LIBF Unit 3 Topic 1

Assets

Things that a person or a business owns. might include property, jewellery or financial products such as company shares.

Bank rate

The interest rate that the Bank of England uses when it lends money to other banks. Financial services providers take account of the Bank rate when they decide how to set interest rates on their own products.

Bankruptcy

A situation in which a person cannot pay their debts and is the subject of a court order that shares out their assets between their creditors.

Budget

A plan of expected incomings and outgoings over a set time period such as a month. The Budget is also the term given to the government's annual spending plan, which the Chancellor sets out in the House of Commons each year.

Cash-flow forecast

A plan of expected incomings and outgoings over several time periods, such as the next three months or a year.

Cash-flow modelling

A software program that can predict the medium- and long-term impact of different decisions and events on an individual's income, expenditure and savings plans.

Contingency plan

A plan to deal with unexpected changes in income or expenditure.

Credit card

A card that allows the holder to make purchases face to face, online or over the phone, and to withdraw cash from an ATM. Unlike a debit card, where the money is taken from the holder's own account, transactions are paid by the card provider. The card holder repays the amount owed to the provider either in one payment or in instalments. The provider charges interest on cash withdrawals from the time the withdrawal is made and on purchases after a certain period.

Credit union

A mutual organisation (that is, owned by its members) that provides a range of financial products to members, eg savings accounts and personal loans.

Deficit

Where expenditure exceeds income.

Discretionary expenditure

Spending on products and services that people want now, and savings towards items they aspire to buy in the future; it is spending or saving that people can choose to do or not.

Disposable income

The amount of money left over once mandatory and essential expenditure has been paid out.

Essential expenditure

Spending on items required to live, eg rent or mortgage repayments, food and drink, water supplier, gas and electricity.

Financial capability

Being able to manage personal finances effectively.

Fixed interest

Paying the same rate of interest until the end of the savings, investment or loan term.

Flexible financial planning

Making financial plans to cover wants, needs and aspirations over the medium to long term, which make allowance for unexpected expenses and changes in circumstance (eg by including saving and insurance).

Hire purchase

A type of secured consumer credit, to finance items such as cars and furniture, which involves the borrower repaying over a number of years.

Income protection insurance

A policy that allows people to manage the risk of loss of earnings over a long term. It pays out a monthly income to insured people who have suffered an accidental injury or long-term illness and who are therefore unable to work.

Individual savings account (ISA)

An account that pays interest tax-free on savings up to a certain level. In 2014 the rules were changed, with a higher limit on the amount that can be saved tax free. Savers can choose to save the entire amount in cash, or in stocks and shares, or in a mixture of the two.

Inflation

A general rise in prices, which means that the purchasing power of money falls.

Insolvency

A situation in which a person cannot repay what they owe because their debts are greater than their assets.

Insurance

Products that give financial protection against certain events. For example, someone who has travel insurance might be able to claim back the cost of a holiday if they have to cancel through illness.

Investments

Money paid into financial products; the aim is that the value of the product will grow over time and so the person will eventually receive back more money than they paid in. Investments are a way of saving over the medium or long term.

Mandatory expenditure

Compulsory outgoings; they do not necessarily apply to everyone but if they do apply, they must be paid.

Money-purchase pension scheme

A pension scheme in which the value of the fund available at retirement is based on the contributions made by an employee (and their employer, in workplace schemes), which are invested. Also known as defined-contribution schemes.

Mortgage

A loan taken out to pay for a property, usually over a long term such as 25 years.

Mortgage payment protection insurance

An insurance policy intended to cover mortgage payments in the event of illness or unemployment.

National Insurance contributions

Money deducted from the pay of people who are employed or self-employed and used by the government to fund state pensions and other benefits.

Non-financial investments

Investments in items such as fine wines, art and antiques, rather than financial products.

Notice account

An account for which the holder has to tell the provider in advance if they want to withdraw their money. If they do not give the provider the required amount of notice, they lose interest on their savings.

Pension

An income that people receive after retiring from work. In the UK people receive a pension from the state; some people also receive pension payments from schemes run by their former employers or arrangements that they have made for themselves.

Personal debt

The debt owed by individual consumers (as opposed to the debts of companies or governments).

Recession

A period of at least six months in which the amount of goods and services the country is producing is shrinking.

Repossession

A legal process whereby a financial institution (eg a mortgage lender) takes ownership of an asset, often a house, because loan repayments relating to that asset have not been met. Repossession is the last resort in the process of recovering money owed.

Savings bond

A savings product held for a fixed period, eg two years. The holder can only make a limited number of withdrawals, or none at all, during that period without incurring a penalty.

Shares

Also known as 'equities', investments that represent part-ownership in a company.

Surplus

Income that exceeds mandatory and essential expenditure, which means that an individual can choose how to save or spend it.

Sustainable personal finance

Achieving and maintaining a balance between personal income and expenditure to satisfy needs, wants and aspirations within a budget.