libf unit 3

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.

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.

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.

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).

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

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.

Insolvency

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

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 payment protection insurance

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

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.

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.

Sustainable personal finance

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

Attendance allowance

Payable to those aged 65+ who have a long-term illness or disability that means they cannot perform basic daily living activities or have limited mobility.

Carer's allowance

Paid to anyone over 16 who spends 35 hours per week or more looking after someone who has substantial care needs.

Child tax credit

A benefit paid to people who are in low-paid work, to help with the costs of bringing up a child.

Consumer prices index

One of the means the government uses to measure inflation. It is calculated by checking the price of a representative sample of goods on a monthly basis - this enables statisticians to measure how much prices are rising or falling.

Contributory benefits

Benefits paid to eligible claimants providing they have paid the required number of National Insurance contributions (NICs).

Employment and support allowance

Provides an income directly from the state when sickness or disability prevents you from working.

Gross domestic product

The value of all the goods and services produced within a country over a year.

Housing benefit

Paid to those who have low incomes - either because they are in low- paid work or they are not employed - to help with their housing costs.

Income support

A payment designed to provide a 'safety net' for those not eligible for other unemployment and sickness allowances, to provide money to pay for basic needs.

Means testing

Means-tested benefits are reduced if your household income is above a certain level or you have more than £6,000 in savings.

Non contributory benefits

Benefits paid to eligible claimants who have either not paid enough NICs to claim contributory benefits or need a 'top-up' payment because the contributory benefits they receive do not meet their income needs.

Personal independence payment

Payable to those aged 16-64 who have a long-term illness or disability that means they are unable to perform basic daily living activities or have limited mobility

State pension

A benefit that people receive from the state once they reach a certain age, providing they have paid or been credited with enough National Insurance contributions.

Universal credit

A means-tested benefit for people of working-age that will eventually replace six other benefits.

Welfare state

The state provision of health care and education, low-cost social housing and a comprehensive system of contributory and non-contributory pensions and social security benefits.

Working tax credit

A payment made to people who have a job but earn less than the minimum level considered to be enough to live on.

Automation

Where a computer takes over a task previously carried out by a person.

Competition and markets authority

The body responsible for strengthening business competition and preventing and reducing anti-competitive activities.

Consumer culture

Where the buying and selling of goods and services is the most important social and economic activity.

Consumer protection from unfair trading regulations 2008

Legislation that aims to prevent businesses from misleading consumers about the goods and services they are offering and from using aggressive sales techniques to pressure people into buying from them.

Corporate demand

The amount businesses are spending on the goods and services they are consuming, funded by their revenue, savings, borrowings and capital injections from investors.

Credit crunch

A reduction in the availability of loans or a tightening of the conditions needed to obtain one. The global financial crisis of 2007-08 began when financial institutions became reluctant to lend funds to one another.

Demographics

Statistical data relating to population, eg in terms of age, sex, ethnicity, culture, social status and geography.

Devaluation

A deliberate reduction in the value of a currency in relation to other currencies, carried out as part of a government's economic policy.

Equity loan

A loan secured on a mortgaged property.

EU directive

A legislative act of the European Union, which requires member states to achieve a particular result without dictating the means of achieving that result. (28 member states).

EU regulation

A legislative act of the European Union that becomes immediately enforceable as law in all member states simultaneously.

Financial conduct authority

The organisation that regulates financial firms providing services to consumers, and maintains the integrity of the UK's financial markets.

Financial ombudsman service

An independent body set up by Parliament that settles customer complaints about providers at no charge to consumers.

Financial policy committee

A part of the Bank of England that monitors and responds to risk posed to the entire financial services market. Its focus on the whole market makes it a macro-prudential authority.

Financial services act 2012

A key Act of Parliament governing the regulation of the financial services industry.

Financial services compensation scheme

A compensation scheme that pays compensation to account holders of up to a certain amount per provider if the provider goes into default (so cannot pay account holders the money in their accounts).

Fiscal policy

How the government manages the amount of money it raises in taxation, the amount it borrows on the financial markets, and the overall amount it spends.

Globalisation

The integration of economies, industries, markets, cultures and policy-making around the world.

Migration

The movement of people from one location to another, to settle in the new location.

Monetary policy

The manipulation of interest rates to maintain low inflation.

Monetary policy committee

The Bank of England committee responsible for keeping inflation under control by the manipulation of interest rates.

Multiculturalism

Taking account of the different cultural needs and expectations of the various ethnic groups that make up society.

negative equity

The situation where a mortgage loan is bigger than the value of the property.

Owner occupiers

Those who own their own property outright or have a mortgage on it.

PESTEL analysis

A tool used to analyse how six key areas (Political, Economic, Social, Technological, Environmental and Legal) in the external environment might affect individual and corporate financial decisions.

Sub-prime market

Lending to and borrowing by consumers with untested or poor credit histories.

Sustainability

Meeting the needs of society in ways which can continue indefinitely into the future without damaging or depleting natural resources.

Trading standards

An organisation that will investigate individual cases of bad practice on behalf of consumers and take steps to resolve the problems

Budget variance

The difference between the expected and actual figures in relation to income and expenditure.

Interlocking time periods

Overlapping time periods, eg the time periods over which short-, medium- and long-term budgets are drawn up.

Loan to value

The ratio of the size of the loan to the value of the property.

Opportunity cost

The value of what has to be given up in order to consume something else. For example, if a person can afford either to buy a new car or go on holiday and decides to buy the car, the opportunity cost of the car is the holiday.

Remortgage

The replacement of an existing mortgage with a new one, either to save money with a lower rate or to borrow an additional sum.

Zero-based budgets

A method of budgeting where every penny of income is allocated to different categories including bills, spending and savings.

Administration order

A repayment plan arranged by county courts in England, Wales and Northern Ireland for people with less than £5,000 in unsecured debt and at least one county court judgment (CCJ) against them. They apply to the court to have an administration order issued, then pay what the court decides they can afford directly to the court each month, and the court makes repayments to their creditors.

Consolidation loan

A loan used to pay off a number of different debts, meaning that there is then only one payment to make each month, to the loan company.

County court judgment

In England and Wales, a judgment issued by a county court to a person who does not respond to court action from a person or organisation to which they owe money. The CCJ affirms that the money is owed.

Credit reference agency

An independent organisation that maintains records of people's credit history - that is, what they have applied to borrow, what they have actually borrowed and whether they have paid it back. The data is provided by lenders.

Debt management plan

A detailed plan drawn up by a debt management company (DMC) and sent to an individual's creditors. It sets out an affordable monthly payment shared between the creditors.

Debt relief order

An order a person in specific circumstances can apply for if they cannot afford to pay off their debts. It generally lasts one year, during which time none of the people owed money can take action, and after which the listed debts are cleared. Granted by the Insolvency Service, a DRO works out cheaper than going bankrupt.

Equity

This has two meanings: a) when talking about investments, an equity is another name for the shares of a company quoted on the Stock Exchange; b) when talking about property, it refers to the difference between the value of a property and the amount of money still outstanding on the mortgage.

Hardcore debt

Debt that a person is not in a position to repay because their regular outgoings take up all their available income.

Individual voluntary arrangement

A formal alternative to bankruptcy comprising a contractual arrangement with those owed money.

Informal payment plan

An approach to debt repayment that involves the debtor contacting their creditors and managing the debt repayment process by themselves.

Licensed insolvency practitioner

A company or person that sets up and supervises IVAs.

Loan forbearance

When a lender does not seek to repossess a property as soon as the borrower misses a few monthly payments, instead allowing the customer to stop paying or make reduced payments for a set period.

Official receiver

An officer of the bankruptcy court who takes over the finances of a bankrupt.

Sharia law

Rules that devout Muslims follow which, in relation to personal finance, prohibit the paying and receiving of interest; this virtually excludes a strict Muslim from doing any borrowing.

Unsecured loan

A loan that is not secured against an asset, eg personal loans, credit cards and overdrafts.

Bank liquidity

The amount of cash banks are required to hold in relation to the amount they have in customer deposits.

Commodity

Goods that share the same characteristics wherever they are produced and whoever produces them - unlike a manufactured product, where different manufacturers can add specific features. Examples include raw materials such as iron ore, gold and silver, or agricultural produce such as wheat and rice.

Corporate bond

A product that companies can use to borrow money over periods of five years or more. The company offers a number of bonds for sale; buyers can then sell the bonds on to other investors if they wish. A key difference between bonds and shares is that bondholders do not own a share in the company.

Corporate social responsibility

Any action or project in which a company goes beyond the interests of its shareholders and senior management in order to benefit other stakeholder groups, normally with either a social or an environmental purpose. Also known as citizenship or sustainable responsible business.

Emerging market

A nation in the process of rapid economic growth and involvement in international trade.

European Commission

The executive body of the European Union responsible for proposing legislation, implementing decisions, upholding the Union's treaties and day- to-day running of the EU.

Gilts

A bond issued by the UK government - it is a way for the government to borrow money. Most gilts are issued with a redemption date, ie the date at which the government agrees to buy them back. Between their issue and the redemption date the gilts can be traded.

International monetary fund

An international body of 189 countries that aims to promote international co- operation on exchange rates and other economic matters.

Offshoring

The practice of moving some of a company's operational functions to overseas locations.

Outsourcing

The process of one provider paying another to carry out certain functions that it would normally do itself.

Project merlin

The project that resulted in an agreement between the government and the main banks to pay lower bonuses to their employees and make more money available for business loans.

Protectionism

Government policies designed to protect a country's own businesses and workforce. For example, imposing taxes on goods made overseas might mean that goods produced in the home country are less expensive and so consumers will be encouraged to buy home-produced goods rather than imported ones.

Public sector debt

The amount the government has to borrow to bridge the gap between the income it receives (eg from taxation) and the amount it spends (eg on services such as the NHS).

Reshoring

The term given to bringing back functions that were once offshored.

Sub-prime mortgage

A type of mortgage that is normally taken out by those with low credit ratings and is therefore more likely than the average mortgage not to be repaid.

Toxic debt

Debt that has a low chance of being repaid with interest.

Bitcoin

A virtual currency.

Boomerang generation

Young adults who leave home and then need to return because they cannot afford to rent or buy a home of their own.

Capital requirements directive

European Union legislation that specifies the liquid assets that providers must hold to ensure they can meet demand if large numbers of customers want to withdraw their money at the same time.

Challenger bank

Any new bank that challenges the dominance of the 'big five'. Examples include Virgin Money, Metro Bank, TSB, Williams and Glyn, the Post Office and Tesco Bank.