Unit 1 - Personal Economics Flashcards
(41 cards)
What will individuals first spend their money on?
Ensuring their basic needs are met
After ensuring their basic needs are met, what do individuals then spend their money on?
All individuals have different unlimited wants, they will each spend their income based on what best satisfies them. How much they have available to spend will all depend on their income,e, the taxes they pay, the essential bills they must pay and how much they want to save.
What might individuals spend on?
-Food + drink, clothing, heating, leisure activities, transport.
What is disposable income?
Income left after taxes have been deducted.
What is discretionary income?
Income left over after taxes and essential bills have been deducted.
What sources may individuals receive income from? (6)
-Wages, a fixed regular payment earned from work or services, typically paid on a daily or weekly basis.
-Salaries, a fixed regular payment, typically paid on a monthly basis but often expressed as an annual sum made by an employer to an employee.
-State benefits, sums of money paids by the government to people in certain circumstances to meet their day to day living expenses.
-Tax credits, child tax credit is available to people responsible for a child, who have an income below a certain amount. Working tax credit is a payment to top up earnings of people working on low incomes.
-Pensions-a tax-free pot of cash you, your employer pays into, as a way of saving up for retirement.
-Investments- an asset or item that is purchased with the hope that it will generate income or appreciate in the future.
Why do individuals save?
-for a rainy day, emergency funds
-For a treat
-Financial protection from uncertainty
-Future spending
-Retirement
Where may individuals save? (5)
-Cash ISAs
-Instant access savings account
-Regular savings account
-Treasury bonds
-Premium bonds
Why would someone choose to borrow?
To buy assets – house or car
To consolidate existing debt. If a person has multiple credit cards and pay-day loans.
To cover unexpected house repairs e.g. a new roof
To cover day-to-day expenses
Where might individuals borrow from? (6)
Mortgage,
Credit card
Hire purchase
Bank loan
Overdraft
Payday Loans
What is a mortgage?
A loan to help you buy property on the condition that the bank or mortgage company giving you the loan has certain rights, including the right to sell the property if you don’t pay back the loan.
What is an advantage and a disadvantage of a mortgage?
An advantage is that you pay the loan back in equal monthly instalments, however,
A disadvantage is that you repay back more than you borrow as interest is added monthly to your instalment amount. Used to buy a property an individual would unlikely be able to buy outright.
What is a credit card?
allows you to pay for items on your card straight away and repay the credit card provider e.g. Visa, at a later date.
What is an advantage and a disadvantage of a credit card?
An advantage is that you can repay your credit card off by either paying the minimum instalment or more than that. You can take as long as you wish to pay off your credit card as there is no agreed repayment period like a bank loan;
A disadvantage of this is that interest is added each month so you repay more. Credit cards can have APRs (Annual Percentage Rate) at anything from 0% upwards to high rates. It is also easy to overspend on a credit card without realising pushing some people into debt.
What is a hire purchase?
A way of paying for goods over time if you don’t have all the money up front.
An initial deposit is usually paid, followed by a series of regular payments to cover the balance and any interest.
However, an individual does not own the asset until the last payment is made and
it is likely to cost more in the long term than buying the item outright in the first place.
What is an advantage and a disadvantage of a hire purchase?
An advantage is the initial deposit is usually paid, followed by a series of regular payments to cover the balance and any interest.
However, a disadvantage is that an individual does not own the asset until the last payment is made and it is likely to cost more in the long term than buying the item outright in the first place.
What is a bank loan?
either ‘secured’ or ‘unsecured’. a sum of money borrowed by a customer or business from a bank, often for a specific purpose
What is an advantage and a disadvantage of a secured bank loan?
-Secured loans require you to provide some sort of collateral as security.
- Secured loans are cheaper than unsecured loans.
What is an advantage and a disadvantage of a bank loan?
-Bank loans usually carry a lower rate of interest compared to credit cards. Once the loan has been arranged the money is received instantly therefore you can now buy the item that you couldn’t afford to buy with cash.
-You will pay back more than you borrowed due to interest being added monthly.
Another disadvantage of a bank loan is that it can be difficult for a bank loan to be approved.
What is an overdraft?
An overdraft is the amount of money you can still access when you have no money in your account. So if you have a £1,000 overdraft limit you can keep spending up to that limit.
What is an advantage and a disadvantage of an overdraft?
-Allows an individual to buy something if they need extra cash in an emergency e.g. to pay a locksmith if they lock themselves out of their house.
-You are charged interest on the amount and length of time overdrawn.
What is a payday loan?
Small value loans with extremely high interest rates. Targeted at individuals who have a poor credit rating as payday loan companies will lend to those people that high street banks will not. Can create a spiral of debt as when a payday loan is not repaid on time, huge interest is added to the amount owed and often individuals will take out a second payday loan to pay off the first.
What is a disadvantage of a payday loan?
-Can create a spiral of debt as when a payday loan is not repaid on time, huge interest is added to the amount owed and often individuals will take out a second payday loan to pay off the first.
What is it important to consider before borrowing? (7)
-Do not borrow more than you can repay and make sure you can keep up with repayments .
-Compare rates of interest before borrowing.
-Do not borrow for non-essential items.
-Do not borrow if your job is insecure as you may not be able to make repayment should you lose your job.
-Check if there are penalties for late payment.
-Complete a personal income and expenditure statement/cash budget to calculate affordability.
-The term of loan should not be longer than the life of the asset.
