managing personal fnance

Question 1

suitability of different financial products depends on a number of factors

Answer 1

personal circumstances
monthly amount that can be paid back
credit rating
personal preferences

Question 2

overdraft

Answer 2

the ability to overspend on a current account up to the agreed limit. the individual can withdraw more money than what’s in the account- they can overdraw

Question 3

advantages/disadvantages of overdrafts

Answer 3

advantages: quick and easy to arrange, no charges for paying off overdraft, only borrowed when required = flexibility
disadvantages: only available from a current account, risk of repossession, bank can call it at any time

Question 4

personal loan

Answer 4

set amount of money provided to an individual for a specific purpose to be repaid with interest over a set period of time

Question 5

advantages/disadvantages of personal loans

Answer 5

advantages: more suitable for buying more expensive items, quick and easy to secure, improved cash flow, fixed interest rates
disadvantages: expensive interest repayments, interest must be paid regardless of financial situation

Question 6

hire purchase

Answer 6

spreading the cost of a purchase over an agreed amount of time e.g a car

Question 7

advantages/disadvantages of hire purchase

Answer 7

advantages: immediate use of the item, spreads the cost over a period of time, fixed instalments
disadvantages: additional costs, payments need to be made or item is repossessed

Question 8

mortgage

Answer 8

long term loan to fund the purchase of an expensive item that will hold value for a long time e.g a house

Question 9

advantages/disadvantages of a mortgage

Answer 9

advantages: spreads the cost over a long time, changes can be made to find the best deals
disadvantages: risk of repossession, have to apply for mortgage, require a large deposit

Question 10

payday loan

Answer 10

short term loan, often when people need to pay bills between paydays

Question 11

advantages/disadvantages of payday loan

Answer 11

advantages: quick access to funds, helps cash flow problems
disadvantages: need to repay quickly, high rates of interest, expensive way to borrow

Question 12

individual savings account

Answer 12

the bank will pay interest on the balance, allows you to save without paying tax (incentive to save)

Question 13

deposit and savings accounts

Answer 13

easy access savings accounts allow you instant access to your savings
- funds can be withdrawn immediately (deposit account)
- interest paid is subject to income tax (savings account)
- value of savings will increase, assuming withdrawals aren’t made as a result of interest

Question 14

premium bonds

Answer 14

government incentive to save
- don’t pay interest
- savers given chance to win tax free cash

Question 15

bonds and gifts

Answer 15

pay investors regular interest over a set period of time
- individuals lend money to the government in return for an IOU
- fixed interest rate is paid on the loan

Question 16

shares

Answer 16

investments made when individuals become part owners of a business
shareholder objectives: receive income in the form of dividends, gain wealth as shares increase
- shares can go up or down

Question 17

pension

Answer 17

individuals pay national insurance as contribution towards a state pension
- state pension
- personal pension
- workplace pension

Question 18

savings

Answer 18

generally considered to be low risk
- money is in a secure place, reward is limited to the current rate on interest

Question 19

investments

Answer 19

high risk
money could be lost, potential for rewards is significant