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business revision. unit 3 > understanding personal finance > Flashcards

understanding personal finance Flashcards

1
Q

what is money?

A

a commonly accepted means of exchange for goods and services.

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2
Q

what are the functions of money?

A

unit of account
means of exchange
store of value
legal tender

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3
Q

what is a unit of account?

A

money acts as the common base of comparison that people use to present prices and record debts.
provides a value by which we can value different goods and services.

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4
Q

what is means of exchange?

A

allows people to buy goods and services.

money enables goods and services to be exchange

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5
Q

what is a strore of value?

A

money acts as a store of value over time

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6
Q

what is a legal tender?

A

money is legally recognised by all as a payment method for goods and services.

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7
Q

what are interest rates?

A

the cost of borrowing or the reward for saving. if interest rates rise, savers will benefit and recieve a greater reward.

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8
Q

what is debt?

A

debt is when expenditure is higher than income.

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9
Q

ways to control costs

A

avoid high interest repayments or fines from going into overdraft

setting budgets

shop around for the best deals

plan in advance to save money

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10
Q

reasons to avoid legal action or repossession

A

damage yor reputation

expensive

negative effect on your credit score, affecting the ability to gai finace in the future

loans can be taken out against an asset that belongs to you i.e. repossess assets from you until you make payments

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11
Q

reasons/ways to remian solvent

A

solvent means to be able to meet your debts

maintain ability to pay your daily/weekly bills

have a reasonsable lifestyle

if a person is not sovent and a creditor calls to inform them of debt, then they would have to sell their assets

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12
Q

reasons to maintain a good creit score

A

when a person applys for a bank loan or usage of hire purchase to purchase something, the creditor will assess your credit score.

this assesses how likely you will be able to repay the debt

good credit score means you will be able to pay of debts

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13
Q

reasons to avoid bankcruptcy

A

bankcruptcy is when an individual legally declares themselves as unable to repay their debts
affects future credit score
damage your reputation

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14
Q

ways to generate income and savings

A

interest paid on savings and therefore generates income, the size of the savings therefore increase.

money can be invested to generate more income, such as buying shares.

income may be invested in assets that will appreciate in value over time.

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15
Q

features of money

A

money can be saved as insurance

being able to replace lost items

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16
Q

what is inflation?

A

inflation is the general rise in prices.

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17
Q

methods of payment

A

cash

debit card

credit card

electronic transfer

cheques

standing order

direct debit

pre-paid cards

contactless cards

charge cards

store cards

mobile banking

bankers automated clearing services (BACS)

clearing house automated payment system (CHAPS)

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18
Q

what is a debit card?

A

bank provided cards to allow customers to withdraw money from their current accounts or make puchases with the money coming from the current account.

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19
Q

advantages of debit cards

A

widely accepted

allows cash to be withdrawn

convenient as can withdraw cash from various places

can make contacless payments up to £100

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20
Q

disadvantages of debit cards

A

need to monitor spending as overspending could be costly

risk of fraud

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21
Q

what is a credit card?

A

customers can make purchases on these cards and pay the balance at a later date

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22
Q

advantages of credit cards

A

allows you to spread payment

flexible from some providers such as 0% interest free

widely accepted

depending on the provider, additional benefits such as rewards or insurance

contacless payments is up to £100

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23
Q

disadvantages of credit cards

A

easy to develop large amounts of debt

interest charges may apply and can quickly accumulate outstanding balances

high charges if you withdraw cash

can encourage over spending

risk of fraudulent behaviour

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24
Q

what are cheques?

A

a paper transaction giving bank permission to transfer payment from your account to another account

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25
advantages of cheques
saves having to carry around cash can be used to pay people large sums of money payments can be controlled
26
disadvantages of cheques
some businesses no longer accepts cheques may be charged for each cheque payment will not be accepted if a customer has insufficient funds.
27
what is an electronic transfer?
payments made from one person's bank to another via online.
28
advantages of electronic transfer
recipient can receive funds quicker immediate confirmation of money sent safer than withdrawing cash
29
disadvantages of electronic transfer
can be difficult to reverse if enter incorrect account details or funds relies on the wesite to be up needs to be carefully set up to ensure the tansfer goes to the right place
30
what is direct debit?
permission for the bank to make regular payments to a third party upon request amount taken from the bank account may vary
31
advantages of dircet debit
ensures regualr payments are not missed can save money if providers offer a discount varied amounts can be taken from the account
32
disadvantages of direct debit
you have to make sure there is enough money in your account amount taken will vary making budgeting difficult need to reset if bank details change, otherwise important payments may be missed
33
what is standing order?
permission given to the bank to make regular payments, of a set amount to a third party upon request.
34
advantages of standing order
bills are paid automatically can be cancelled at any time secure method of payment ensures regular payments are not missed
35
disadvantages of standing order
money is taken out of your bank account regardless of the balance, therefore could lead to debt must be reset or cancelled to make any changes
36
what is a pre-paid card?
a cash balance is held on a card, which then reduces each time it is used
37
advantages of pre-paid cards
helps individuals stick to a budget as can only spend up to the amount uploaded can be cancelled if lost useful for holidays or children as they stick to budget widely accepted
38
disadvantages of pre-paid cards
can be difficult to monitor balance if card is cancelled or lost, money cannot be covered can be used by others without permission may invovle a fee to purchase the card
39
what is charge cards?
allows for purchases to be paid on credit but the total amount is automatically paid direct from a bank account
40
advantages of charge cards
short term source of credit can stop users racking up large sums of debts secure method of payment
41
disadvantages of charge cards
must pay the statement balance in full when it is issued regardless of funds may inncur annual or monthly fees
42
what is store cards?
allows a customer to buy on credit in a particular store or group of stores e.g. Argos
43
advantages of store cards
may recieve additional benefits from the store such as discounts can chose how much to pay each month spread the cost over time short term source of credit
44
disadvantages of store cards
only accepted by that specific store customers could be tempeted to over spends to get special offers if balance is not payed off within a specific period, interest is applied may encourage debt
45
what is mobile banking?
service which allow customers to complete banking on their mobile phones or other portable devices
46
advantages of mobile banking
quick and easy to use as theres no need to visit branches secure
47
disadvanatges of mobile banking
doesnt have the same amount of features as internet banking relies upon the customer having a device
48
what is BACS?
allows transfer of payments from one bank account directly to another within 2 hours or quicker
49
advantages of BACS
transfers completed normally within 2 hours individual can complete transaction via phones, branches or inline backing accounts covenient as thers no need to handle cash, make calls or write cheques. details can be set up for frequent transfers, speeding up the process
50
disadvanatges of BACS
service cannot be offered by all banks may incur additional costs care must be taken that all details are correct some banks put limits on the amount that can be transferred
51
what is CHAPS?
clearing house automated payment system is same day transfer of funds, of any amount, from one bank account to another.
52
advantages of CHAPS
no limits on amounts that you wisj to transfer some banks apply a daily limit for when transactions must be completed by
53
disadvantages of CHAPS
some banks charge to use this service
54
what is a current account?
a type of account offered by banks and building societies for frequent use in cluding deposits and withdrawls. there are differnt types of current accounts: standard packaged, premium basic student
55
what is a standard account?
the most common account for individuals assuming they have an OK credit score these pay and charges interest depending upon whether the balance is positive or negative these come with cheque books and credit cards
56
advantages of student accounts
``` widely accepted overdraft facility is offered range of services can set up direct debits and stnading orders can make cash withdrawls ```
57
disadvantages of student accounts
limited additional benefits | charges on oberdraft, bounced cheques can be high
58
what is a packed/premium accounts?
a type of account that offers the same features as the standard account, but comes with more features such as car breakdown cover. comes with a cheque book and debit card overdraft limit, interest charges and payments
59
advantages of packaged/premium accounts
range of services additional benefits ease of coordinating different aspects of personal finance e.g. insurance is added so you dont have to shop around separately
60
disadvantages of premium/packaged accounts
often charges additional fees | generic rather than tailored to individual needs e.g. travel insurance may be of no added benefit
61
what is a basic current account?
a type of account, with limited features, that is designed for high risk customers, who would struggle to open an account due to low credit score
62
advantages of basic current accounts
an opotunity to open an account for those who may otherwise struggle to be accepted by a financial institution.
63
disadvantages of basic current accounts
limited services carry's embarrasment
64
what is a student current account?
a type of account designed to meet specific demands of students
65
advantages of student current accounts
meets needs of students additional perks such as discounts on books understands the timing of student cashflow
66
disadvantages of student current accounts
will need to transfer account after graduation charges on overdraft, bounced cheques and others could be high
67
what is an overdraft?
the facility to overspend on a current account up to an agreed sum. an individual can withdraw money, which is not there, from bank accounts. however, interest is charged on overdraft.
68
advantages of an overdraft
only borrowed when required, allowing flexibility only pay for the money borrowed quick
69
disadvantages of an overdraft
the bank can call it in at any time only available from a current bank account interest payments tend to be variable making it more difficult to budget banks may secure the overdraft against an asset
70
what is a personal loan?
a set amount of money provided to an individual or couple for a specific purpose and is to be repayed with interest. this may be secured against an asset.
71
advanatges of personal loans
receive an immediate cash injection, which could be portentially large quick to set up
72
disadvantages of personal loans
interest may be high interest must be paid off can be charged for early payments if charged, assets could be taken away
73
what is a hire purchase?
spreading the cost of a purchase over a pre- agreed period of time. the customer will receive the item straight away and pays in monthly instalments.
74
advantages of hire purchase
the customer gets to use the item immediately spreads the cost over time fixed installments
75
disadvantages of hire purchase
interest rates may be high payments must be made regularly or item will be repossessed
76
what is a mortgage?
a long term loan to fund the purchase of an expensive item such as a house
77
advantages of a motgage
makes it possible to buy expensive items spreads the cost over a long period of time
78
disadvantages of a martgage
interest rates may be high may not receive a mortgage normally require a deposit of 20% of the items price risks of repossession if payments are not substantial
79
what is a payday loan?
a short term loan, for a small amount of money, which is repaid upon the customers next income
80
advantages of payday loans
solves short term cashflow problems quick access to funds
81
diadvanatges of payday loans
high rates of interest need to be repaid quickly can escalate out of control if payments are not made
82
what is individual savings account (ISA)?
a savings account that does not charge tax on interest earned
83
advantages of ISA's
banks will pay interest on balance
84
disadvantages of ISA's
charged to withdraw savings
85
what is a deposit and savings account?
accounts held with banks or building societies where intrest is paid on positive balances
86
advantages of deposit and savings account
the value of savings will increase, assuming withdrawals are not made, as a result of interest received high interest rates receieved in favour
87
disadvantages of deposit and savings account
penalise savers for taken out money early funds cannot be withdrawn immediately
88
what is premium bonds?
a government incentive for individuals to save by which savings are entered into a monthly prize draw
89
what is bonds and gilts?
individuals or companies lend money to the governmentin return for an IOU fixed rates of interest is paid on the loan
90
what are shares?
shares are investments made when individuals or organisations become part owners of a business shareholders are to receive income in the form of dividends paid from company profits as well as to gainwealth as share prices increase.
91
what is a pension?
savings plan by which the individual makes regular contributions to a pension policy the objective is to plan for the future so that an income is available upon retirement
92
which is more of a higher risk? | savings or investment
investments as the money could be lost

business revision. unit 3 (17 decks)

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