Personal Finance
Core Part 1.2
Students learn about:
• Earning an income
▫ Types of income
 From work, investments, business ventures and
social welfare programs.
Students learn to:
• Earning an income
▫ Identify the different types of income
Earning an income – types of income
• Income – definition – the money earned from
working and the returns on investments.
• Types of income
▫ From work
▫ Most people make a living by working for an employer.
 An employer is a person or organisation who employs
workers under a contract of employment.
 An employee is a person under the control or direction of
another, according to a contract of employment and in
return for a wage or salary.
Earning an income – types of income
• Types of income – from work
▫ Wages – income received for work done based
on the hours worked each week.
 A person usually works eight hours a day as part
of a normal day’s work.
 Overtime – the amount of time worked in excess
of the standard working hours.
 Penalty rate – a rate of pay that is applied based
on when the work is performed rather than how
many hours are worked. A penalty rate often
applies to weekend work.
 People employed in unskilled or semiskilled
jobs, often called blue collar workers receive
wages. They include factory workers, shop
assistants and office cleaners.
Earning an income – types of income
• Types of income – from work
▫ Salary – income received each year for a job usually
irrespective of the number of hours worked.
 People who receive a salary are employed in skilled jobs,
they are known as white-collar workers. They include
managers, teachers, administrators.
 Some jobs offer flexi time, a system that allows workers to
start or finish at times that suit themselves.
 Flexi time might be built into the daily work hours so that
people work a nine-day fortnight and have a rostered day
off (RDO) over a two week period.
Earning an income – types of income
• Types of income – investments
▫ Return on invested money is considered income.
▫ Interest – income received from investments.
 When a person saves money in a bank account the bank pays interest to
the account holder in return for the use of the money in the account.
 Banks use invested savings to:
 1. Lend the money to other people.
 2. Purchase shares.
▫ Dividends – a payment made to a shareholder of a company as a cash
reward for investing in that company through the purchase of its shares.
It is usually derived from the company’s net profit.
 Shares can be bought in a public company on the Australian share market
or Australian stock exchange.
 A percentage of profit is returned to share holders as a dividend.
Earning an income – types of income
• Types of income – investments
▫ Rent – Income received for the use of a property.
 Usually for a house, townhouse, flat, apartment or factory building.
▫ Royalties – Income from the sale of a piece of work such as a song, a
book or an invention.
▫ Prize money
 Professional sports people like golf and tennis players earn money in this
way.
 Gambling or game shows can earn prize money.
▫ Only considered income if the person receiving is a professional gambler or game
show contestant and earns this type of money regularly.
Earning an income – types of income
• Types of income – business ventures
▫ Fees – income from providing a professional service such as legal advice or
public speaking.
 Fees are received by professionals like accountants, doctors, dentists and
solicitors. These people often follow a schedule of fees set by a professional
association.
▫ Commission – a percentage of the selling price paid to those who act as a
go between, between buyers and sellers.
 People who receive include car salespeople and real estate agents.
 Businesses employ people on a low base salary and allow the
employees to ‘top up’ their income by earning a commission
from the sales they make.
▫ Profits – income from selling goods or services less the cost
of selling the goods or services; that is the excess of revenue
over expenses of running a business.
 Applies to those self employed, that own their own business.
Earning an income – types of income
• Types of income – Social Security
▫ Social Security – payments made by the Australian
federal government to ensure all Australian have a
livable income or enough money to pay for the basic
necessities of life.
▫ Payments include:




Income support
Austudy & Abstudy
Disability & Aged pensions.
Youth & New Start Allowances.
Lingo List - Types of income
Type of income
Wage
Salary
Fee
Commission
Profit
Social Security
Interest
Dividends
Rent
Royalties
Prize money
Definition
Occupation
Activity – Earning an income
• The Brown family consists of John and Elizabeth who own a butcher’s shop.
▫
▫
▫
▫
Their children, Jason, a university student, has a casual job at a hardware store,
Tayla works at the Post Office and plays on the share market for a hobby, and
Evan (15) still goes to school.
Grandma Phyllis (78) lives nearby and is doing very well for her age.
Look at each of these family members.
▫ Identify the major sources of income for each family member.
▫ Choose one family member. Write a description of their type of income and why it
is appropriate for this family member.
Investigate social security payments this family may be eligible for
at:http://www.humanservices.gov.au/
▫ Write a paragraph about your conclusions.
▫ Make suggestions about additional sources of income that
this family may be able to achieve.
Source - Curriculum support education – NSW Government
TPS -Types of income activity
• Think about which of the following incomes would you
prefer?
a) $4o,ooo salary per annum (p.a)
a) 10 per cent commission on expected sales of
$500 000 p.a
a) Base salary of $20,000 p.a plus 5 per cent commission on
expected sales of $500,000 p.a
Discuss your reasoning with the person next to you
Share your answers with the rest of the class when asked.
Students learn about:
• Spending and saving income
▫ Expenditure
▫ Spending patterns and factors which influence the
need for saving.
 Income, age, location, wealth
Students learn to:
• Spending and saving income
▫ Identify fixed and variable expenditure.
▫ Discuss the reasons for saving.
▫ Investigate the relationship between responsible
spending and saving patterns at various life
stages.
Spending and saving
income
• Expenditure – what we spend our income on can
be classified into:
▫ Fixed expenditure –
 Recurring expenses like food, rent, phone, electricity,
car registration, insurance.
 Expenses occur on a regular basis – weekly, monthly
or yearly.
▫ Variable expenditure –
 Expenses that occur irregularly.
 For example buying movie tickets or a new CD.
 The higher our income the more money we have for
variable expenditure.
Spending and saving income
• To save means to put some money aside and spend
it later rather than spend it now.
• Children put savings in:
▫ A moneybox or ……
• Discuss the reasons for saving:▫ Let money grow.
▫ To afford to purchase a good or service like a car or
house.
▫ For retirement.
▫ For a rainy day.
Spending and saving
income
• Spending patterns and factors which
influence the need for saving.
▫ Income
 Disposable income – how much we earn after tax.
▫ Age
 With age comes more responsibilities such as raising a family or caring
for elderly relatives and greater financial commitments such as a
mortgage.
▫ Location
 Costs vary depending on where we live or choose to shop.
▫ Wealth
 The assets we accumulated or inherited.
 How risk adverse we are, that is, how willing we are to take a
chance that we may lose the money.
Spending and saving income –
Activity - money diary
• Create a money diary of your income and spending for a week.
• Separate your income from various sources such as employment,
allowances and gifts.
• Separate your spending into fixed and variable, including food,
entertainment, gifts, transport, telephone and money owed to
others.
• Compare the difference between
income and expenditure and
identify the purpose of any
saved income.
Source - Curriculum support education – NSW Government
Spending and saving activity
• Spending and saving patterns vary across different life stages.
Hypothetical person
A 15 yr old school student who lives at home.
An 18 yr old person who lives at home and:
a) Catches public transport.
b) Owns a car.
A 30 yr old person who has two school age
children and:
a) Rents.
b) Has a mortgage.
A 65 yr old retiree who:
a) Receives the aged pension.
b) Is independently wealthy.
Possible
spending
pattern
Possible
saving and
investing
pattern
Spending and Saving income – Survey activity
• Design a survey to gather information about the spending and saving patterns of
individuals. In the survey include questions such as:
▫ What is most of your money spent on?
▫ Are these expenses fixed or variable?
▫ Is the spending on needs or wants?
▫ What proportion of your income is saved each month?
▫ What are you saving for?
▫ Are your savings for long term or short term goals?
•
The survey is to be conducted by each student with one representative of three age groups:
▫ 15-20 years of age
▫ 30-40 years of age
▫ 60-70 years of age.
• In groups of about 3-4 students tabulate results and comment on the following:
▫ The different reasons for savings for different people
▫ The changing nature of spending and saving according to age
▫ The factors other than age, which would have impacted on the saving and spending patterns
of the people interviewed.
Source - Curriculum support education – NSW Government
Students learn about:
• Borrowing money
▫ Reasons for borrowing
▫ Getting a loan
 Types of loans, lending institutions, ability to repay,
credit rating.
Students learn to:
• Borrowing money
▫ Discuss the reasons for and against borrowing money.
▫ Evaluate the borrowing options for making a substantial
purchase.
▫ Identify specific situations in which individuals should or
should not borrow money.
▫ Compare the advantages and disadvantages of different
types of loans and lenders.
▫ Identify factors affecting an individual’s credit rating.
Borrowing money
• Reasons for borrowing
Advantages
Disadvantages
Can spend more money than you
have at the moment.
When you borrow money you are in
debt.
Do not have to put off spending
until the future when prices may
have risen.
Debt causes difficulties if it starts to
control you such as if you have
trouble making the repayments or
you borrow more to cover your
existing debt.
To purchase major items such as a
house, a car or an overseas holiday.
You need to pay interest on the
money borrowed.
Borrowing money
Four important steps to take when deciding whether to borrow money
• Understand you are going into debt. The principal and interest need to be repaid. What
security is required?
• What is the total amount of the loan (include the principal, interest and additional costs).
Find out the annual percentage rate of interest and whether it is fixed or variable.
• Work out your repayment amount.
• Understand the consequences if you cannot make the repayments.
Activity
• You have decided to buy your first car. You will borrow the money to pay for the car from a
bank.
▫ Choose a car? How much does it cost?
▫ How much do you need to borrow?
▫ What is your security for the loan?
▫ What is the principal, interest and additional costs?
▫ What are your monthly repayments?
▫ When will the car be paid off?
▫ What are the consequences if you cannot make the repayment?
Borrowing options for making a
substantial purchase
Source Commerce dot com Concepts and skills. Second edition. Kleeman, Adnum, Farr, Hamper, Hartley, Lane,
O’Connor page 46
Borrowing money Different loan
options
Activity
Find two examples of each of the
following financial institutions:
a) Australian bank
b) Overseas/foreign bank
c) Merchant bank
d) Credit union
e) Building society
f) Finance company
g) Insurance company
-
What types of loans does
each offer?
Compare the advantages and
disadvantages of each type
of loan.
Source Commerce dot com Concepts and skills. Second edition.
Kleeman, Adnum, Farr, Hamper, Hartley, Lane, O’Connor page 47
Borrowing money activity
•
John and Elizabeth Brown want to borrow $60,000 to upgrade their shop. They have 3 children Evan, Jason
& Tayla.
o The business has a net worth of $200,000 at present.
o Their house is currently valued at $650,000 and they still owe $220,000 on it.
o They also want to take Evan on an overseas holiday to Hawaii before he is too old to travel with his
parents.
o Jason needs money for a car to get to University,
o Tayla needs money to buy her first home and
o Evan wants to borrow for the hire of an expensive suit for the Year 10 Formal this year.
•
Make a table with 5 columns.
▫ Column 1: person (s)
▫ Column 2: amount needed and purchase
▫ Column 3: reasons for borrowing
▫ Column 4: reasons against borrowing
▫ Column 5: recommended form of credit and reasons for choice
•
Use the Internet to find out the features of the major types of credit before completing the following table.
▫ (Consider: store credit, bankcards, credit cards, personal loan, finance company, line of credit, bank overdraft, mortgage
and issues such as: cost, term, credit rating, risk, security, credit limit, deposit, contract)
•
•
Discuss the advantages and disadvantages of borrowing for each of the family members.
Create a table to show the different types of loans (personal, business, home loan-honeymoon and long term) and the
corresponding interest rates charged by 5 different lenders. Examples:
www.national.com.au www.anz.com www.wizard.com.au www.agc.com.au www.aussiehomeloans.com.au
•
Source - Curriculum support education – NSW Government
• http://www.ratecity.com.au/sem/personalloans/lowint/rateascgclid=CNXS1Z6z7qsCFeJKpgodPizqA
A&mch=rcsem&cmp=ds_gl_personalloans&pk
w=personal+loans
• http://www.ratecity.com.au/personal-loans
Borrowing money –
Activity - specific situations
• Assume the following people have come to you for a loan. Choose which person you are most
likely to lend money to and the person you are least likely to lend money to:
a)
Sam Safi currently has two credit contracts. He has always paid his instalments on time. Sam has recently
lost his job and wants to borrow money to help him through this difficult time.
a)
Alice Dingo has been working for 12 years since leaving school. She has never had a loan as she has always
paid for everything with cash. Alice wants to borrow money for a new car.
a)
Joe Cribb was declared bankrupt three years ago after getting into debt to the value of $380,000. He has
been working full time for the last two years and wants to borrow money to go on an overseas holiday.
a)
Danny Grimes defaulted on two loans 10 years ago. He has just finished paying off another loan. He is
working two casual jobs. Danny wants to borrow money to pay for a part-time course.
http://www.ratecity.com.au/sem/personal-loans/low-int/rateasc?gclid=CIjksdaw7qsCFUFNpgodFWVUJg&mch=rcsem&cmp=ds_gl_personalloans&pkw=personal+loans+comparison
Justify your reasoning.
Borrowing money – Credit rating
• Identify factors affecting an individual’s credit rating.
▫ A stable job – More likely to get a loan if have held the same job for a number of years.
▫ An employment history – Difficult to get a job if you have never had a job or have been
unemployed for a long period.
▫ An address history – Less likely to get a loan if frequently move house.
▫ Income details – Need to show you earn enough to repay the loan.
▫ Previous credit history – The financial institution is more likely to lend you money if you
have paid off a previous loan in full and on time.
▫ A listing of your assets – Bank accounts, houses, motor vehicles and life insurance. These
can be used as security if you are unable
to repay the loan.
▫ A listing of your liabilities – Existing loans and other
financial commitments such as rent. You need to show you have
enough money left over to meet repayments.
Credit rating activity
• The Brown family plan to go on a holiday to Hawaii for two weeks, costing $10 000 for the three of
them.
• Given the Brown family will need to get credit for this holiday, investigate the issue of credit rating for
them via www.mycreditfile.com.au
• Use the websites above to answer the following questions about credit rating
▫ Outline the factors that affect your personal credit rating.
▫ Identify the processes involved when a lender assesses whether to
extend your credit.
www.tio.com.au (telecommunications industry ombudsman)
www.aca.gov.au (Australian government communication authority)
▫ How can entering into a mobile phone plan affect your credit rating?
▫ Compare the costs of prepaid phone cards as against signing a
mobile phone contract.
Source - Curriculum support education – NSW Government
Students learn about:
• Managing finances
▫ Features of responsible financial management.
 Budgeting
 Saving
 Monitoring and record-keeping
 Avoiding over commitments
▫ Insurance
Students learn to:
• Managing finances
▫ Use a spreadsheet to prepare a hypothetical household
budget which includes the following categories:
 Income and borrowing
 Fixed and variable expenditure.
 Saving.
▫ Monitor and modify the hypothetical budget.
▫ Identify different types of insurance policies and
discuss their importance.
 Health, car, home, life, income protection.
Managing finances
• Considerations to manage your finances
▫ Determines whether to save, spend, invest or borrow.
▫ Consider whether you are:
 Fully informed about what different financial institutions
offer.
 Fully informed about your rights and responsibilities.
 Wise to take out insurance to cover yourself against loss.
 Able to prepare a budget to help manage your finances.
Managing finances
• Features of responsible financial management:
▫
▫
▫
▫
Budgeting
Saving
Monitoring and record keeping
Avoiding over commitments
Activities
1.
Develop a sentence to describe each of the features mentioned.
2.
Go to website http://www.moneysmart.gov.au/managing-mymoney/saving. Watch Video: Amy talks about saving for a
holiday.
3.
Complete my savings plan worksheet.
4.
Read borrowing basics worksheet. Use the worksheet to develop a fact
sheet titled ‘Avoid over commitments’
Insurance
• Insurance is a risk management plan that takes into account the
probability of something happening and the likely compensation
required in such an event.
• Insurance involves the consumer paying a premium to an insurance provider.
▫
A premium is an amount of money paid for an insurance policy, determined by
the insurance provider, which reflects the likelihood of an event and financially
covers the possibility of a negative occurrence.
▫
If something goes wrong, the consumer makes a claim and the insurance
provider will pay the claimant compensation for the situation.
▫
Compensation is an amount of money deemed sufficient to make up for a loss.
• When an insurer pays compensation to a claimant they lose money, so an
insurer must manage the money they receive via premiums against the risk of a
consumer making a claim. The more claims paid out by an insurance company,
the higher the premium they will charge to cover the outgoing money.
• The premium you pay represents a degree of coverage, which limits the amount
received in compensation.
• Underinsurance is the name given to inadequate financial coverage when
the consumer cannot claim enough money to compensate for a situation.
Source Swirk.com – 9 Commerce Personal Finance
Activity
Define the terms:
• Insurance
• Premium
• Claim
• Compensation
• Underinsurance
Types of Insurance
• Car insurance
• Compulsory third party car insurance covers personal injury suffered during an
accident to ensure financial compensation for accident victims.
• Comprehensive (full) car insurance covers:
▫ Damage to your vehicle;
▫ Any damage that your vehicle might cause in an accident, including personal
injury; and
▫ Theft of the vehicle.
• The insurance provider determines the premium based on the perceived risk, which
usually takes into account:
▫ The age of the driver
▫ Experience of the driver,
▫ The type of vehicle and
▫ Conditions of the vehicle.
• Any evidence that drivers of a particular demographic are
more likely to make a claim means that certain groups
pay a higher premium.
Source Swirk.com – 9 Commerce Personal Finance
Types of insurance
• Home and contents insurance
• This protects a consumer against damage to their
property:
▫ Damage caused by an accident, natural disaster or
vandalism, and
▫ Theft of possessions in the house (contents).
• An insurer may take into account when assessing the
probability and cost of a claim:
▫ The location and type of property,
▫ Presence of security and
▫ The value of the contents in assessing the
probability.
• The amount a consumer will pay as a premium will
reflect the insurer's perception of the risk.
Types of insurance
• Health insurance
• Health insurance ensures that in the event that the consumer needs
medical attention, the insurance provider will compensate the consumer
for the expense incurred.
• There are different types of health insurance:
▫ Some cover only basic preventative treatment, such as dental checks
▫ Others include hospital stays and medical operations.
• Consumers pay a premium based on:
▫ The insurer's perception of risk,
▫ The likelihood of the consumer making a claim.
• If you are in poor health, or have a pre-existing condition, you can
expect to pay more to take out an insurance policy.
•
Source Swirk.com – 9 Commerce Personal Finance
Types of insurance
• Life insurance
• For people who are concerned with the welfare of the people
they leave behind when they die:
▫ Spouse or
▫ Children.
• In the event of the consumer's death, the insurer pays
compensation to the consumer's nominated dependents.
• The amount of compensation will depend on the premium
paid by the consumer and may relate to the circumstances of
death.
Source Swirk.com – 9 Commerce Personal Finance
Types of insurance
• Income Protection
• A form of welfare to cover a loss or
drop in income.
• Income loss may occur through
circumstances like:
▫ Redundancy or
▫ Illness,
• This insurance ensures the claimant continues to receive income.
•
The amount the consumer pays as a premium determines the conditions of a claim
including:
▫ The amount of compensation,
▫ The length of time covered and
▫ In which situations the claimant is entitled to money.
• It is wise to buy this type of insurance if you make regular debt repayments so you
can still meet them if you suffer income loss.
Source Swirk.com – 9 Commerce Personal Finance
Types of insurance
• Travel insurance
• Travel insurance is a special type of insurance that covers a number
of situations you may encounter out of your usual environment,
including:
▫ Transport problems, such as delayed or cancelled flights,
▫ Medical emergencies or
▫ Theft.
• The amount you pay as a premium affects the level of coverage and
the amount you receive as compensation in the event of a claim.
Source Swirk.com – 9 Commerce Personal Finance
Types of insurance
• Public liability
• This covers the general public in the
event that something happens to
them when they are on your
property.
• For example the electrician you hired
trips over the cat sleeping on your front
steps.
Activity
1. Find an
insurance
company that
provides each
type of insurance.
Where to buy insurance
• There are a number of insurance providers that deal
with specific types of insurance, for example
dedicated car insurers or health insurance companies.
1.
Outline which
insurance
products you
would consider
and why.
• There are also general insurance companies that
provide policies for a number of situations.
• Many unions provide income protection insurance
and sometimes a consumer can purchase insurance
for an item at the point of sale.
Source Swirk.com – 9 Commerce Personal Finance
Activity - Select one type of insurance need and research the costs and
benefits offered by the policies of three insurance companies.
Sample sites:
www.aami.com.au, www.nrma.com.au, www.gio.com.au,
www.qbe.com.au, www.justcarinsurance.com.au
Source Commerce dot com Concepts and skills.
Second edition. Kleeman, Adnum, Farr, Hamper,
Hartley, Lane, O’Connor page 53
Students learn about:
• Managing finances
▫ Consequences of poor financial management.
 Financial
 Legal
 Social
▫ Sources of financial advice.
 The financial services industry: the range of organisations and the
services offered.
 The responsibilities of lenders and financial advisers and their
legal obligations.
▫ The laws that regulate and monitor the financial services
industry.
Students learn to:
• Managing finances
▫ Identify the consequences of the misuse of credit.
▫ Identify and critically analyse a range of strategies to solve a variety of
financial problems.
▫ Discuss the factors which may contribute to financial mismanagement in
particular communities.
▫ Research and report on the scope of the financial services industry.
▫ Access and evaluate financial advice provided by a range of
organisations.
▫ Discuss the responsibilities of lenders and advisers when providing
relevant information and advice for individuals and community groups.
▫ Investigate the key changes in consumer laws that protect individuals.
Consequences of poor financial management
• Financial and Legal
•
If you are in debt and are unable to make your repayments it can have serious consequences.
▫
Creditors have a right to recover money they lend. Legally they must initiate a debt
recovery process by serving a default notice.
Activity
Describe
▫ The default notice outlines the debtor's failure to adhere to the terms and conditions of what a
the loan and gives the debtor 30 days to resolve the debt.
hardship
▫ After receiving a default notice a debtor can pursue an application for hardship variation. variation is
and when it
▫ A hardship variation (section 66 of the Consumer Credit Code 1996) involves forcing a can be
creditor to make changes to the conditions in the loan agreement:
applied.
 Reducing the installment amount or
 Postponing repayments for a specified period.
These options extend the term of the loan so the debtor repays the loan when they are
able.
▫
Hardship variation is a temporary solution. Debtors must prove to the creditor:


▫
They have 'reasonable cause', such as illness or unemployment, to pursue this method and
They intend to resolve the debt within a reasonable period.
Debtors cannot pursue this option if:
 The loan amount is above the variable threshold set by the Uniform Consumer
Credit Code or
 The creditor has already commenced formal legal proceedings.
Source Swirk.com – 9 Commerce Personal Finance
Consequences of poor financial management
• Financial and Legal continued
• If your loan agreement involved a mortgage, that is, the use of an asset as security, then the
creditor can apply to have the asset repossessed.
• Repossession is reclamation of an asset to recover a debt. A creditor must make a Statement
of Claim for Repossession, giving the debtor 30 days to resolve the debt.
• Creditors cannot:
▫ Initiate repossession if the debtor has 25% or less to repay on the principal.
▫ Cannot access the asset if it is on private property unless they have a court order to enter the
property. They must then notify the debtor of the goods' value, any additional expenses with
regard to the act of repossession and their rights in relation to recovering the repossessed
item.
• Debtors can apply to postpone repossession (section 86 of the Consumer Credit Code 1996) if
they believe that they will soon be able to meet repayments.
• If you are employed and receive a regular income, creditors can seek a legal order to garnish
your income, which involves the automatic deduction of repayments from your earnings. The
courts decide if this is fair based on your other financial commitments.
Source Swirk.com – 9 Commerce
Personal Finance
Activity - Define repossession and garnish
Consequences of poor financial management
• Financial and Legal and Social
• Bankruptcy is a form of legal protection that shields a debtor from actions
by a creditor.
▫ Debtors can opt to resolve their financial difficulty in this manner or
▫ Creditors may force bankruptcy on a debtor to prevent financial operation.
• Bankruptcy means the debtor does not need to meet their repayment
obligations, but
▫ This status prevents them from borrowing money, usually for three years.
▫ It remains on record with a credit-reporting agency for seven years, which limits
future applications for credit.
▫ The bankrupt cannot serve as director of a company.
▫ Courts monitor their income, restricting their standard of living.
▫ The stigma may affect business credibility for the bankrupt's future ventures.
• Any action against a debtor affect their credit rating when they apply for
credit in the future.
Source Swirk.com – 9 Commerce Personal Finance
Activity
Define bankruptcy.
What are the implications of being declared bankrupt?
Consequences of poor financial
management – Debt consolidation
• This involves combining all your debts into one
debt.
• This reduces interest costs especially when the
interest rate of the single loan is lower than those of
the individual credit cards and personal loans.
• The secret to making it work is to maintain
repayments and stop borrowing further. It is also
important to consider fees related to consolidation.
Consequences of poor financial
management – Debt collectors
• Debt collectors can start pursuing you for the lenders’ money.
• There are legal limits on what debt collectors are allowed to do:
▫ If they visit you at home they should have already contacted you by either
mail or telephone.
▫ Home visits should be between the hours of 7.30am and 9.00pm and not
on a Sunday or public holiday.
▫ They should leave your home immediately upon being asked.
▫ They should only contact you at work as a last resort or if you expressly
asked them to contact you at work.
Activity – Go to www.accc.gov.au or use brochure on debt collectors
from ASIC Search for information on debt collectors. Write a report
that describes what debt collectors do and the rights of consumers.
Strategies to deal with financial
Strategies:
difficulties.
o
Advise your lenders. Explain your problem so
between you, you can work out a repayment
plan.
o If your difficulty is short term such as
illness a credit provider may allow you to
defer (postpone) payments or extend the
loan period until you have recovered.
o If you unable to resolve the situation with your
credit provider or feel your debt is getting out
of control there are a number of individuals
and organisations who can advise you.
o Professional advice can be obtained from
an accountant, a lawyer, a specialist legal
centre or financial adviser.
Source Commerce dot com Concepts and skills. Second edition.
Kleeman, Adnum, Farr, Hamper, Hartley, Lane, O’Connor page 57
Activity – Use comic life to design an
informative poster on how best to manage
your finances.
Credit Cards – A source of
poor financial management
Source Commerce dot com
Concepts and skills. Second
edition. Kleeman, Adnum,
Farr, Hamper, Hartley,
Lane, O’Connor page 48
• Do the What is your credit card IQ? Quiz on the Mint site at:
• www.themint.org/owingwhatisyourcreditiq.php.
Source - Curriculum support education – NSW Government
Avoid the credit card trap
 Credit cards make it easy for people to spend money they may not have,
and accumulate rewards they may never collect. For these privileges many
users pay far more than expected in fees and other charges.
 If you pay off your card each month choose the card with the longest interest-free period.
 If you don’t pay off your card each month:
 Choose a ‘no-frills’ card with the lowest possible interest rate.
 Beware ‘honeymoon’ rates, which may revert to a rate higher than other cards.
 Be aware that interest will be charged on every purchase from the date of the purchase and will keep
accumulating.
 Find out whether there is an annual fee.
 If the card has a loyalty scheme, find out:
 How many points you will earn per dollar spent
 The lifespan of the rewards.
Case Study – People in financial difficulty
• Go to the MoneyStuff site at
http://www.moneystuff.net.au/ Find a case study of
people in financial difficulties.
• Provide an outline of a difficult financial situation and
how it occurred.
• Create a table and use it to summarise the possible
financial, legal and social consequences of the situation.
• What strategies might be used to address this financial
problem?
• What would you recommend to assist other people to
avoid this problem?
Source - Curriculum support education – NSW Government
Sources of financial advice
• Family and friends provide free advice.
• Obtain information from the money sections in the daily
newspaper, investment books and magazines and
seminars.
• Financial institutions have customer service officers who
can discuss your needs or provide brochures detailing
their products and services.
• Financial planners and advisers can provide advice on
different financial options and help you understand
terminology and the process involved
Financial advice
• Go to
http://www.moneysmart.gov.au/investing/financial
-advice/choosing-an-adviser.
▫ Identify the steps you should take to choose a financial
adviser.
• Go to http://www.moneysmart.gov.au/tools-andresources/check-asic-lists/check-a-financial-adviser
▫ Identify the steps you should take before you engage a
financial adviser.
Laws that monitor and regulate the
financial services industry
• The National Consumer Credit Protection Act 2009
▫ Consumer credit - transfer of power to the
Commonwealth
▫ On 1 April 2010 the NSW Credit (Commonwealth
Powers) Act 2010 transferred power to regulate credit
and finance broking to the Commonwealth.
 The power to require credit providers and brokers to
register with ASIC before 1 July 2010 took effect
immediately.
 Industry members were required to register in order to
continue or commence trading prior to obtaining a
licence, that process started on 1 July 2010.
The National Consumer Credit
Protection Act 2009
• Credit laws provide you important protections such as requiring
certain information to be disclosed on the loan contract:
▫ The right to apply for a repayment arrangement on the grounds of financial
hardship
▫ A default notice giving at least 30 days to repay any arrears must be issued before
court action or repossession
▫ Procedures to be followed for the repossession of goods (which includes cars).
• As a guide, the Credit Code or Credit Act will apply if:
▫
▫
▫
▫
▫
There is a loan (“deferred debt”)
The lender is in the business of providing loans
A charge is made for providing the credit (e.g. interest or fees)
The loan is predominantly for personal, domestic or household purposes
The loan is for the refinance, purchase or improvement of an investment property
(Only for loans granted on or after 1 July 2010)
▫ The debtor is a natural person ordinarily resident in Australia
▫ The loan contract was signed on or after 1/11/96. The exception is credit cards
(and other continuing credit contracts) where the contract may have been signed
at any time (even prior to 1/11/96).
Activity - Identify the loans the Credit Act applies to.
Use webiste - http://www.cclcnsw.org.au/fact-sheets/getting-a-loan/does-the-consumer-credit-code-apply/
The Financial Services Reform Act (FSR Act)
• The FSR Act commenced on 11 March 2002. It was the culmination of an
extensive reform program.
• The Act aims to provide better protection for consumers and
investors in the financial services industry by having a single
licencing system and improved disclosure of information.
▫ Anyone who provides financial services must first obtain a financial services
licence.
▫ Financial service providers must now give their clients:
 A product disclosure statement including any information that might influence the
client’s decision to go ahead with the product or service.
 A financial services guide before any service is provided.
 A statement of advice whenever financial advice is provided.
• The regulatory framework covers a wide range of financial products
including securities, derivatives, general and life insurance,
superannuation, deposit accounts and means of payment facilities.
Source http://www.asic.gov.au/asic/asic.nsf/byheadline/About+FSR?openDocument and Source Commerce dot com Concepts
and skills. Second edition. Kleeman, Adnum, Farr, Hamper, Hartley, Lane, O’Connor page 52
Australian Securities and
Investments Commission
(ASIC)
Source http://www.westwoodsbga.com.au/images/asic-logo.jpg
• ASIC regulates and monitors the finance industry
through various regulations and provides advice for
people thinking about saving, investing, superannuation
and insurance.
• Activity Go to www.asic.gov.au
▫ 1. Go to About ASIC on the website. Choose our role.
Summarise the role of ASIC under the heading
‘What we do’
▫ 2. Go to Credit on the website. Choose credit licensing.
Outline the requirements to engage in credit licensing.
Sources of financial advice - Activity
• Use the following websites to research organisations that can provide financial
advice. Then answer the questions below.
•
•
•
•
•
•
•
•
•
•
•
www.lawstuff.org.au
www.fairtrading.nsw.gov.au
www.choice.com.au
www.consumersonline.gov.au
www.asic.gov.au
www.fido.asic.gov.au
www.fpa.asn.au
www.nevilleward.com.au
www.axa.com.au
www.amp.com.au
www.national.com.au
• Are all financial advisers trained professionals?
• How do you know whether your financial adviser is going to pressure you into
specific products for their own personal gain?
• What laws are there to regulate and monitor the financial services industry?
Source - Curriculum support education – NSW Government
Students learn about:
• Investing money
▫ Reasons for investing.
 Major purchase, extra income, retirement.
▫ Overview of investment options.
 Shares, property, superannuation, managed funds.
Students learn about:
• Investing money
▫ Analyse reasons for saving and investing and for
postponing consumption for future gain.
▫ Recognise the relationship between risk and
return by investigating investment options.
▫ Create a portfolio of share using a database and
modify the portfolio using changes in share prices.
Reasons for investing
Use Free mind to
create a mind map
to illustrate the
reasons for
investing.
Sort the answers
under the
headings of:
major purchase,
extra income,
retirement.
Source Commerce dot com Concepts and skills. Second edition. Kleeman,
Adnum, Farr, Hamper, Hartley, Lane, O’Connor page 52
Investing money –
newspaper activity
• Collect and paste in your book 5 newspaper
advertisements, one for each of banks, credit
unions, finance companies, share
opportunities and real estate investments.
• Create a table to summarise the information
provided in the advertisements. For each
advertisement locate the information about:
rate of return (income/profit), risk (high/low
chance of gain or loss) and liquidity (access
to money/term).
• Select which investment you would choose
for an investment and write a paragraph to
explain your reasons why.
Activity using http://www.moneysmart.gov.au
Prepare a power point slide to give an overview
of each of the investment options listed in
figure 2.2b.
Source Commerce dot com Concepts and skills. Second
edition. Kleeman, Adnum, Farr, Hamper, Hartley, Lane,
O’Connor page 44
The relationship between risk and
return
• When we invest money we expect a return that is a
financial benefit.
• The higher the return the greater the risk we could lose
our money.
• Banks are the most secure because there is a low risk of
losing money. Different bank accounts provide different
levels of return.
• Shares are most risky. Shares provide part ownership in
a company. The risk is the company may not make profit
or may go bust.