(Draft) BEA Week 9 & 10

Creditors will consider these before giving someone credit:

income, employer, assets, existing debts, credit history, purp

Creditors are more likely to lend to borrowers with assets:

• Home contents & personal possessions

• Consumer electronics

• Cars

• Home & buildings

• Land

• Cash in the bank

• Shares & investments

What are consequences of credit?

• Financial Costs: interest costs, fees, lost discounts

• Loss of Freedom

• Overcommitment & Bankruptcy

• Asset Seizure: failure to repay debt e.g. hire purchase (laybuy)

• Personal Stress

What is loss of freedom?

When debt repayment becomes a financial priority

What does overcommitment and bankruptcy lead to?

Preventing future credit and gives negative reputation

Is interest-free credit real?

NO

What is saving?

People and businesses save income that isn’t spent or given away

Saving can also be described as?

Foregone consumption

Does saving have opportunity cost?

Yes, buying things

Why do people save?

• Satisfaction from saving is better than satisfaction from consuming more goods

• Protection against future risks

• Prepare for desired future expenses or goals

• Income may be received infrequently or irregularly

• To create income from interest from the bank or financial institutions

  • e.g. term deposit at BNZ

• Preparation for retirement

• Income is higher than lifestyle costs and existing financial commitments

Saving helps prevent future risks. What are these risks?

losing a job, economic recession, health issues

Saving helps prepare for desired future expenses. What are these?

buying a house, going on vacation, car, whānau expenses

Saving helps people with irregular or infrequent income. What gives this income?

Monthly salary or sales commission

What is retirement?

When you can no longer work to receive money

Saving is generally harder for people with?

Lower incomes