PERSONAL FINANCE
Week 4 term 2
Earning an income
Different types of income
What is income?
income
 Money earned from working and the returns on
investments. However, there are many different ways to
earn an income.
 In a commercial economy, most people make a living by
working for an employer
 In Australia, nearly 86% of people are classified as
employees
Source of income
Type of income
Working for an employer
Wage, salary, fee, comission
Working for yourself: running your own business
P
Payments from the government
S
Investing savings and retirement money
I
Renting out property
R
Creating something new, such as writing a book
or composing music
R
Playing professional sports or being a professional
gambler
P
S
D
M
What is a...?
 Wage
 Salary
 Fee
 Commission
 Profit
 Social security
 Interest and dividends
 Rent
 Royalties
 Prize money
WAGE
A wage is the money paid by an employer to an employee for a period of work.

 What type of people are paid a wage?
 The period is usually a week and the hours worked by the employee in the given period will determine
the amount of wages the employee receives
 E.g. A person working 40 hours in a week at $8 an hour will be paid $320 (40x$8)
TASK: find out what is the minimum wage in Australia?
Why do we need a minimum wage?
Are there any ‘western’ countries in the world that don’t have a minimum wage?
How many hours a day is a worker required to work generally?
Do most countries work the same hours every week?
 Overtime: each hour worked over 8 is considered overtime and must be paid at a higher hourly rate to
compensate for the longer hours. So, if a person works for 10 hours, then eight will be paid at the
normal wage rate and two will be paid at the overtime rate. Usually time an a half. Sundays? Politics?
Travel for work?
 Penalty rate: rate is applied based on when a person works rather than how many hours are worked.
E.g. A person who works Monday to Friday may be asked to work a public holiday..employee might
get double time for working outside normal working hours
SALARY
 A salary is paid to people who are employed on a yearly basis. This means
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their rate of pay is based on an amount per year rather than an amount
per hour or week
Salary –earners are employed on this basis because their job usually
requires flexible working hours rather than a normal nine-to-five
arrangement
Generally, people who receive a salary are employed in skilled jobs e.g.?
White collar workers
SOME salaried jobs offer workers flexitime where workers are allowed
to start or finish at times that suit them. E.g. A worker may prefer to
start at 7.30 and finish at 3.30 or start at 9.30 and finish at 5.30 – same
number of hours but at times that suit the employees
Flexiday – workers are allowed to accumulate extra hours or work over a
period of time and then apply for a day off (flexiday)
Nine day fortnight and have a rostered day off RDO
WAGE VS SALARY: QUESTIONS TO
ANSWER
 Explain the difference between a wage and
a salary
 What is overtime?
 Do you think sportspeople should earn
such high incomes? Why?
FEES
 Set charge by a professional for the completion of a job or task.
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Professionals such as accountants, doctors, dentists and solicitors receive
fees.
Often follow a schedule of fees, which may be set by a professional
association e.g. The AMA
Most doctors charge about the same for a simple consultation and most
accountants charge the same fee for filing a tax return
Fees are also paid to people in the performance and creative arts
professional, such as musicians, artists and actors
Guest speakers
 All these people will usually sign a contract or agreement which states
what activities they must perform in order to earn their fees
COMISSION
 A commission is usually paid to those who act as an
agent, or go-between, between buyers and sellers.
When a product is sold, the agent will be paid a
commission which is usually a percentage of the selling
price. E.g. ?
 Why might this not suit people?
 How can this be resolved?
HOMEWORK
 Please find attached slides from today’s lesson. Those of you away
make sure you read up to salary!
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 Questions due for class on Thursday are as follows!;
 1.find out what is the minimum wage in Australia? (ensure you
find out what it is for 14 y/old 16 y/old and adult!
 2.Why do we need a minimum wage?
 3.Explain the difference between a wage and a salary
 4.Do you think sportspeople should earn such high incomes?
Why?
 See you all Thursday.
Profits
 Self-employed – those who own their own business and
receive their income by making
PROFIT
 Business owners usually employ other people to help them
make a profit.
 What is profit? The amount of income that is left over after
all the business’s expenses are paid for
 What are a businesses expenses?
Social Security
 The federal government provides are range of SOCIAL
SECURITY payments that ensure all Australians have enough
money to pay for the basic necessities of life
 E.g.?
 Unemployment benefits – job search allowance
 The ages pension
 The invalid pension
 Are these payments considered a source of income?
Interest and dividends
 What are interest and dividends?
INTEREST
 The return on invested money is regarded as income!
 Common way to save money is with a bank. Most people in
Australia have bank accounts. 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.
 How do banks use holders’ invested savings?
DIVIDENDS
 Another way to invest money is by purchasing shares on the
Australian share market or stock exchange.
 What is this?
Stock exchange and dividends
continued..
 When a public company makes a profit the
SHAREHOLDERS in the company normally receive a
percentage of the profit based on the number of shares they
own.
 This payment is called a DIVIDEND
 http://www.asx.com.au/
Rent
 Is the money paid for the use of someone else’s property -
usually a house, townhouse, flat or apartment. There are
many different types of property that can be rented e.g.?
Royalties
 Type of income paid to a person who
Produces a piece of work such as?
A song, a book...an invention...and a
Copyright or patent is granted to protect the creator’s intellectual
property
Harry Potter – royalty payments from publisher of book also film
CREATIVE COMMONS: http://creativecommons.org.au/about
Prize money
 Small % of people earn their income from prize money
 Can you guess who?
 The money is ONLY considered to be income if the person
receiving the prize money is a PROFESSIONAL gambler or
game show contestant and earns this type of money regularly.
EXCURSION
MONDAY 30th May at 8.45am we depart so be at the bus!
What is good about shopping centres like Westfield?
Do you like or dislike shopping centres like Westfield?
What is the alternative?
Westfield and its founder?
HOMEWORK: Find out how many Westfields there are and what countries they are in.
http://www.youtube.com/watch?v=nOLv5oRNVZ0
http://www.abc.net.au/tv/familyconfidential/#/the-lowys-episode
Spending and saving income
 What do you spend and what do you save?
 What we spend on our income can also be classified into fixed and
variable expenditure:
FIXED: recurring expenses such as...?
VARIABLE: expenses that occur irregularly...?
GENERALLY... The higher the income the more money we have for
variable expenditure..
E.g. People shopping at Westfield Bondi Junction
Is this always the case?
Spending and saving income
 The older we get the more responsibilities we have and greater
financial commitments e.g.?
 http://www.theaustralian.com.au/news/nation/richest-schoolsadd-higher-fees-to-funding-pool/story-e6frg6nf-1225973586825
Saving money
 To save means to put some money aside and spend it later
rather than spend it now
 Piggybank VS Bank?
Why do people save?
Why do people save?
 Most common reason is that people can’t afford to purchase a
good or service now because they don’t have enough money.
 The relationship between spending and saving is not only
determined by how much a good cost to buy.
 A number of other factors contribute to our decision to sped or
save, including:
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Our age
Our disposable income (how much income after tax)
How much wealth we have already accumulated
Whether we are an impulse buyer or a ‘scrooge’
How risk averse we are (how willing we are to take a chance tha we
may lose the money)
Hypothetical person
Possible spending pattern
(fixed vs variable)
Possible saving and investing
pattern
A 14/15 year old school girl who Variable: we pay for nothing!
lives at home
We don’t invest!
An 18 year old student who lives
at home and owns a car
Fixed:fuel each week $40
Variable: car repairs
books
Investing in her education!
An 18 year old person who lives
away from home and goes to uni
full time and has a part time job
Fixed: rent, bills, telephone
Variable: movies, drinks, dates,
music concerts, holidays, uni
books
Share portfolio investments in
resource companies Woodside,
Rio Tinto
A 30 year old person who has
two school age children and has a
mortgage
A 70 year old female retiree who
is
a)Independently wealthy
b) Receives the aged pension
a) fixed: phone, internet
b) Variable: clothing, holidays,
fine dining, lots of clothes for
grandchildren and
particularly the
granddaughters
Borrowing money
Why do people want to borrow
money?
WESTFIELD BOOKLETS
CONVENIENT!
Borrowing money
 People borrow money because they wish to spend more money
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than they have at the moment.
They don’t want to put off their spending until the future when
prices may have risen, instead they want to purchase their nee dor
want NOW.
Most Australians have to borrow money to purchase major items
such as a house, a car or an overseas holiday
Some people borrow money to invest in the share market or
property market
Businesses also borrow money to help finance their operations and
expansion plans
 What is the best reason to borrow money?
Borrowing money..what it all means
 When you borrow you are in DEBT
 Is this a problem?
 You must be able to control and make the repayments
 Debt causes difficulties if it starts to control you: when may
this happen?
Borrowing money
 Debt may start to control you when you have trouble making repayments or
you borrow more to cover your existing debt
 What is the PRICE attached to borrowing?
Loan principal= the money that is borrowed
Repayment= loan principal + INTEREST
When individuals or businesses borrow money, the main cost they need to pay is
the interest charged by the lending institution. The interest charged on the
loan principal will depend on the interest rate per annum, the duration or the
loan, and the amount of the loan repaid each month!
 Different loans have different interest rates. Interest rates can be either fixed
or variable. A fixed IR (interest rate) means the rate does not change for the
duration of the loan. A variable rate, on the other hand, means that the lender
can change the interest rate at any other time during the loan...
Where can people
go to borrow
money?
Where to borrow money?
 Insurance companies
 Banks
 Merchant banks
 Finance companies
 Credit unions
 Building societies
What is the best known lender of money in Australia?
Find definitions of each of the following
terms:
 Insurance companies
 Banks
 Merchant banks
 Finance companies
 Credit unions
 Building societies
How do financial institutions make
their money?
 To ensure financial institutions are profitable, the interest
people receive from saving is less than the interest they pay
when they borrow
 This is why borrowing is costly
 Before you decide to borrow there are a number of issues to
consider...
What factors will affect your
ability to get a loan?
What factors will affect your ability to
get a loan?
 All financial institutions will ensure that you can satisfy a
number or requirements before they will grant you a loan.
 This is known as a CREDIT CHECK and takes into account
the following factors and whether or not you can meet them:
 A stable job
 An employment history
 An address history
 Previous credit history
 A listing of your assets
 A listing of your liabilities
Who would you loan to...?
A)
B)
C)
D)
Sandy Soldi currently has two credit contracts. He has always paid his
instalments on time. Sandy has recently lost his job and wants to
borrow money to help him through this difficult time.
Daria Denuto has been working for 12 years since leaving school. She
has never had a loan as she had always paid for everything with cash.
Daria wants to borrow money for a new car.
Jose Johanessen was declared bankrupt three years ago after getting
into debt to the value of $380 000. He has been working full time for
the time for the last two years and wants to borrow money to go on
an overseas holiday
Eduardo Echaverria 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.
Managing finances
Sources of financial advice?
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
Sources of financial advice
 Money sections in newspapers
 Investment books and magazines
 Seminars, including those run by the Australian Stock
exchange
 Financial planner or adviser
 To find out whether a financial adviser is accredited with the
Financial Planning Association visit its website
www.fpa.asn.au
Laws that monitor the regulate the
financial services industry
 The consumer credit code: www.creditcode.gov.au
 Legislation enforceable in certain situations where credit is
offered. The code was developed as a national incentive to
standardise credit practices in Australia. It applies in each
Australian state and territory through that particular state’s
or territory’s own acts or legislation. IN NSW it applies
under the Consumer Credit (NSW) Act 1995:
Managing finances
 Features of responsible financial management:
 Budgeting
 Saving
 Monitoring and record-keeping
 Avoiding over commitments
Consequences of poor financial
management
 Financial
 Legal
 social
Laws that monitor the regulate the
financial services industry
 The consumer credit code
Investing money
Reasons for investing
 Major purchase, extra income, retirement
 Overview of investment options
- shares, property, superannuation, managed funds
What are the consequences of poor
financial management?
What happens if you are unable to pay for all your expenses of
have borrowed money, then you are in debt.
Debt is not a problem..unless?
You start having trouble making repayments..
What are the different scenarios that could occur?...
POOR FINANCIAL MANAGMENT
Consequence 1: Debt Consolidation
Consolidate all debts into one debt such as your mortgage.
This reduces interest costs when the interest rate of the
single loan is lower than those of the individual credit cards
and personal loans.
The secret to making this work is to maintain your repayments
and stop yourself from borrowing further.
There may also be fees involved with debt consolidation.
DEBT COLLECTORS
What is a debt collector?
DEBT COLLECTORS
 May 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 mail or
telephone
 Home visits cannot be used as a means of intimidation or harassment
 The Australian Competition and Consumer Commission (ACCC) guidelines
for debt collection specify that a debt collector should only visit your home
between 7.30am and 9pm
 They are not allowed to contact you on a Sunday or on public holidays.
 A debt collector should also leave your home immediately upon being asked
 Debt collectors should only contact you at work as a last resort or if you
have expressly asked them to contact you at work.
WHY?
BANKRUPTCY
 You may file for bankruptcy...
Why would you do this?
 If you are on a low income, declaring yourself bankrupt ay
seem an easy way to clear all your debts
 By filing for bankruptcy through the courts, you no longer
have an obligation to repay your debts...see article..
 However, once you have been declared bankrupt, it remains
on record with the Credit Reference Association for the next
seven years
 What will this mean??
 Can you bounce back from bankruptcy?
DEBT COLLECTORS ACTIVITY
 Go to the ACCC website and search for information on debt
collectors. Write a report that describes what debt
collectors do and the rights of consumers
http://www.accc.gov.au/content/index.phtml/itemId/142
TOMORROW!!!
Want to get rich? Invest like a girl
AND
INVESTING BOOKLET!
PLUS: TRAVEL OR ANOTHER OPTION?!?!
What companies would you invest in?
YOUR TASK:
Try and come up with 5 companies you think would be good to
invest in and answer the following questions on the
companies:
1. What is the company and its core business
2. How many employees does the company have
3. How long has it been running
4. What is the company work: market capitalisation
5. Why do you believe this company is a good investment?