Level 3 Business Unit 3: Personal Finance

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Questions and Answers

What is a significant disadvantage of using cash as a payment method?

It's easy to trace

Cash can be counterfeit (correct)

No technology is required

It is accepted everywhere

Which of the following is an advantage of debit cards over cash?

They provide traceable transactions (correct)

They can be used for borrowing

They are always accepted by retailers

They require no bank involvement

What is a common risk associated with credit cards?

They can only be used for small purchases

Overspending can lead to debt (correct)

Interest rates can be low

No written orders are required

What is one reason why cheques are considered 'old-fashioned'?

Many retailers do not accept them Signup and view all the answers

Which payment method allows for automatic monthly withdrawals for bills?

Direct Debit Signup and view all the answers

What is a potential disadvantage of electronic transfers?

Incorrect setup may lead to loss of funds Signup and view all the answers

What makes debit cards more secure than cash?

They are less prone to counterfeiting Signup and view all the answers

Why might someone prefer using cash over credit cards?

Cash allows for anonymous transactions Signup and view all the answers

What is a key characteristic of a Standing Order?

It allows payments of a fixed amount regularly. Signup and view all the answers

What is a primary risk associated with Direct Debits?

They may cause the account to go overdrawn. Signup and view all the answers

Which statement about Pre-Paid Credit Cards is true?

They can only spend the amount loaded onto the card. Signup and view all the answers

What is a benefit of using Mobile Banking?

It enhances transaction security and convenience. Signup and view all the answers

What is a disadvantage of using Store Cards?

They may come with high interest rates. Signup and view all the answers

Which of the following describes Charge Cards?

Payments must be made in full when a statement is issued. Signup and view all the answers

What is a feature of Contactless payments?

They provide fast and instant payment for low-value items. Signup and view all the answers

What should an account holder do to avoid being overdrawn?

Regularly check and manage their account balance. Signup and view all the answers

Study Notes

Level 3 Business Unit 3: Personal and Business Finance

Lesson Objectives: Define different payment methods, analyse their uses, and evaluate their advantages and disadvantages.

Cash

Comes in various denominations (notes and coins).
Accepted everywhere, reliable.
Easy for budgeting, no technology needed.
Can be lost, stolen, or counterfeited.
Not suitable for all purchases.
Hard to trace.

Debit Cards

Issued by banks for purchases and cash withdrawals.
More secure and traceable than cash.
Protects purchases.
Online transactions use them.
Some retailers may not accept them.
Delays in appearing in transaction history can lead to overspending.
Open to fraud.

Credit Cards

A way to borrow money from a lender (e.g., bank).
Allows for more time to pay.
Can be used for large purchases.
Can encourage overspending and debt.
Leads to poor credit scores, credit limits, and high-interest rates.

Cheque

A written order to a bank to transfer money between accounts.
Secure as only the named person can cash it.
Exact amounts prevent change issues.
Old-fashioned – few retailers accept them.
Processing takes a long time.

Electronic Transfer

Transfers money directly between accounts.
Almost instantaneous.
Records payments.
No processing fees.
Convenient for one-off transactions.
Requires correct setup to avoid loss.
Not a payment method in retail outlets.

Direct Debit

Agreement between a bank and a third party (e.g., utilities).
Funds withdrawn on a set day.
Easy for regular payments.
Can be difficult to budget if amounts fluctuate.
Payee must claim back overpayments.
Account holder must have sufficient funds to avoid overdrawing.

Direct Debit Guarantee

Ensures payments, refunds, and cancellation procedures.
A process for disputes if there's an error.

Standing Orders

Set amount paid monthly to a third party (e.g., landlord).
Easy for budgeting as the amount doesn't change.
Can be easily set up or cancelled.
Payments are taken regardless of funds available, leading to potential overdraws.

Pre-Paid Credit Cards

Loaded with a set amount for online spending.
Secure and prevent overspending.
Can lose the loaded money if the card is lost or stolen.
Additional charges may be applied.

Contactless

Quickly pay for items under a specified amount (e.g., £100) using a bank card/phone without a PIN.
Fast and instant.
PIN needed occasionally for security.
Risk if the card is stolen.
Transactions may not clear instantly.

Charge Cards

Allow payment delays for goods and services.
Balance must be paid when a statement is issued.
Can have benefits like perks—but may come with an annual fee.
Risk of debt reduced.

Store Cards

Offered by individual businesses.
Used only for purchases at that business.
Customers can spread costs and may get discounts.
Usually have high-interest rates.

Mobile Banking

22 million UK citizens use mobile apps for banking.
Quick, convenient, 24/7, multi-layered security.
Increased sophistication from major banks.
Lead to close of high-street branches, affecting vulnerable customers.

Task: Mini Debate

Debate the statement: "Our society is too dependent on technology, we need to bring back traditional banks."

BACS/FPS (Faster Payments Service)

Method for businesses to pay wages.
Payments cleared within 2 hours.
No fees.
Can be done online, in a branch, or over the phone.
Not all banks offer it; some take 3 days to clear and have limits.

CHAPS (Clearing House Automated Payment Service)

Transfers money between accounts on the same day (if requested early enough).
No transfer limit.
Fixed charge applied, regardless of the amount.

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Description

Test your knowledge on various payment methods including cash, debit cards, credit cards, and cheques. This quiz evaluates the advantages and disadvantages of each method and their uses in personal and business finance. Enhance your understanding of financial transactions and their impacts.