty may cancel out the tax savings
  • Limit upon the annual amount that can be placed in an ISA
• DEPOSIT & SAVINGS ACCOUNTS


  These are accounts where interest is paid on the balance & normally the holder needs to give notice before withdrawing funds.
• DEPOSIT & SAVINGS ACCOUNTS


  • Interest is earned on positive balances
  • Accounts sometimes require regular deposits of a set amount forcing the saver to follow a savings plan
  • Interest earned is taxed
  • The percentage rate of interest paid on savings is likely to be lower than interest to be paid on borrowing, therefore the benefits of savings are lost if the customer is borrowing at the same time
• PREMIUM BONDS


  A government scheme that allows individuals to save up to a set amount by buying bonds.
• PREMIUM BONDS


  • Chance of winning substantially more than could be earned in interest
  • Can be easily withdrawn with no loss or penalty
  • No guaranteed return on investment
  • Maximum amount reviewed annually by the government
  • The amount invested, assuming zero or low returns, loses value due to inflation
• BONDS & GILTS


  Fixed term securities where the lender (the individual) lends money to companies & governments in return for interest payments.
• BONDS & GILTS


  • Regular fixed returns
  • Spreads risk across a range of markets
  • Risks of losing some or all of the value of the investment if the bond or guilt value falls
  • Interest payments may not be received if the issuer is unable to make payments
• SHARES


  Investment in a business in return for equity. i.e. the shareholder becomes a part owner of the business.
• SHARES


  • Share price fluctuates offering a potentially high reward
  • Returns can include dividend payments
  • Possible discounts & offers as a part owner
  • Share prices fluctuate offering a potential high risk
  • No guarantee of any reward or return as all of an investment can be lost
• PENSIONS


  Long-term savings plans where individuals make regular contributions, called premium payments, throughout their working life.
• PENSIONS


  • Encourages individuals to save throughout their working life for retirement
  • Regular payments are deducted, sometimes at source, meaning the individual is tied into making the regular contributions
  • Movement between jobs may mean that one policy stops & another starts, thus reducing the cumulative value of the savings
  • Final outcome is difficult to predict
• SAVING


  Placing money in a secure place so that it grows in value & can be used in the future.
• SAVING


  • Low or zero risk as money saved is guaranteed to be available in the future
  • Inflation can reduce the spending power of money saved
  • Interest payments
  • Financial security/ peace of mind
• INVESTMENT


  Speculative commitment to a business venture in the hope that it generates a financial reward in the future.
• INVESTMENT


  • Can go wrong & all or some of the value may be lost
  • No guarantee of a return
  • If successful, there is a potential for a high financial return – higher than current interest rates
  • Can be exciting! Some invest in art. Antiques, shares, properties, currencies & even toys
• INSURANCE


  An agreement with a third party to provide compensation against financial loss in line with the conditions laid down in the policy agreement.