Final Exam Prep for PF

Personal Finance

Saving for the future

Ability to regularly set aside a part of your income, so it is available in the future or in case of an emergency.

Saving on purchase

-Getting a good deal when making a purchase

- Spending wisely

Basic bank accounts

- No or very low fees

- No minimum deposit withdrawal amounts

Online Savings Accounts

-No or very low fees

- May offer slightly higher interest

- May offer rewards for no withdrawal within a certain period of time

- May require minimum deposit

Higher Interest Accounts

- A minimum balance required

- May limit the number of withdrawals

Child or student savings accounts

-No fees

-Potentially higher interest but not always

Spend Wisely Stratagies

1. Shop around for the best deal

2. Avoid impulse buying

3. Ask for the best price

4. Assess quality against price

5. Take advantage of loyalty programs and cards

6. Make a shopping list and stick to it

7. Buy in bulk

8. Buy generic products

9. Shop at factory outlets

10. Get the best mobile plan

11. Monitor your ‘in-app’ purchasing

12. Sign up for notifications about sales

Budgeting

A budget is a detailed financial plan for future savings and spending.

4 main strategies to manage your personal finance effectively

1. Maximise potential income

2. Understand financial information and take control of financial decisions

3. Keep in control of debt

4. Maintain good financial records

Maximise Potential Income

-Doing additional work hours or extra jobs

- Additional responsibilities or a promotion

Understand financial information and take control of financial decisions

-Weighing up big purchases

- Do not buy on impulse

- Keep track of your spending

- Shop around for the best deal

Keep in control of debt

-If money is borrowed, it must be repaid

- Interest must be repaid

- Find the most appropriate type of loan

Maintain good financial records

- Keep all documents and receipts

- Have a well organised system and check important documents against your own records

Why should you budget?

-It helps sort out your needs vs wants

- Achieve your financial/saving goals

- Find a balance between saving and spending

- Provides control over your finances

Importance of preparing a budget

- Lists receipts/payments

- Budget surplus/deficit

Receipts

The amount of money you expect to collect for a given period of time.

Payments

The amount of money that you expect to spend for a given period of time.

Budget Surplus

When income is more than expenses

Budget Deficit

When expenses are more than income

Setting a goal or target

- Be realistic

-Setting long term and short term goals

Formula for weekly to monthly

WEEKLYx52/12 months

Formula for fortnightly to monthly

FORTNIGHTLYx26/12 months

Consequences of being a poor budgeter

- Being in debt

- Not having enough money to pay bills

- Stress

- High interest charges

- Bad credit rating

Consumer rights

-Consumers have legal entitlements

- Businesses have reponsibilites

- Protest fairness in transactions

UN Guidelines for consumer protection

- Right to choose

- Right to be informed

- Protection against dangerous products

- Right to education

- Right to basic needs

- Healthy environment

- Right to be heard

- Right to settle disputes

Example of UN guidelines

Warning labels on cigarettes protect health rights

Australian Consumers Accosiation (ACA)

Publishes choice magazine and acts as a consumer voice in media and politics

Example of ACA

Public campaigns against unfair bank fees.

Warranties

Written promise that a product is free from faults and covers repair/replacement if item fails withing a period, it doesn't cover normal wear/tear or misuse.

Product Standards

Governed by the Fair Trading Act 1994, ensure products are safe if used correctly. It is the company's responsibility to inform the consumers on a recall.

Example of Product Standards

Wordwide recall of faulty airbags (2017-2018)

Cooling-off periods

Set period where consumers can cancel contracts. Protects against high-pressure selling (door to door, cars, houses). The moment you start using their services or products, the cooling-off period is over, when purchasing an item, always read the fine print.

Cooling- off period example

10-day cooling-off period for door-to-door sales in Victoria.

Refund and Exchange

Consumers are entitled to refund/exchange if product is:

1. Faulty

2. Not as described

3. Not fit for purpose

Limitations on refunds

Not entitled to refund if:

1. Simply change of mind

2. Item misused

Note: Many stores (Target, Kmart) go beyond minimum law to attract customers

The three Rs of returning something

Repair, Replace, Refund

Three places to go to return something

1. Retailer

if they say no

2. Manufacturer

if they say no

3. Ombadsman

if they say no

4. Consumers Affairs Victoria

Ombadsman Services

Independant official resolving complains in industries

Example of Ombadsman

Telecommunication Industry Ombadsman (TIO)

Consumers Affairs VIctoria

Provides advice and enforcement of rights, helps consumers lodge complaints if retailers don't comply.

Eg. Lodging a complaint against faulty work

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

Discuss

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

Evaluate

Describe the strengths and weaknesses of the required information, as well as provide your opinion to form an overall judgement.

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)

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

Bartering

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

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

3.Lack of Store Value

4.Divisibility of Commodities

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.

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

Financial institutions connect savers and borrowers, playing a crucial part in a capitalist economy. They include banks, insurance companies, asset management companies, brokerage firms, and investment banking firms.

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