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230077 Summative Assessment Version 1
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SUMMATIVE ASSESSMENT VERSION 1
Unit Standard Title:
Describe the financial life cycle of
an individual and how this
influences financial decisions
Unit Standard No:
230077
Unit Standard Credits:
8
NQF Level:
5
Assessment Type
Summative
Learner’s
Maximum
score
score
Competent /
%
Not Yet
Competent
40
This outcomes-based learning material was developed for Finweb Business Consultancy.
Disclaimer
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230077 Summative Assessment Version 1
Whilst every effort has been made to ensure that the learning material is accurate, Finweb Business Consultancy
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Summative Assessment
SECTION A
1.
(8)
Multiple choice questions: Circle the letter at each question that is most
correct.
1.1
Which of the following financial services products would probably not meet the
needs of a young couple with children?
1.2
a)
Compulsory living annuity.
b)
Collective investment scheme.
c)
Endowment Policy.
d)
Savings account.
Which of the groups in the following stages of their financial life cycles would
be spending capital rather than creating or saving capital?
1.3
a)
Middle aged – married no children.
b)
Young unmarried.
c)
Retired – married or single.
d)
Young married and expecting their first child.
Which of the following choices could effectively increase expenses and
reduce the amount available for savings which could extend the pre
retirement phase as you have to save to make up shortfalls?
a) Choosing not to marry or have children.
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230077 Summative Assessment Version 1
b) Having a large family of 5 children.
c) A career orientated couple who choose to concentrate on career and to
have children later.
d) Reduce debt and increase savings.
1.4
A person in the pre retirement stage of the life cycle who wanted to save
monthly in a long term savings plan who was at a moderate risk level would
possibly be interested in which of the following collective investment
products?
a) Worldwide general Equity Fund.
b) Domestic Specialist Commodity Fund.
c) Domestic Balanced Fund.
d) Domestic Money Market.
1.5
Which of the following personal events in a 35 year old’s life would impact
financially to such an extent that it could change the position in the life cycle?
a) Receive a substantial increase.
b) Major illness which lead to early retirement.
c) Correction in the JSE.
d) Loss of job due to retrenchment.
1.6
Many companies internationally and locally are offering life cycle funds. Which
of the following would be an explanation of how these funds operate?
a) They start with an aggressive mix of equities and bonds in the decades
before retirement and rebalancing, often daily, to maintain diversification.
The funds become more conservative as retirement nears, selling stocks
and buying bonds.
b) They are conservative funds which are designed to provide income and
security of capital for those near or at retirement.
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230077 Summative Assessment Version 1
c) They are simply funds made up of various unit trusts which allow you to
move to more conservative or risky funds as your situation or lifestyle
changes.
d) None of the above is correct.
1.7
The Life Style concept is useful because it allows us to segment the market.
The benefits of this for the financial planner are… Please choose one of the
following?
a) Reduced the need to a financial needs analysis as we know what the
client will need due to the position in the life cycle.
b) Provides the planner with an indicator of possible needs that can be
explored fully during the needs analysis.
c) It has no real benefit for the advisers and is a segmentation tool used by
the product suppliers to help design products.
d) None of the above.
SECTION B
(22)
Short Knowledge Questions
2.
Explain an individual’s attitude and values in the life cycle of Early
Earning Period with reference to the impact of income and expenditure.
(5)
During the Early Earning Period of the life cycle, individuals typically begin their
careers and experience a significant increase in income compared to their earlier
years. This phase is characterized by establishing financial independence, starting
to build wealth, and making important financial decisions. Attitudes and values play a
crucial role in shaping how individuals manage their income and expenditures during
this period.
Attitudes refer to an individual's beliefs, feelings, and opinions towards money, while
values represent their core principles and priorities. These factors influence how
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230077 Summative Assessment Version 1
individuals perceive and prioritize income and expenditures, as well as their overall
financial behaviour. Here are some key aspects related to attitudes and values in the
Early Earning Period:
1. Financial Ambitions: Individuals in this phase may have a strong desire to
achieve certain financial goals, such as buying a home, starting a family, or
saving for retirement. Their attitudes towards income and expenditure may
revolve around prioritizing long-term financial security and growth.
2. Lifestyle Choices: Attitudes towards lifestyle choices can vary greatly during
the Early Earning Period. Some individuals may adopt a more frugal
approach, focusing on saving and investing a significant portion of their
income. Others may be inclined towards enjoying their newfound financial
freedom by indulging in discretionary expenditures.
3. Risk Tolerance: Attitudes towards risk can impact how individuals allocate
their income and expenditures. Some may have a higher risk tolerance,
choosing to invest in potentially higher-yielding assets or take on
entrepreneurial ventures. Others may lean towards a more conservative
approach, prioritizing stability and security.
4. Financial Responsibility: Values related to financial responsibility, such as
managing debt, saving for emergencies, and planning for the future, become
increasingly important during this phase. Attitudes towards spending and
saving are influenced by the values individuals place on financial security and
being prepared for unexpected events.
5. Peer Influence: Attitudes and values can also be influenced by peers and
social norms. Individuals may feel pressure to match the spending habits or
lifestyles of their peers, leading to certain attitudes towards income and
expenditure that may or may not align with their own values.
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230077 Summative Assessment Version 1
It is important to note that attitudes and values can vary greatly among individuals
even within the same life stage. Personal experiences, cultural background,
upbringing, and education all contribute to shaping an individual's attitudes and
values towards income and expenditures. Overall, during the Early Earning Period,
individuals are likely to navigate the balancing act between enjoying their increased
income and making wise financial decisions that align with their long-term goals and
values. Developing a positive attitude towards financial management and aligning
expenditures with personal values can help individuals establish a solid foundation
for their financial future.
3.
Identify and discuss the three financial life cycle stages that your age
determines. Refer to the Accumulation, Preservation and Prosperity Fade
away stages.
(3 x 3 = 9)
The financial life cycle consists of various stages that individuals typically go through
based on their age and financial circumstances. Three key stages in the financial life
cycle are the Accumulation stage, Preservation stage, and Prosperity Fade Away
stage.
1. Accumulation Stage: The Accumulation stage usually occurs during a person's
early earning years, typically in their 20s and 30s. During this stage, individuals
focus on building their careers, increasing their income, and accumulating
assets. They may start saving for major life goals such as homeownership,
starting a family, or retirement. Key characteristics of the Accumulation stage
include:

High savings rate: Individuals in this stage often have fewer financial
responsibilities and more disposable income. They can allocate a significant
portion of their earnings towards savings and investments.
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230077 Summative Assessment Version 1

Long-term investment approach: With a longer investment horizon, individuals
in the Accumulation stage can afford to take on more risk and invest in growthoriented assets such as stocks or equity funds.

Debt management: This stage also involves managing and reducing debt,
such as student loans or credit card debt, to establish a solid financial
foundation.
2. Preservation Stage: The Preservation stage typically occurs in a person's
middle-age years, usually in their 40s and 50s. During this stage, individuals
aim to protect and preserve the wealth they have accumulated. They may
have significant financial commitments such as mortgage payments, children's
education expenses, and other ongoing obligations. Key characteristics of the
Preservation stage include:

Balancing risk and stability: Individuals tend to shift their investment strategies
towards a more balanced approach, diversifying their portfolio and
incorporating more stable assets like bonds or real estate.

Retirement planning: As retirement approaches, individuals in the Preservation
stage focus on ensuring they have sufficient savings and investments to
maintain their desired lifestyle in retirement.

Asset protection: Along with wealth preservation, individuals may consider
strategies to protect their assets, such as insurance coverage, estate planning,
and tax optimization.
3. Prosperity Fade Away Stage: The Prosperity Fade Away stage occurs during a
person's pre-retirement and retirement years, typically in their late 50s and
beyond. This stage involves transitioning from the accumulation and
preservation of wealth to the distribution of assets and managing income in
retirement. Key characteristics of the Prosperity Fade Away stage include:

Retirement income planning: Individuals in this stage focus on creating a
sustainable income stream during retirement, which may include pensions,
annuities, investment withdrawals, or other sources of income.

Lifestyle adjustments: As individuals transition to retirement, they may need to
adjust their lifestyle and expenses to align with their retirement income. This
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230077 Summative Assessment Version 1
stage involves careful budgeting and managing expenses to ensure financial
security.

Estate planning and legacy considerations: Individuals may prioritize estate
planning, including creating wills, establishing trusts, and planning for the
transfer of wealth to future generations.
It is important to note that the financial life cycle stages are not fixed and can vary
based on individual circumstances and choices. However, understanding these
stages can help individuals make informed financial decisions and plan for their longterm financial well-being.
4.
List events that can trigger one to enter a new stage in the financial life
cycle.
(8)
Entering a new stage in the financial life cycle can be triggered by various events or
milestones. Here are some common events that can lead to transitioning into a new
stage:
Starting a career: Graduating from education and beginning a full-time job marks the
start of the Accumulation stage in the financial life cycle.
Getting married: Getting married can have financial implications, such as combining
incomes, joint financial planning, and shared expenses. It may also signal the start of
planning for major life goals, such as homeownership or starting a family.
Buying a home: Purchasing a home often signifies a shift into the Preservation stage,
as individuals focus on mortgage payments, home maintenance, and building equity.
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230077 Summative Assessment Version 1
Having children: Starting a family brings additional financial responsibilities, including
childcare expenses, education planning, and saving for children's future needs. It can
prompt a shift in financial priorities and planning.
Career advancements and income growth: As individuals progress in their careers
and experience income growth, they may enter new stages within the Accumulation
and Preservation stages, adjusting their financial strategies and investment goals
accordingly.
Approaching retirement age: As individuals approach retirement age, typically in their
50s and 60s, they enter the Prosperity Fade Away stage. This transition is often
accompanied by retirement planning, assessing retirement income sources, and
making decisions about when and how to retire.
Significant life events: Major life events such as divorce, the loss of a spouse,
inheritance, or sudden financial windfalls can prompt a reassessment of one's
financial situation and potentially lead to a new stage in the financial life cycle.
The timing and specific triggers for transitioning into a new stage may differ based on
personal goals, financial situation, and external factors. Financial planning should be
tailored to each individual's unique circumstances to ensure effective management of
their financial life cycle.
SECTION C
Long Questions
(10)
Answer the following question in Essay format:
Discuss the wants and needs of an individual at different stages in his/her life cycle
taking into account the different theories relating to the needs and the life cycle of an
individual. Mention the following stages:
● Early earning period
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230077 Summative Assessment Version 1
● Later earning period
● Peak earning period
● Retirement
Introduction:
The wants and needs of individuals vary across different stages of their life cycle, and
understanding these shifts is essential for effective financial planning. Various theories
and models offer insights into the changing priorities and requirements of individuals at
each stage. This essay will explore the wants and needs associated with the early
earning period, later earning period, peak earning period, and retirement. By
understanding these stages and their corresponding financial needs, financial planners
can better assist individuals in achieving their goals and ensuring long-term financial
security. The wants and needs associated with each stage is addressed below.
Early Earning Period:
During this stage, typically in the early 20s to early 30s, individuals are establishing
their careers and building a financial foundation. Their primary wants and needs may
include:
a) Basic living expenses: Meeting essential needs such as housing, transportation, and
daily expenses.
b) Education and skill development: Investing in further education or acquiring
specialized skills to enhance career prospects.
c) Financial security: Building an emergency fund and establishing insurance coverage
for protection against unforeseen events.
d) Asset accumulation: Saving for future goals, such as homeownership or starting a
family.
e) Lifestyle choices: Exploring personal interests and experiences, such as travel or
hobbies.
2. Later Earning Period: In the later earning period, typically from the 30s to the
50s, individuals may have more stability in their careers and increased earning
potential. Their wants and needs may include:
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230077 Summative Assessment Version 1
a) Family and dependents: Providing for the needs of a growing family, including
education, healthcare, and general well-being.
b) Homeownership and asset growth: Building equity in a home, investing in real
estate, or diversifying investments for long-term wealth creation.
c) Retirement planning: Initiating retirement savings and investment strategies to
secure a comfortable future.
d) Career advancement: Seeking opportunities for professional growth, skill
enhancement, or entrepreneurship.
e) Balancing financial priorities: Managing competing financial goals, such as saving
for education, paying off debts, and planning for retirement.
3. Peak Earning Period: The peak earning period typically occurs in the late 40s to
60s, where individuals have reached the pinnacle of their earning potential.
Their wants and needs may include:
a) Retirement planning: Focusing on maximizing retirement savings and investments to
ensure a financially secure retirement.
b) Wealth preservation: Implementing strategies to protect accumulated wealth and
assets, such as estate planning and tax optimization.
c) Lifestyle choices: Enjoying the fruits of their labour, such as travel, leisure activities,
and philanthropy.
d) Health and healthcare costs: Allocating resources for maintaining good health,
managing medical expenses, and long-term care planning. e) Succession planning:
Preparing for the transfer of wealth to the next generation or charitable causes.
4. Retirement: In the retirement stage, individuals transition from relying on active
income to living off accumulated assets and retirement savings. Their wants and
needs may include:
a) Income sustainability: Ensuring a stable income stream throughout retirement,
considering factors like pension, investments, and social security benefits.
b) Healthcare and long-term care: Managing healthcare costs and planning for
potential medical needs in retirement.
c) Leisure and personal fulfilment: Pursuing hobbies, travel, social activities, and
volunteer work to maintain a fulfilling lifestyle.
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230077 Summative Assessment Version 1
d) Estate planning: Structuring assets and inheritance plans, including wills, trusts, and
beneficiaries.
e) Legacy and philanthropy: Considering charitable contributions or leaving a
meaningful legacy for future generations.
Conclusion:
As individuals progress through the various stages of their life cycle, their wants and
needs evolve, driven by factors such as age, career development, family dynamics,
and retirement planning. The early earning period focuses on establishing a financial
foundation and pursuing personal aspirations, while the later earning period
emphasizes family responsibilities, asset growth, and retirement planning. The peak
earning period represents the pinnacle of earning potential and entails preserving
wealth, enjoying the fruits of labour, and planning for succession. Finally, retirement
necessitates strategies for income sustainability, healthcare management, and leaving
a lasting legacy. By recognizing these changing priorities, financial planners can
provide tailored guidance and solutions to meet individuals' unique circumstances and
goals at each stage of their life cycle, ultimately helping them achieve financial wellbeing and a secure future.
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