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LIBF Unit 2 > Topic 7 - Dealing with Unforeseen Events > Flashcards

Topic 7 - Dealing with Unforeseen Events Flashcards

1
Q

How might someones life cycle might differ from what they had expected? 3

A

Planned events may:
- happen but not at the expected time
- happen but not in the way expected
- not. happen at all

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2
Q

how can someone prepare for unexpected events?2

A
  • flexibility in budgeting
  • be prepared to alter priorities
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3
Q

What is a what if calculation?

A

A function on a spreadsheet whereby the user can set out a table of calculations and then change one of the variables to see ‘what’ the effect will be on the final results ‘if’ certain changes happen

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4
Q

What could be accounted for in ‘what if’ calculations?4

A
  • interest rates
  • the rate of inflation
  • exchange rates
  • benefits
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5
Q

Why should interest rates be accounted for when completing ‘what if’ calculations?

A

interest rates across financial services are determined by the Bank’s changing of the Bank rate
- this can cause borrowing to become more expensive
- can cause savings to become more beneficial

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6
Q

Why should the rate of inflation be accounted for when completing ‘what if’ calculations?

A

rate of inflation measures the speed at which prices increase
- if peoples income rise more slowly than price they will suffer a fall in the real standard of living thus unable to purchase goods and services

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7
Q

Who does inflation effect more so?

A

those on fixed incomes, such as retired people as they receive a nominal amount each month

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8
Q

Why should exchange rates be accounted for when completing ‘what if’ calculations?

A
  • the cost of foreign holidays will be effected, and in turn the budget for holidays
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9
Q

What is the exchange rate?

A

exchange rate of a currency is the price in terms of other currencies

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10
Q

Why should benefits be accounted for when completing ‘what if’ calculations?

A

many people rely on state benefits as their primary source of income.
- people don’t know what’s going to happen to benefit rates or entitlements in the future
- a change of government means a change In social security policy

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11
Q

How are benefits determined?

A

the amount they are entitled to receive depends on the policy of the government that happens to be in power.

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12
Q

What is the disability living allowance (DLA)?

A

money available for people with disabilities who have difficulty walking or getting around or who need help to look after themselves.

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13
Q

What does DLA stand for?

A

disability living allowance

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14
Q

What does PIP stand for?

A

personal independence payment

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15
Q

What is the PIP?4

A

same as DLA but for claimants aged between 16 and state pension age
- requires people to be assessed to see how much financial support they require
- designed to help people with long term ill-health or disability to pay for extra costs that their condition incurs.
-subject to tax and effected by employment status

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16
Q

What are the different types of debt that the british public experience? 3

A
  • credit card debt
  • secured debt
  • other consumer-credit debt
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17
Q

What is the average debt per household in the UK in 2021?

A

£63,122

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18
Q

What is the average debt per household in the UK in 2020?

A

£60,720

19
Q

What is the average debt per household in the UK in 2019?

A

£60,213

20
Q

What is the average debt per household in the UK in 2018?

A

£59,288

21
Q

What is an equity withdrawal? (4)

A
  • interest rates on mortgages are lower as it Is over a longer period of time
  • when house prices were higher, people took out second mortgages on their homes based on the increased value of their house
  • spending the extra money on consumer items
    The additional borrowing based on the difference between the value of a house and the outstanding mortgage is an equity withdrawals
  • As house prices decreased, the trend reversed and people paid of their mortgages in order to free themselves of debt
22
Q

Equity withdrawal definition

A

the additional borrowing based on the difference between the value of a house and the outstanding mortgage.

23
Q

What is the average debt long students finishing their courses?

A

£45,000

24
Q

What is the current government set maximum university tuition fee

A

£9,250

25
Q

What is the biggest contributing factor to student debt?

A

student loans

26
Q

What is a student loan?

A

a loan provided under a government scheme that allows students to borrow at a low rate of interest and begin to pay back the loan only if and when their income reaches a certain level

27
Q

What does it mean to be over-indebted?

A

when one owes more they can afford to repay and may never repay it.

28
Q

How does a debt spiral occur?

A

failure to pay a debt in any one month carries it over to the next
- this means income is reduced before it Is earned, making it more difficult to repay and reducing discretionary spending thus reducing standard of livign

29
Q

What can poor debt management lead too? (3)

A
  • personal problems due to lack of ability to fund necessities such as food
  • difficult in finding/keeping a home due to being excluded from financial products
  • difficulties in finding credit from mainstream providers with a relatively feasible interest rate
30
Q

What companies help to relieve people of debt?(3)

A
  • MoneyHelper
  • Citizens Advice
  • StepChange Debt Charity
31
Q

What criteria may you have to meet to receive debt consolidation loans?4

A
  • held a current account with the provider for at least 12 months
  • pay at least £1,000 into their account every month
  • have managed their account well and have good credit history
  • they haven’t defaulted on previous lending commitments
32
Q

What determines whether the provider charges an interest? (3)

A
  • personal circumstances
  • amount of the loan
  • repayment term
33
Q

What are the different ways in which people can improve their credit rating(8)

A
  • keep up to date with payments
  • set up direct debits for bills so they’re paid on time
  • make loan applications one at a time
  • obtain a copy of their credit report from credit reference agencies
  • dispute inaccuracies on the credit report
  • use credit from time to time to show they can use it responsibly
  • show they’re on electoral roll to prove their address
  • pay off any outstanding debt
34
Q

Why might someone make loan applications one at a time? 2

A
  • each application appears on a person’s credit record as a search, and multiple applications could indicate the a person is in financial distress and taking out one loan in order to repay another
  • people refused credit should wait a few month before applying again
35
Q

What are the main credit reference agencies in the UK? 3

A
  • Experian
  • TransUnion
  • Equifax
36
Q

What advice might provider give on debt management? 6

A
  • should find out; how much they owe, who they owe to, when each debt is due to be paid
  • draw up budget to monitor outgoings and prevent further debts
  • debts can be put into order of priority
  • find out how much interest they are paying on loans; paying off the most expensive first and close the account, keeping up the minimum repayments on the cheaper debts if possible
  • transfer most expensive debt to another product with a lower interest rate
  • consider debt consolidation loans to put all debts into one place
37
Q

What order might a provider recommend putting debt repayments into? 3+2

A
  1. rent or mortgage arrears
  2. council tax
  3. gas electric
    - deducting food or ay other necessities then seeing how much is left to pay the debt arrears
    - work out a realistic debt management plan/ budget
38
Q

What is a financial footprint?

A
  • providers communicate with each other and exchange information about a persons financial history
39
Q

What can prospective lenders see on a financial footprint?5

A
  • how much the person has borrowed in the past and how often
  • whether their borrowing has increased overtime and by how much
  • how many loan applications they have made and what results of these were
  • how, to what extent, and when they paid off there debts
  • whether they have missed any payments
  • whether they have ever defaulted on a debt
40
Q

Why do providers use credit scores? 2

A
  • to decide whether they should lend or not to them
  • to determine the rate of interest they will charge
41
Q

What are the effects of a financial footprint? 2

A
  • whether they are able to borrow money
  • the price they pay to be able for credit
42
Q

Why is being made redundant a negative effect?2

A
  • it can impact any budgeting or financial plans made regarding the stable income
  • borrowing terms are made regarding income levels, if the income goes the borrower may no longer be able to make repayments effecting loans/repayments
43
Q

What is Universal credit set to replace? 5

A
  • income based JSA
  • income based employment and support allowance
  • income support
  • working tax credit
  • child tax credit
  • housing benefit
44
Q
A

LIBF Unit 2 (9 decks)

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