Borrowing: Obtaining money from a person or financial institution with an agreement to repay it later.
Costs of Borrowing
Interest: The financial cost of borrowing money.
Opportunity Cost: The potential benefits missed out on by choosing to borrow instead of using available funds for other purposes.
Reasons for Household Borrowing
Expensive Items: To afford costly items and household assets.
Short-Term Deficits: To manage temporary financial shortfalls.
Emergencies: To cover unexpected expenses.
Responsible Borrowing
Borrowing within Repayment Ability: Ensuring that borrowed amounts can be realistically repaid.
The Matching Principle
Matching Principle: Aligning short-, medium-, and long-term financial needs with suitable sources of finance of corresponding terms.
Types of Borrowing
Short-Term Finance:
Bank Overdraft: Permission to withdraw more money than available in a current account.
Credit Card: Purchasing items now and paying for them later.
Medium-Term Finance:
Medium-Term Loan: Fixed monthly repayments over an agreed period.
Leasing: Renting an asset with regular payments to the leasing company.
Hire Purchase: Paying a deposit followed by instalments, with ownership transferring upon final payment.
Long-Term Finance:
Mortgage: A long-term loan for buying property.
Key Terms
Instalment: A fixed sum of money due as part of a series of payments.
Collateral: Something used as security for a loan, which can be sold by the lender to cover unpaid debt.
Personal Contract Plans (PCP): A financing option for vehicles arranged through dealers or finance companies.
Borrowing from Moneylenders
Moneylenders: Individuals or companies (excluding banks, building societies, and credit unions) whose main business is lending money and are often an expensive source of finance.
Unlicensed/Illegal: Some moneylenders may operate without a license or illegally.
Applying for a Loan
Financial Institutions in Ireland:
Commercial Banks
Credit Unions
Building Societies
Required Information:
Personal Details
Residential Details
Employment Details
Savings Record
Borrowing History
Purpose of the Loan
Credit Rating
Credit Rating/Creditworthiness: An assessment of a person’s ability to repay a loan based on their financial history.
Guarantor
Guarantor: A person who agrees to repay a loan if the borrower defaults.
Calculating Interest
Annual Percentage Rate (APR): APR is a calculation of the overall cost of a loan representing the actual yearly cost of the amount borrowed.
Declining Principal: The outstanding amount owed on a loan at any point in time.
Cost of Credit: The difference between the amount borrowed and the total repayment amount.
Rights of a Borrower
Written Agreement Details
Cooling-Off Period: A ten-day period to reconsider the agreement.
APR Information
Cash and Total Credit Price Disclosure
Number and Amount of Instalments
Early Repayment Fees Awareness
Risks of Borrowing
Loss of Collateral
Legal Consequences: Court actions, fines, or imprisonment.
Affected Creditworthiness: Reduced ability to obtain future loans.
Insolvency: Being unable to pay debts as they fall due.
Insurance for Households and Individuals
What is Insurance?
Insurance: Protection against possible loss, aiming to restore the insured person to their previous financial state.
Insurance Policy: A document detailing the types of losses covered and the compensation amount.
Compensation: A financial payment for an insured loss.
Premium: The payment made by the insured to the insurer for providing coverage.
Principles of Insurance
Insurable Interest: Benefit from the item's existence and suffer financially from its loss.
Utmost Good Faith: Truthfully answering questions and disclosing all relevant information on forms.
Material Fact: Any information that could influence the decision to grant insurance or affect the premium.
Indemnity: Restoring the insured to their original financial position, not allowing them to profit from insurance.
Subrogation: Transfer of ownership rights to the insurance company after compensation is paid.
Insurance Write-Off: Repair costs exceed the item's replacement value.
Contribution: Sharing claim costs among multiple insurers covering the same risk.
Types of Household and Personal Insurance
Motor Insurance: Compulsory in Ireland.
Third-Party: Covers injury or damage to others, not the policyholder.
Third-Party, Fire, and Theft: As above, plus coverage if vehicle catches fire or is stolen.
Comprehensive: Covers all parties and vehicles involved, including the insured.
Parties Involved:
First Party: The insured person.
Second Party: The insurance company.
Third Party: Anyone suffering a loss caused by the first party.
No-Claims Bonus: A discount for not making claims.
Loading: An additional premium amount for increased risk.
Home Insurance:
Buildings Cover: Covers the building structure against events like fire, flood, or storm.
Contents Cover: Covers household contents against damage from events like fire or burst pipes.
Personal Accident Insurance: Coverage for accidents causing injury.
Health Insurance: Covers hospital care and medical bills.
Critical Illness Cover: Pays a lump sum upon diagnosis of a serious illness.
Holiday/Travel Insurance: Coverage for incidents during travel.
Mortgage Protection Insurance: Repays the mortgage upon the insured's death.
Payment Protection Insurance (PPI): Covers loan repayments for a period due to accident, illness, death, or redundancy.
Income/Salary Protection Insurance: Pays part of the income if employment is lost due to disability, illness, or injury.
Mobile Phone Insurance: Coverage for lost or stolen mobile phones.
Pay Related Social Insurance (PRSI): Mandatory payment entitling workers to various benefits.
Life Assurance: Pays out upon the insured's death.
Whole-Life Policy: Pays compensation on death.
Term Policy: Coverage for a fixed period.
Endowment Policy: Pays a guaranteed amount on a specific date or upon death.
Taking out Insurance
Proposal Form: An application form completed by the person seeking insurance.
Policy Excess: The amount the insured pays for any loss or damage.
Exclusions: Specific items or risks not covered by insurance.
Making a Claim
Claim Form: A form detailing how the loss occurred and the amount claimed.
Average Clause: Applies in cases of underinsurance and partial loss.
Underinsurance: Insuring an item for less than its full replacement value.
Renewing an Insurance Policy
Renewal Notice: Sent by insurers when the policy is due for renewal.
Shopping Around: Checking for better deals from other companies.
Benefits of Insurance
Compensation: Allows replacing or repairing damaged or stolen items.
Financial Uncertainty Protection: Offers security against unexpected losses.
Income Protection: Salary protection and critical illness cover protect household income.
Financial Security: Life assurance provides security to families in the event of death.
Necessity and Insurability
Mandatory vs. Optional: Motor insurance is legally required, others are optional.
Uninsurable Risks: Risks where the chances of loss cannot be accurately determined.
Household and Personal Taxation
What are Taxes?
Tax: A compulsory payment to the government to fund public services.
Tax Rate: The percentage of tax charged on income, wealth, goods, or services.
Revenue Commissioners: The state agency responsible for tax collection.
Tax Liability: The amount of tax required to be paid.
Types of Tax
Direct Tax: Paid on income as it is earned, e.g., PAYE.
Indirect Tax: Paid on income as it is spent, e.g., VAT.
Regressive Tax: Takes a higher percentage of income from low-income earners.
Progressive Tax: The tax rate increases as income increases.
Common Household and Personal Taxes and Charges
Pay As You Earn (PAYE) Income Tax: Tax on earnings from employment.
Tax Deducted at Source: Tax is calculated and submitted by the employer.
Self-Assessed Income Tax: Paid by self-employed individuals.
Universal Social Charge (USC): Additional charge on incomes over a certain amount.
Value Added Tax (VAT): Tax on goods and services.
Customs Duties: Tax on goods imported from outside the EU.
Excise Duties: Tax on certain goods and materials, including:
Motor fuel
Heating oil
Natural gas
Solid fuel
Alcohol
Tobacco
Local Property Tax (LPT): Tax on residential properties based on market value.
Stamp Duty: Charged on certain written documents, such as property purchases.
Motor Tax: Compulsory tax for motor vehicle owners.
Vehicle Registration Tax (VRT): One-off tax on buying and registering a new car or motorcycle.
Deposit Interest Retention Tax (DIRT): Tax on interest earned on savings.
Capital Gains Tax (CGT): Tax on profits from the sale of assets.
Capital Acquisitions Tax (CAT): Tax on gifts and inheritances.
Tax Avoidance and Evasion
Tax Avoidance: Legal methods to reduce tax liability.
Tax Evasion: Illegal non-payment of tax.
Getting Started with Income Tax
Personal Public Service Number (PPSN): Unique reference number for dealings with public service agencies.
Emergency Tax: A higher tax rate for new employees to encourage tax affairs to be organized quickly.
Income Tax Rate: The percentage of tax levied on income.
Standard Rate (e.g., 20%)
Higher Rate (e.g., 40%)
Standard Rate Cut-Off Point (SRCOP): The amount of income taxed at the standard rate.
Tax Credit: An amount by which a person’s annual tax bill may be reduced.
Net Pay: Gross pay minus all deductions; also called take-home pay.
International Trade and Globalisation
What is International Trade?
International Trade: Buying (importing) and selling (exporting) of goods and services between different countries.
Visible Trade: Involves physical goods that can be seen going out of and coming into Ireland, e.g. food and cars.
Invisible Trade: Involves services. No physical goods can be seen going out of or coming into Ireland as a result of the sale or purchase of services, e.g. insurance, banking and tourism.
Importing
Importing: Buying goods or services from other countries.
Visible Imports: Physical goods that Ireland buys from other countries, for example cars, oil, coal and fruit.
Invisible Imports: Services that Ireland buys from other countries, for example Irish people going on holiday abroad.
Why does Ireland import goods and services?
Climate: Ireland does not have the climate to grow certain products, e.g. bananas, oranges etc.
Raw materials: Ireland lacks the essential raw materials or natural resources that would enable us to produce certain goods, e.g. oil.
Choice for consumers: Irish consumers want to have a variety of goods and services to choose from, e.g. clothing, choice of holiday destinations etc.
Skills: Certain countries have people with the skills to make certain products, for example Swiss watches, cars etc.
Cost: Foreign goods may be cheaper than comparable Irish goods.
Small domestic market: The Irish market is small, so certain products cannot be produced economically and must be imported, e.g. cars.
Exporting
Exporting: Selling goods or services to other countries.
Visible exports: The physical products or goods that Ireland sells to other countries, for example meat, dairy products, live animals, ICT equipment, pharmaceuticals.
Invisible exports: Services that Ireland sells to other countries, for example Spanish students coming to Ireland to learn English or an Irish band performing in another country.
Why does Ireland export goods and services?
Increased sales/profits: Irish firms can increase their sales and profits by exporting to a larger foreign market.
Employment creation: Exporting helps to support jobs in Ireland. The more we sell, the more people we need to make the goods.
Demand: There is demand from consumers abroad for Irish products, e.g. beef and butter
Earn foreign currencies: The receipt of foreign currencies can boost our country’s reserves and provides the finance to help pay for imports.
How is international trade measured?
The balance of trade: Is the difference between visible exports and visible imports over a period of time, usually one year. It accounts for trade in goods only.
The balance of payments: Is the difference between total exports and total imports over a period of time, usually one year. It accounts for trade in both goods and services.
Benefits of international trade for Irish businesses
Increased sales: With fewer than 5 million consumers, the Irish market is quite small. By exporting, Irish businesses can increase sales and access much larger markets.
Lower costs: Irish businesses have to increase production to satisfy demand from abroad. The more products that are made, the cheaper it becomes to produce each one. This is known as economies of scale.
Spreads risk: A business can spread risk by not relying on its local market alone.
Raw materials: Irish businesses need to import some raw materials as we do not produce them in Ireland, for example oil.
Challenges of international trade for Irish businesses
High costs: Ireland is an island, so transportation is more difficult and more expensive for Irish exporters, as goods can only be transported abroad by plane or ship.
Languages: Irish exporters may need to make their websites available in many languages for customers in different countries, e.g. Ryanair.
Exchange rates: If the euro increases in value, the price of Irish products will become more expensive in countries that do not use the euro .
Getting paid: Trying to collect payments from businesses in other countries can be difficult.
Competition from low-cost economies: Irish wages are quite high by international standards. This means that it is much cheaper to produce goods in other countries, particularly in Asia and Africa.
Free trade
Free trade: Occurs when countries can buy and sell without any trade barriers or restrictions, such as customs duties on goods.
Barriers to trade
Tariff: This is a tax, for example customs duties and import duties, that a country adds to imports to make them more expensive and therefore less attractive for customers to buy.
Quota: Countries limit the amount of a good that can be imported into their country. This should increase demand for home-produced goods and services.
Embargo: A country can put a complete ban on goods being imported from a certain country.
Subsidy: This is a direct payment to a domestic producer. It will reduce the cost of production and makes domestically produced goods relatively cheaper when compared to imports.
Why do countries impose barriers to free trade?
To protect their domestic industries
To protect domestic employment
To protect against ‘cheap labour’ economies
National security
Enterprise Ireland
Enterprise Ireland: Is the state agency that helps Irish businesses that want to sell their products or services to other countries.
Globalisation
Globalisation: Is the process by which the world becomes interconnected as a result of increased trade and cultural exchange. In effect, the world becomes one big marketplace.
A global business: Sees the world as one market and production location. It provides the same product worldwide.
A global business: Uses a global marketing strategy, which involves the same marketing mix of product, price, place and promotion (the 4Ps) throughout the world to build a global brand. Coca-Cola and McDonald’s are examples of global businesses.
Reasons for the development of global businesses
Increased sales: To increase sales and to make higher profits.
Mass production: This allows the business to have economies of scale – the more they produce, the lower the cost per unit.
Reduction in barriers to trade: More economies are open to international trade, while advances in digital technologies and transportation make it quicker and cheaper to operate across the globe.
Developments in digital technology: Communication is faster and easier with the use of video conferencing, email, etc.
Global product
The company will try to use the same brand name and have the same product design all over the world. The product may need to be adjusted to reflect technical, legal and language differences.
Global price
Global firms try to charge a similar price in each market, but the price may vary in different countries due to the following factors:
A higher standard of living in some countries may lead to the company charging a higher price
More expensive transport costs to get the product into a country may lead to a higher price.
More competition may lead to lower prices.
Exchange rate fluctuations may cause the price to change.
Global place
This is how the global company gets their product to the market. The company could sell directly to customers or use a distribution agent. Many global businesses rely on local agents and distributors to deliver their products.
Global promotion
The company will try to use the same advertising all around the world, but this may not always be possible because of differences in language and culture.
Implications of globalisation for businesses
More competition: Businesses will face greater competition as barriers to international trade are removed.
More export opportunities: Bigger markets will lead to more export opportunities.
Economies of scale: Mass production is a feature of globalisation. It also reduces unit costs for production, distribution and marketing.
Need for quality and innovation: Irish business may need to rely on high quality or innovation as alternative ways of competing in global markets.
Takeovers: Successful businesses may be taken over by larger global companies.
Implications of globalisation for consumers
Lower prices: Consumers may benefit from lower prices as global producers use economies of scale to cut production costs.
Increased choice: Consumers benefit from a greater choice of products and brands.
Implications of globalisation for the economy and society
More trade: Globalisation has led to a huge increase in the volume of international trade.
Employment: Globalisation has led to increased levels of employment, but there have been changes in the types of employment.
Increased use of resources: The economic growth and production demands caused by globalisation have put a greater strain on scarce resources.
Transport and communications: Globalisation has helped to bring about advances in transport and communications networks, but it has also led to concerns about ‘air miles’.
Foreign direct investment (FDI): Globalisation has increased the level of FDI in many regions.
Distribution of wealth: While globalisation has increased the income level and wealth of many people worldwide, the wealth is not being shared equally.
Cultural issues: Globalisation relies on selling the same products to all consumers, which has led to concerns about cultural uniformity, where everyone wants to be the same or to copy Western or European lifestyles.