Topic 2 - The Personal Life Cycle

State the stages of a typical life cycle.

• Birth and infanthood - 0-2

• Childhood (preschool) - 2-5

• Childhood (school) - 5-12

• Teenager - 13-19

• Young Adult - 18-25

• Mature Adult - 26-40

• Middle Age - 41-54

• Late middle age - 55-64

• Old age - 65+

• Death - anytime but most likely here

Highlight the difference between needs, wants and aspirations.

People spend money to:

• Pay for essential items they need

• Pay for optional items they want

• Save for items they aspire to buy in the future.

It is important to distinguish the difference between the three when planning financially.

Describe the factors that affect people’s life events.

1. Location - where in the world a person lives can influence their life events. this could be when they start and end full time education and at what age they are able to get a full time job. (e.g. compulsory schooling starts at different ages in different countries. In England it start’s at 5 but in India it is 4.)

2. Income - Some life events may be delayed in certain people’s lives due to their income. Many young adults may not have the option to move out for higher level education due to financial situation at home.

3. Health - People who suffer from long-term poor health or disabilities have a shorter life expectancy than others.

4. Status - This can change in life based on the events experiences. Marriage/divorce can affect status. The early death of a relative can also have an impact. for e.g. if parents pass away, a child would have a lot of responsibility.

5. Unforeseen circumstances - Can be positive such as a promotion or can be negative such as divorce or death.

Describe the four risks to financial choices.

1. Physical risks - includes hazardous sports and activities. Also includes drinking alcohol, sunbathing or smoking. When people are responsible for other they tend to reduce the risks they take in order to protect their dependents.

2. Emotional risks - Includes trusting others such as friends and family and so risk being hurt by them. People may try reducing financial consequences of these risks by making pre nuptial arrangements to keep finances separated.

3. Risk to reputation - e.g. borrowing money and not repaying on time. The borrowers behaviour affects the way they are regarded by other people. This could also affect how much they can borrow in the future, or it could leave them in a position where they can’t get a credit card.

4. Financial risk - e.g. putting money into an investment which may fall in value. Some people may invest in things which is beneficial if the value increases however when selling, if the value is lower than what was invested in it, no profit would be made and it would be a financial loss.

How do the attitudes to financial risks relate to the life cycle?

• Depending on where people are in the life cycle, they will be more or less concerned about risk.

• Certain events are more relevant or more likely at certain stages more than others.

  • e.g. older people are more likely to suffer from poor health therefore paying for health insurance may be more important for those in the late middle age rather than those in the young adult age.

Describe the external influences on the life cycle.

• Retirement life stage - life expectancy is becoming longer now meaning people are retired for much linger which means they will need a higher source of income.

• Migration + employment opportunities - Some may have to move between countries to find a job.

• Lifelong learning and changes in employment patterns - some people may get access to higher education meaning better jobs and greater career mobility.

• Changes to the family unit - members of one family live in several different houses, cities and countries. These changes mean there are more “single person” households where one person is responsible for meeting household costs. (e.g. rent, groceries)