Vea Case Study Flashcards
Circumstances:
- Lives at home
- 4 older brothers
- Family live in rental property
- Vea pays towards rent to help her mother with upkeep of the house
- Young person’s bank account with Barclays – no savings
- Degree apprenticeship in computer science
- Long term earnings look promising
- She has considered living in Leeds but would need to borrow money to do so – implying rent in Leeds is higher than what she pays her mother
- Also suggests she is reluctant to get into debt
Finance:
- It is important to write answers in the context of Vea– some points may include
- No savings
- Job pays £18,000 - this works out as £1500 gross pay per month, approx. calculation income and national insurance would be about £150 per month
- So net pay £1350 per month
- Train ticket £12 per week, roughly £50 per month
- So £1300 after travel
Vea’s cash flow:
- She starts work (degree apprenticeship role) in a months’ time – so key question is she still working at the cinema if not she has no money for this
month? - Vea may have cash flow problems as she will work for a month before getting paid – not paid until end of month – will she still have to pay her rent to her mum this month? – likely as mun struggles to provide for the family – implies needs Vea’s contribution
- So, she will have expenses to pay but will not have her salary?
- Additionally, she will pay £300 for work clothes before getting paid
- Equally she may need to go to locations around the country, but will be reimbursed for travel expenses after she has done it
- This means she will have to find the money first to pay for travel expenses
- It is not mentioned in the case study but there is a possibility that Vea could take on some part time work
- Possible at the cinema
- She may even do some private tuition – she has high grades for her ‘A’ levels
- However, she is busy with work and study at university
- She may be able to afford some time at weekends
Options: Overdraft
- £500 has been approved
- 39.9% - high interest, interest is only paid on the amount she goes into the overdraft e.g. if £100 overdrawn just paid on £100
- Sensible option to have the overdraft as it helps with potential cash flow problems
- The overdraft can offer a buffer- especially with her potential cash flow challenges
- High interest rate and the overdraft can be withdrawn by the bank at any time but if it free Vea should take the overdraft and use it only when she needs to
Options: Credit card
- Barclaycard
- Limit £1,000
- 0% for first 3 months
- So could pay for goods using credit cards and then look to pay it all off after 3 months – so doesn’t pay any interest
- Interest is high at 25.9% APR
Options: Store cards
- Store card for her business clothes
- Store card – use with a high street chain or shop
- Store card benefit – 20% off first purchase, reward points for future purchases ( key point – depends on how effective these are in reducing price)
- However, interest rate very high (45%)
- Would need to pay off full amount every month if she is to avoid paying interest
What should Vea do?
- Vea should go for the store card if she is able to pay off the bill every month because she will receive 20% off her first purchase and she will gain reward points for future purchases.
- She should certainly consider using the store card for the first purchase
- The average price of each of her work outfits is £75, £300 /4
- So, with 20% off the first purchase would cost £60 a saving of £15
- If this 20% discount applies to her first order and she orders 4 outfits in one visit she will pay £240 instead of £300
- She should do this if she can pay the whole amount off in a month to avoid paying interest
- The store card is a good option if she can always pay the amount back in full per month as the interest is very high (45.9%) and she is content to buy for the
one store
• However subsequent purchases may suit her to use the credit card as
she doesn’t have to pay interest until 3 months after holding it
• This is particularly appealing if she can pay back the money she owes
in full at the end of the month
• Furthermore, if she struggles to pay back the full amount in 3 months
the interest at 25% is lower than the store card of 45% and also the
overdraft of 39.9%
Store cards:
Store cards can be useful if you’re able to always pay back what you owe each month, but if not, they can be expensive – so check whether other credit options are better
A store card is a credit card you can only use with one high street chain or group. Like a credit card, you can use a store card to buy things on credit and pay them off at the end of the month or in stages to spread the cost. And just as with a credit card, you’ll be charged interest if you don’t repay in full. The interest rate is usually even higher than for a credit card
Your statement will show you the minimum amount you have to pay, but it’s important to always aim to repay as much as you can otherwise it might take you a long time and cost you a lot to pay off any outstanding balance. Also, paying the minimum can have a negative effect on your credit rating
Consider setting up a Direct Debit to make sure you never forget a payment. If you’re living on a variable income, or you’re worried there might not always be enough money in the account to cover it, making manual payments will help you avoid fees for failed
Direct Debits
Store Card vs. Traditional Credit Card:
The credit card world is full of discussions about what card is best for whom. One common debate is that of store credit card vs. traditional credit card, and which is better for retail purchases
As with most things in personal finance, this debate doesn’t have the same winner for every cardholder. Store cards do have their downsides, but they can occasionally make sense
To help you navigate the debate, we’ve outlined the particulars of each card type. We’ll also examine both sides of the store credit card vs. traditional credit card argument
Traditional credit cards:
Besides where you can use them, traditional cards have several pros and cons in the store credit card vs. traditional credit card debate. Here’s a few worth noting:
Advantages of traditional credit cards vs. store credit cards:
• Traditional credit cards are accepted nearly everywhere, worldwide
• Most traditional cards offer purchase protections
• Many traditional cards offer extended warranties
• Introductory 0% APR offers for traditional cards won’t have deferred interest
• Points from a rewards credit card can be redeemed in a variety of ways, including as a statement credit
Disadvantages of traditional credit cards vs. store credit cards:
• Rewards rates for specific retailers may be low with traditional cards
• Traditional credit cards tend to have higher limits, which may mean more debt if you’re not careful
As you can see, there’s a lot going for a regular credit card, especially when compared to a retail card. But store cards do have their uses. Let’s look at the other side of the store credit card vs. traditional credit card face-off
Store credit cards:
In essence, a store credit card is a credit card offered by a specific retailer that you can only use with that retailer
Here’s a better look at the pluses and minuses for retail cards in the store credit card vs. traditional credit card matchup:
Advantages of a store credit card vs. traditional credit card:
• If you’ve never had credit or are rebuilding your credit, store credit cards are generally easier to qualify for than many – but not all – traditional cards.
However, a secured card may make more sense as not all store cards report your payments to each credit bureau
• Store cards tend to have higher rewards for their own retailers than you’d get with a traditional card
• You’re likely to receive special offers throughout the year, available only to store cardholders
• Some store cards offer free shipping on purchases from the retailer’s website
• Nearly all store credit cards have no annual fee
Disadvantages of a store credit card vs. traditional credit card:
• You can only use the card at that store or – occasionally – with related brands
• Most store cards come with a low credit limit, even if you have good credit
• Retail credit cards tend to carry a higher interest rate than traditional cards
• Store credit card rewards are typically only redeemable for store discounts
If you’re a loyal customer with one retailer and spend a significant amount of money with them every year, the store credit card vs. traditional credit card debate leans in favour of a store card. Just make sure you pay it in full every month to avoid the high interest rate. For more casual shoppers, however, the limitations can far outweigh the benefits; stick to traditional cards
What’s the difference between a credit card and an overdraft?
Credit cards, loans and overdrafts are all ways to borrow money, but they each work in slightly different ways
Credit cards usually ask you to pay back a minimum payment each month but have no set end date. Any 0% deals on purchases and balance transfers you get will only last a set number of months, agreed at the time you take the card out
Overdrafts have no set repayment date. However, they can be withdrawn at any time by your bank. Plus, any interest-free period you’re given may only last a set period, such as a year
What are the pros and cons of overdrafts?
Pros
• Easy to withdraw cash
• Can be quick to access cash
• Flexible borrowing
• Good for occasional short-term borrowing
Cons
• It tends to be used for smaller amounts
• The interest rates and fees can be high
• The interest is added to the balance monthly
• Your overdraft can be cancelled at any time
• It’s not good for regular or long-term borrowing
