Money and You- Personal Finance Test 1

Analyse

Identify the main features then examine closely; examine in parts; show how the parts relate to the whole, e.g. analyse the essential components in decision- making or in the problem-solving process. To "breakdown" the essential features.

Apply

Use the information provided or knowledge in a particular situation, and make clear and direct links and connections.

Compare

Clearly describe the points of similarity and the points of difference

Define

Accurately state or explain the meaning of the term

Describe

Provide a detailed account of something: give the facts about something and if the question refers to a process, provide a detailed account in sequential order.

Discuss

Provide a detailed account of something; give the facts about something and if the question refers to a process, provide a detailed account in sequential order

State arguments or facts covering 'both sides' of the issue covered by the question. Both sides refer to the benefits / limitations, strengths/weaknesses, positives/negatives.

Distinguish

Recognise or show points of difference - by noting the distinctive characteristics

Explain

Make the meaning of something clear and understandable

Evaluate

Describe the strengths and weaknesses of the required information, as well as provide your opinion to form an overall judgement. An evaluation question is very similar to a discuss question, but requires a closing judgement to be stated.

Identify

Determine or establish as being a particular thing, or determine the key characteristics or features

Illustrate

Provide an example to support your statement or comment (show why)

Justify

Provide a reason for your choice or selection

Outline

Provide a brief description of the term or topic.

Recommend/suggest

Present and state facts or ideas appropriate to the issue that is in question. It is common for recommend or suggest questions to require a justification.

Select

Choose one in preference to another

Personal Finance

A term that covers managing your money as well as saving and investing

Financial Literacy

Financial literacy is defined as the ability to make informed judgements and to take effective decisions regarding the use and management of money.

Functions of Money

1. Medium of exchange

2. Unit of account

3. Store of value

Double Coincidence of wants

When someone else wants something that you have and you want something that they have

Bartering

The use of goods or services as a means of exchange.

Bartering in more simple terms

In simple terms Bartering is offering a good or service in exchange for another good or service without the use of money

Haggling

Dispute or bargain persistently, especially over the cost of something.

Problems with Bartering

1. Lack of Coincidence of Wants

2.Lack of Common Measure of Value: The value of particular goods and services may change in value depending on personal worth.

3.Lack of Store Value

4.Divisibility of Commodities: Cannot divide all commodities (raw materials) into smaller units. (Cannot exchange half a cow for some shoes)

Characteristics of Money

1. Durable

2. Homogeneous

3. Portable

4. Divisible

Money

Often received for providing goods and services to others like wages and a way of making payments, usually by notes and coins or electronic transfer funds (EFT)

Rights

Legal entitlements to have or do

Responsibilities

obligations or expectations to do

Main types of Income in Australia

1. Salary/Wages

2. Investments

3. Government Payments

4. Gifts

Salary

A yearly payment amount to an employee that is then divided into fortnightly or monthly payments

Wage

Wage's the money an employee receives from an employer in exchange for the completion of a task or a set of tasks per hour

Investment

Investment is using money to purchase assets (such as property or shares) with the expectations of making profit referred to as a capital gain.

Types of Investments

Properties, Share investing/Stock, Superannuation, Bank Deposits- Fixed term.

Government Payments

A wide range of welfare payments that can be payed (e.g. childcare benefits and youth allowance). The amount depends on asset and income tests.

Gifts

Money received as a gift from friends or family or if money has been inherited or won as prize money (e.g. on a game show).

Needs

Any goods or services that is necessary for survival

Wants

A want is defined as any goods or services that are desired but not necessary

Money in terms of needs and wants

Money is a limited resource. There would be many times where you will need to sacrifice your wants to be able to finance your needs

Importance of identifying a need vs a want

This will help you identify your spending habits and enable you to make better choices about how and where your money goes.

Primary Functions of Money

Medium of Exchange

Measure of Value

Secondary Functions of Money

Standard of Differed Payments

Store of Value

Problems with Cash

Risk of being lost or stolen, hard to record and trace

Debit Card

Buy now, pay now

Domestic Debit (EFTPOS)

Type of debit card only used domestically, you can't make online payments and sometimes the bank can charge you extra fees for using it. Has a merchant service fee.

Merchant Service Fee

Charges businesses pay to payment processors for handling their cash, this is why businesses often discount people using cash.

EFTPOS

Electronic Funds Transfer Point of Sale

Scheme Debit Card, Mastercard or Visa

Type of debit card, flexible, can be used internationally and provides more cardholder services.

What is a prepaid card?

A type of pay now, buy later card that allows consumers to spend up to the previously paid value.

What is an example of a prepaid card?

A gift card.

What is a potential issue with gift cards?

If the business fails, stores may restrict or refuse to accept gift cards during the closing down period.

Credit cards

A type of buy now, pay later method. It uses money borrowed from a bank, often charge interest but you can spend more. There might be a rewards system.

Cheques

A promise to pay a specific amount of money to a person or organisation. The cheque must be cleared by the financial institution it is held by, they have an easy system but are outdated.

Lay-by

1. Select an item

2. Fill a form and make a little bit of the payment in prior

3. Make regular installments

4. Collect when paid off

Lay-by positives and negatives

Not very convenient but has no additional fees, you can also get items on sale

Direct Debit

An agreement made with a bank allowing a third party to withdraw money from an account on a set day to pay for goods or services received, e.g. pay a gas bill or gym

Tap and go

Contactless, easy payments using your phone, card, fitbit, banking ring etc.

e-Tags

Toll roads payments, automatically recorded into your account

Smart Cards

Credit card sized card containing a microchip for data storage and processing eg. Myki

In-app purchasing

allowing users to buy additional features, content, or virtual goods within the app itself. This is common in mobile games and various utility apps.

Deposit

Money placed into a bank or financial account for safe-keeping

Institution

An organisation such as a bank or credit union that manages money

Savings

Money set aside in the bank to be used for the future

Financial Institutions

Organisations that help people and businesses manage money

Banks

Offer a wide range of the services like savings accounts, loans, and credit cards. Open to everyone.

Credit Unions and Building Societies

Member-owned, often serving specific groups. Focus on customer service and community.

Finance Companies

Specialise in lending money, such as 'buy now, pay later' or business loans.

Online-Only Banks

Operate entirely online, offering services through websites and apps. Lower fees and no branches eg. ME Bank

Banks pros/cons

Reliable, safe, and offer many services, but may have higher fees and less personal touch

Credit Unions

Community-focused and often lower fees, but you must qualify for a membership

Finance Companies pros/cons

Easier to get loans, but interest rates can be higher and fewer saving options but is helpful to people who can't buy expensive items eg. furniture and electronics. Example. Harvey Norman

Online Providers

Convenient and low-cost, but no face-to-face help and need internet access.

Reserve Bank of Australia (RBA)

Controls money supply and keeps the financial system stable

Australian Prudential Regulation Authority (APRA)

Makes sure banks and other institutions are safe and trustworthy

Credit

An arrangement/contractual agreement that has a consumer buying/purchasing goods or services now with payment made at a later date; interest and charges usually apply (e.g. credit card, store card, personal loan).

Personal Loan

A product that allows someone to borrow a fixed amount over a fixed period at a fixed amount of interest.

Store Card

A card issued by a retailer that the holder can use to make purchases within that store or group of stores. As with a credit card, the amount owing is paid off at a later date, either in one payment or in instalments, and interest is charged on the amount owed. Eg. Harris Scarfe and David Jones

Pros of Credit Cards

The ability to purchase items immediately Convenience (can be used in most locations/stores including the internet) Special offers (interest free credit terms)

Cons of Credit Cards

Can lead to impulse buying People can often accept credit limits that are too high and often struggle to pay it back Credit purchases incur fees and charges such as interest, set up costs and late payment fees

Debt

Money owed

Good Debt

It brings future benefits which improves your financial position, and doesn't create financial stress.

Bad Debt

It doesn't bring any future benefits and does not contribute to financial position, and it is beyond your ability to manage

Credit File

If you are more than 60 days overdue with the bill, then a black mark will be recorded against your credit rating. This stays on your record for five years and may make getting a car or home loan very difficult later on.