Personal Finance Quiz

BTEC Foundation Diploma - Personal and Business Finance

• Unit: Personal and Business Finance
• Lesson: Learning Aim A
• Break Time: Starts at 1:15 PM, Returns at 1:35 PM

Recap from Last Week

• Role of Money: Personal attitudes, life stages, culture, life events, external influences
• Different types of personal accounts
• Advantages and Disadvantages of Accounts
• Importance of expenditure planning

Ground Rules

• No mobile phone use unless instructed by a teacher
• Lanyards required at all times

Learning Outcomes

• Identify and list various personal borrowing options

• Analyze the most effective borrowing method by evaluating advantages and disadvantages of each.

• Evaluate and select the most appropriate borrowing method

• Starter activity: Identify and share various borrowing types.

Managing Personal Finance

• Factors affecting financial product suitability:
  • Personal circumstances (fixed/varying income)
  • Monthly repayment capacity
  • Nature of the product or service being funded
  • Availability of assets/guarantors
  • Credit rating
  • Personal preferences

Types of Borrowing - Overdraft

• Overdraft: the ability to overspend on a current account up to an agreed limit.
• Individual can withdraw more than the account balance, but interest is charged on the overdrawn amount.
• Useful for short-term cash shortages.

Overdrafts - Advantages and Disadvantages

• Advantages:*
• Flexibility - borrow only when needed
• Easy to arrange
• No charges for repayment
• Disadvantages:*
• Bank can demand repayment at any time
• Only available for current accounts
• Variable interest rates can make budgeting difficult
• Banks may secure against assets, risking repossession

Personal Loans

• Fixed amount borrowed for a specific purpose, repaid with interest over a defined period.
• May be secured against assets.
• Interest rates vary based on risk.
• Suitable for large, long-term purchases.
• Advantages:*
• Quick, easy to secure
• Fixed interest rates aid budgeting
• Improved cash flow
• Disadvantages:*
• Interest must be paid regardless of financial situation
• Collateral (security) required potentially
• Often expensive repayment terms
• Penalties for early repayment

Types of Borrowing - Hire Purchase

• Spreading the cost of a purchase over a set period, with monthly instalments.
• Consumer gains immediate possession of the item
• Item ownership transferred to the consumer once all instalments are paid.
• Advantages:*
• Immediate use of the item
• Spreads cost over time
• Fixed instalments
• Disadvantages:*
• Additional costs (interest)
• Payments due; otherwise the item may be repossessed

What is a Mortgage?

• Long-term loan to purchase property or land.
• Repaid with interest over a set period (up to 35 years).
• Often the largest financial commitment.
• Secured against the property.
• Lender may repossess the property if repayments aren't consistently made

Different Types of Mortgages - Offset

• Linked to savings accounts - interest is paid only on the difference.
• Ideally suited for those with substantial savings.

Different Types of Mortgages - Buy-to-Let

• Mortgages designed for landlords.
• More expensive than standard residential mortgages as deemed higher risk.

What you Need to Get a Mortgage

• Deposit: Larger deposits lead to better interest rates.
• Credit History: Lenders assess prior borrowing management.
• Affordability: Income and expenditure must justify the loan amount.
• Property Value: Lenders assess the property's worth to manage risk.

Activity 1

• Students must invest/save £2500 over 5 years, creating a risk/reward analysis of available options.
• Students must identify the preferred method, an account with the highest return, and projected savings/investment worth after 5 years.
• Research on crowd funding and select businesses to invest in.

Activity 2

• Teamwork tasked with creating an information sheet for those struggling with debt, outlining debt management strategies.
• Sheet must advise on methods to take control of and repay debts effectively

Insurance

• Insurance protects against financial losses on assets or lives.
• Premiums (payments) fluctuate based on the amount of coverage.
• Common types: car, home/contents, health, pet, travel and life assurance.

Case Study

• Insurance importance is highlighted with various celebrity examples who insured body parts/voice/assets.

Assessment Activity

• Identify credit/debit card disadvantages/advantages.
• Describe examples of borrowing.
• Assess saving or investment risks and rewards based on Bethany and Mark's financial situation.

Lesson Objectives - Part 2

• Identify investment methods and techniques.
• Analyze investment methods, listing advantages and disadvantages.
• Evaluate the most suitable method according to individual requirements.
• Discuss personal insurance requirements.
• Explain price comparison websites for insurance and investment products.

Personal Savings

• Justifications for saving money
• Investment planning considerations
• Concept of "opportunity costs"

Types of Saving and Investment

• Differentiating Savings vs Investments
• Defining Savings and Investments
• Analysis of investment risk

Risks and Rewards

• Savings: Low risk, limited reward determined by the interest rate the financial institution offers.
• Investments: Higher risk potentially, but offers significant rewards.