GCSE Unit 11 Personal Finance
Section 1 Money
Aims:
To understand:
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The personal life cycle – how peoples needs for spending, saving
and borrowing change at key points in their life
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Demand – how peoples needs and wants change at key points in
the personal life cycle
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Why prices change – how the decisions of buyers and competing
businesses affect prices in the market
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How and why people save money and the potential rewards from
savings reflect the degree of risk involved.
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The different methods of borrowing and how the interest rates
charged reflect the type of loan
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Why financial planning is necessary and how budgeting helps in
managing money.
Key terms:
Section 1.1 Understanding the Personal Life Cycle
The Personal Life cycle
The changes in income experienced at key stages in a persons life e.g.
Childhood (0-12), adolescence (teenagers), Young adult, Middle adult (
middle age), late adult (old age, Pensioner).
Income – total money received by a person from salary or wages, interest or
dividend.
Borrowing – obtaining finance from a lender that will need to be repaid in the
future e.g. mortgage, car loan.
Savings – putting some of your wages or salary aside for later use e.g. in a
savings account or by investing in stocks and shares or 5 or 10 year savings
plan.
Retirement – the time in the personal life cycle when you stop working and
depend for income on your retirement fund in a pension. Or continue to work if
it’s not enough- semi-retired
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Benefits – regular payments from the government to support people who are
unemployed or in need.
Tax credit –are payments from the government. If you're responsible for at
least one child or young person, you may qualify for Child Tax Credit. If you
work, but are on a low income, you may qualify for Working Tax Credit. You
can often get both types of tax credits.
Working Tax Credit
Working Tax Credit is based on the hours you work and get paid for, or expect
to be paid for. You can claim whether you're an employee or a self-employed
person. But unpaid work doesn't count for Working Tax Credit.
Child Tax Credit
Child Tax Credit is paid to you if you are responsible for at least one child or
young person who normally lives with you. You don't have to be working to
claim Child Tax Credit.
Taxes – a fee paid to government for a product, income or activity e.g.
Income tax, value Added Tax (VAT) Corporation tax.
Income Tax - taxable bands
2009-10
£ per year
2010-11
£ per year
Starting savings rate:
10%*
£0-£2,440
Starting savings rate:
10%*
£0-£2,440
Basic rate: 20%
£0-£37,400
Basic rate: 20%
£0-£37,400
Higher rate: 40%
Over £37,400
Higher rate: 40%
£37,401-£150,000
Additional rate: 50%
Section 1.2 Making Decisions
Needs - The basic products that people need to survive e.g. food, drink,
shelter, warmth, and clothing.
Wants - The desire to consume goods and services. Wants are unlimited
because there is no limit to the amount of goods and services people would
like to consume.
Worlds Economic Problem- Wants are unlimited but the worlds resources
are limited e.g. oil, gas, coal.
Factors of production - The resources used by businesses to meet needs
and wants:
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Land – natural resources used, e.g. physical land that a factory is on or sea
for fishing
Labour – employees used to make products
Capital – the financial resources used to make products and the capital good
themselves e.g. machinery purchased
Enterprise – the managerial skills to get the most efficient mix of the
resources for a business.
Opportunity Cost – something given up when making a choice e.g. when
buying a sandwich from the school canteen you give up the benefit you could
have got from a hot chocolate.
Scarcity – resources are limited compared with our wants
1.3 Choosing to Spend
Demand - the quantity of a good or service that consumers are willing and
able to buy at a particular price.
The law of demand – more will be purchased if the price is low
Factors affecting Demand – income levels of customers, marketing and
promotion and degree of brand loyalty, prices of substitutes, tastes and
fashion
Supply – the quantity of a good or service that businesses will offer for sale at
a given price.
Factors affecting Supply – cost of raw materials, wage rates, productivity of
the employees.
Market – exists when buyers (customers, demand) meet suppliers
(businesses, supply)
Market Price – the price that buyers and sellers agree on for a particular
good or service.
Competition – the process of trying to beat others e.g. trying to gain more
customers
1.4 Choosing To save
Methods of saving – banks, building societies,
Internet only banks e.g. egg
Post Office Card account
National savings and Investments
Types of savings accounts – ISA Individual savings account – tax free savings
Fixed term accounts
Share based savings – Unit Trusts
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Government Bonds – issued by Post office National
Savings scheme
Interest rates – an annual rate which is charged to borrowers or paid to savers
AER – Annual Equivalent rate – a figure quoted in savings advertisements
to help customers compare savings products with one another
1.5 Choosing to Borrow Money
Borrowing – getting money from a lender that must be repaid in the future
e.g. mortgage
Methods of borrowing:
Mortgage – long term loan often secured on a house, which remains the
property of the banks until it is paid off
Credit Card – purchasing goods or services using borrowed money up to an
agreed limit. You must pay off the minimum amount each month (usually 35% of the balance) Interest rates are high
Store Card – cards used to purchase goods or services on credit from a
store, up to a pre arranged credit limit. Terms are similar to credit cards.
Interest rates are high
Personal Loan - a loan given for something e.g. extension usually unsecured
Hire Purchase – renting an item like a piece of furniture from a shop. You
only own the furniture once the final payment has been made. Extremely
high interest rates – look for Interest free credit deals. E.g. DFS
Overdraft - borrowing up to an agreed limit on a current account. Daily
interest is charged it must be paid back and can be called in at any time by a
bank.
APR – Annual Percentage Rate – the interest rate charged on loans to help
compare their rates.
1.5 Managing Your Money
Financial Planning - a process for ensuring you plan when you will need a
large sum of finance and for stages in your life cycle when you may have no
money unemployment.
Budgeting – a plan of your future weekly, inflows of finance and the outflows
of finance to identify under and overspending.
A financial adviser – a person who has knowledge of financial product and
can help with financial planning Try to use an Independent financial adviser.
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Debt Management – using the help of an expert to solve a debt problem e.g.
Citizens advice
Debt Management Plan – a structured repayment plan to meet your debts
and so you are able to have some finance to live and meet your basic needs.
Ethical lending policy – loans will only be made to businesses that act in a
socially responsible manner.
Ethics – the rights and wrongs of an issue
1.6 Managing Your Money
Financial planning – a process for ensuring that financial goals are met.
Budget – a financial plan of the future income and spending
Financial Adviser – a professional offering financial advice.
Ethical issues to do with saving:
Should you save with an institution that has a purely profit motive and will give
you the highest return (interest) or should you save at an institution that has
an n ethical lending policy?
Ethical Issues to do with borrowing:
Should you borrow if you cannot repay the money?
Who should you borrow from?
It depends on your credit rating. Those with a good rating can borrow from a
reputable bank others may look to a loan shark – these are illegal.
New borrowing companies are springing up offering ‘pay day’ loans e.g.
Wonga these offer high interest rates and are not advised.
Section 2 Work
Aims
To understand:
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Why people choose to work
How specialisation and interdependence occurs in the workplace
How the nature of work is changing, especially with the advance
of ICT
The various ways in which people are paid
The difference between gross and net pay
The supply of labour is affected by the decision to work or not
How the demand for labour is derived from the need for workers
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Way wages differ between people and occupations
The influence of the Government on pay and working conditions
The costs of unemployment to the individual
How government deals with unemployment of varying duration
2.1 Why people work and the nature of work
Why people work:
Pay, Job satisfaction - motivation
Motivation – doing something because you want to do it e.g. voluntary work.
Temporary Employment – work that will last only for a specific period of time
(usually a number of weeks or months) e.g. Christmas retail staff.
Seasonal Employment – work that is only required during a particular period
of a year. (E.g. some agricultural work, work in a holiday park).
Why people may not work:
Education, child care, Retirement,
Fact
By 2013, all young people will be expected to stay in school, training or
workplace training until they are 18 years old.
Economically inactive - those not working
Why are there sifts in employment?
Specialisation – where each worker concentrates on only one small aspect
of the entire production process.
Benefits of specialisation:
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Output is produced more quickly – leads to increased productivity
(output per person)
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Workers become more skilled, due to repetition.
Limitations of specialisation:
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Workers and production will become interdependent (rely on each
other) to complete the finished product and this may cause problems if
an area of production fails.
Jobs may become repetitive and boring, causing poor job satisfaction.
Morale may fall as jobs are more repetitive
Workers are less flexible if they specialise in one task.
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ICT - Information communication technology
Flexible working – workers who are more adaptable, with time, location, or
method of work e.g. home working
2.2 The Reward for Work
How people are paid
Salary – pay as an annual total, no overtime is paid
Wage – pay calculated on an hourly rate multiplied by hours worked, overtime
is payable after hours of work have been met.
Commission – payment for achieving a certain target e.g. a level of sales
Overtime payment – higher rate of pay for work in excess of normal hours
normally paid at 1.5 time’s normal rate.
Shift work – work patterns that do not follow standard working hours, e.g. a
nurse may work: morning shift, afternoon shift, evening shift, nights
Bankers Automated Clearing Service (BACS) – automatic transfer of funds
between bank accounts e.g. employers to employees.
Fringe benefits – workers are paid in other ways other than by money
Expenses – payment given to workers to compensate for any expenditure
necessary to complete the work. E.g. travel expenses for a conference or
training day.
Wages and salaries
Gross pay – a workers pay before deductions for Tax, national Insurance,
and pensions.
Net pay – pay after deductions (take home pay)
Income tax – tax calculated as a percentage of a workers income e.g. 20% of
income.
Tax code – workers have different tax cods which relate to the different
amount of tax – free allowance a worker might get.
National Insurance Contributions (NIC) – a tax paid by workers which
entitles the worker to qualify for benefits when needed e.g. Job Seekers
Allowance.
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Pension Contributions – deductions from pay that contributes to a pension
P45 – a document provided by an employer when an employee leaves their
job
P60 - a document provided by an employer on an annual basis showing total
pay and deductions for the year.
2.3 What affects Pay?
The supply of labour – the amount of work each worker is willing to perform.
Supply of labour is affected by monetary and non monetary factors:
Monetary factors: the level of wages, the higher the wages the more willing
workers will be to supply their labour.
Non monetary factors:
(1)Gender – there is a changing trend of women now feeling more willing to
join the labour market. Why?
 Changing attitudes – more acceptable
 A decline in primary and secondary sectors –traditionally recruiting
more men than women
 Changes in legislation – making it easier for women to work while
raising a family
 Changes in tax and benefits, rewarding those with children who return
to the workforce.
(2) Ethnic origin – traditionally ethnic workers were more likely to be
unemployed this is now changing as ‘white British’ are more likely to be
unemployed.
(3) Taxation – income tax reduces disposable income. If tax is reduced,
workers have more disposable income and there is a greater incentive to
work. The supply of labour will increase.
(4) State benefits – if benefits are low, workers will be more willing to supply
their labour as they cannot afford to remain out of work.
Demand for labour
Derived Demand – businesses demand workers because they are needed to
produce goods and services to sell. I.e. it derives from the need to produce
goods or services.
Government Influences and the demand for labour:
Government directly influences labour, through legislation e.g. taxation this
will influence the wages paid to labour.
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E.g. the right to paid holidays, maternity, paternity pay.
How wages are determined:
The market wage is what is paid if demand and supply for labour are matched
exactly = equilibrium
Those wanting to work could find work at wage rate that is acceptable.
Differences in wages:
(1)Training and skills – the more training and skills the higher the wages
(2)Gender – women are likely to be paid less than men, due to women more
likely to take a career break
(3)Age – Older workers are likely to be paid more than younger workers
(4) Trade unions – protect workers rights and often negotiate pay awards.
(5) Government Influences – minimum wage introduced in 1990’s, increases
wages
Why do wage rates change?
Surplus of labour – more workers will want to work that there are jobs
available; this is likely to lead to lower wages in this occupation as business
can afford to pay less.
Shortages of labour – in an industry or business – higher wages will be
needed to attract more workers to supply their labour.
2.4 Understanding Unemployment
Unemployment – those who are not currently working but who are available
for work
Costs of unemployment:
Monetary costs:
Loss of income, except benefit payments which will be lower than the
average weekly pay in UK of £500
Non monetary Costs:
Loss of skills – the longer someone remains unemployed there more skills
they may lose, they will not be up to date with latest training.
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Health - the unemployed are more likely to suffer from poor health e.g. mental
health
Family breakdown - the unemployed are more likely to experience family
problems, with higher marital breakdown rates
Duration of unemployment:
The costs of unemployment are normally made worse by extended periods of
unemployment. For short periods of unemployment, the costs are less.
Why does the duration of unemployment vary?
(1) skills and training – more skills the more likely they will find jobs
(2) qualifications – school leavers without qualifications are more likely to
be unemployed as they are less attractive to businesses
(3) Age – older people will find it harder to get jobs as they are expensive
and thought to be too old to train.
Government strategies to help the unemployed:
(1) tax allowances – allow a worker to earn up to a certain level before
they start paying income tax., increasing these make sit more attractive
for the unemployed to work as they pay no or less tax.
(2) Jobseekers allowance – benefits paid to the unemployed, based on
evidence that the worker is seeking work.
(3) New deal – training for young unemployed workers ( under age 25)
(4) Education – vocational qualifications are encouraged and introduction
of diplomas
(5) Apprenticeships – increased funding for this area, so unemployed
can gain specific job related skills.
3 National and Global Economies
Aims
To Understand:
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International trade and its importance to the UK economy
Factors that influence international trade, including exchange
rates and their impact on consumers choice
How labour markets are affected by globalisation and migration.
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3.1 Understanding International Trade
Exports – goods and services sold to another country e.g. Innocent smoothes
Imports – goods and services bought form another country e.g. bananas from
Spain
Balance of Payments – a record of the value of a country’s exports, imports
and financial transactions with the rest of the world over a year.
Importance of trade to the UK economy
The UK accounted for the sixth largest share, 3.8% of the world’s trade in
goods in 2007 and the second largest trade in goods 7.3%.
It provides jobs
Advantages of trade to the UK economy
Globalisation – the process of increasing international trade and economic
interdependence between countries.
Benefits to UK of selling in global markets:
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Income – more workers are needed so more jobs.
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Growth – increasing production, which leads to higher economic
growth i.e.GDP will increase.
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Choice and product differentiation – UK citizens can choose from
goods not otherwise available in the UK
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Prices – lower prices as lower cost production overseas.
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Competition and innovation – companies try to develop more
attractive and better quality products.
Raw materials – the UK is relatively poor in raw materials, so it is
essential that we import materials (metals, gems, energy and so on)
that we need
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Disadvantages of trade to the UK economy
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Competition – may provide cheaper good but it also means more
businesses to compete with for the available customers. This will be
difficult as India, china, Brazil have lower production costs.
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Economic dependency – UK imports large amounts of food, if this is
interrupted this might threaten our survival.
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Unstable commodity prices – this affects production costs and the
prices to customers.
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Power of MNC’Cs – multinational corporations are becoming
increasingly hard to control by national governments
Social and environmental impact of trade
International trade involves a carbon footprint – the total greenhouse gas
(co2 equivalent) emissions caused by an individual product or good traded by
the UK.
Carbon footprint comes from:
Direct emissions from activities the organisation can control e.g. vehicles or
running production.
Indirect emissions – carbon emitted in the preparation and transportation of
raw materials used, employees travelling to work.
3.2 Exchange Rates
The rate at which one currency is exchanged for another.
Effects of exchange rates on imports
If exchange rates are £ 1 = $2 every dollar UK wants to buy will cost 50p.
So an item imported from USA a UK citizen will need to pay £5
If the exchange rate goes down:
USA £1 = $1: every dollar we want to buy will be more expensive = £1
For an exported item to the US the US customer will pay £10 and a UK
national will have to pay £10
So imports become more expensive.
Effects of exchange rates on exports
October 2000
December 2008
£100/0.57 = €175.43
£100/.088 = €133.63
If exchange rates decrease exports are cheaper and are purchased more by
overseas nationals.
The reverse is true if exchange rates rise.
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The falling pound also has the effect of increasing import prices as it become
more expensive to buy overseas products as more overseas currency is
required.
Use these formulae to calculate Price in euros:
Price in pounds/the number of pounds to the Euro
To calculate the price in pounds:
Price in euros/number of euros to the pound
Exchange rates and the individual customer
The following areas will be affected by exchange rates:
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Foreign holidays
Withdrawing cash from cash machines abroad
Food in supermarkets
Imported consumer good
Direct imports of big ticket items like cars and furniture.
Other factors that affect the sales of imports and exports
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Style and image e.g. ipod touch
Quality e.g. Dyson Hoover
Reliability
3.3 The Power of the Consumer
The Power of the consumer to influence producers and their products
Boycotts – stop buying a product as a protest or to force the company to stop
doing a particular action.
This is because of consumer empowerment – consumers demonstrating
their needs, wants and demands through their purchasing decisions in the
marketplace.
The individual’s influence on the products businesses supply
Buying fair-trade products – these are products that offer a good wage to
the producers and a market price
Buying ethical/environmental friendly products e.g. those without
excessive packaging
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Buying locally sourced products – supermarkets are embracing this due to
customer demand.
The UK Government’s role in reducing world poverty
The Department for International Development (DFID) – is part of the UK
Government that manages Britain’s aid to the poor. It works to:
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Eradicate extreme poverty and hunger
Achieve universal primary education
Ensure environmental sustainability
These for part of the 8 agreed Millennium Development Goals (MDG)
DFID wants international trade to work for poor countries. It gets richer
country’s to play fair by allowing poorer country’s to sell their products freely in
western markets .e.g. by reducing import taxes on these goods.
3.4 Understanding work in the national and global economy
Effects of globalisation on the UK labour market
Globalisation is effectively making the world a smaller place and this affects
UK labour markets.
Workers are becoming internationally mobile, moving between countries to
find work.
Firms are increasingly choosing to locate their factories abroad to take
advantage of lower labour costs e.g. Dyson locating in China
Advantages of firms operating overseas:
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Lower operating and labour costs
Increased competitiveness
Firms are nearer to markets and materials reducing transport costs
Overcome exchange rate fluctuations if locate in Europe and use the
Euro
Disadvantages of operating overseas
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Jobs are lost in the UK
Unfamiliar culture and language
Transport costs to home markets
Exchange rate changes may increase costs and reduce profits
Why foreign firms choose to operate in the UK (Inward Investment)
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Foreign Direct Investment – when a business from one country builds a
factors in the UK e.g. Toyota I n Tyne and Wear.
The UK is one of the top economies for direct investment: 20% of all world
investment.
Why foreign firms locate in the UK?
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Highly skilled labour force
Tariff- free access to the European market
To buy existing UK owned brands and distribution networks
English is the accepted language of business, science and technology
When foreign firms close a plant or factory there are consequences:
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Jobs are lost
Suppliers may have to close who supplied the factory
Globalisation and the mobility of labour
The UK is an open economy – one that trades with other countries
Mobility of labour- the ability of labour to change jobs
Benefits of globalisation for the UK labour market
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Jobs are created in sectors where the UK does well e.g. finance and
specialised manufacturing, aerospace.
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New migrant labour arriving into the UK lowers labour costs
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There are opportunities to increase sales in new export markets.
Drawbacks of globalisation for the UK labour market
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Low skilled jobs are lost, particularly affecting manufacturing areas of
the UK
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Increasing immigration depresses wages
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Relocating production overseas can cause unemployment. E.g. Marks
and Spencer’s sourcing its clothes from overseas.
Impact of migration on the UK economy
Immigration – migration into a country
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Emigration – leaving one’s native country or region to settle in another.
Immigration affects the UK labour market positively by:
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New knowledge and skills and filling gaps in the labour market
Reducing wage inflation and increasing competitiveness
Providing more workers to support UK’s aging population.
Increasing the number of consumers as well as producers.
But immigration can lead to:
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Loss of valuable skills/human capital – the brain drain
Reducing unemployment in a recession
Emigration can affect the UK labour market by:
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Language and cultural barriers
Visas, work permits and so on, are needed outside the EU
Restrictions by foreign governments.
Government action to regulate Migration
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A points system – potential immigrants score points according to how
well their skills match those needed by the UK.
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The SAWS (Seasonal Agricultural workers scheme) allows farmers
and grower to bring foreign nationals to the UK to do seasonal work.
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