LiBF Unit 2, Question and answers, 100% Accurate, rated A+

LiBF Unit 2, Question and answers, 100% Accurate, rated A+ 1.1 Outline the need for financial planning. - -Make better financial decisions Avoid unnecessary debt Help make decisions on savings, spending and progress in reaching goals Helps show what you have to do to get to where you want to be 1.2 Explain the personal factors which influence financial planning. - -Factors influenced by stage in life cycle Attitude to risk Attitude to Risk - -a. Risk tolerance - how does the individual feel about the possibility of losing money? b. Capacity for loss - how much money can the individual afford to lose? Stages in life cycle - -Childhood 0-12 Teenage 13-19 Young Adult 18-25 Mature Adult 26-40 Middle Age 41-54 Late Middle Age 55-65 Old Age 65+ Each of the stages has its own typical opportunities, challenges and needs. 1.3 Identify sources of financial planning information and advice. - -Advisory services (CAB, Money Advice Service, charities, financial advisers) Financial service providers (banks, building societies, credit unions) Citizens Advice Bureau - -Citizens Advice provides free, confidential and independent advice to help people make the right choices, including help to deal with debt problems, how to avoid losing their home and how to get their finances back into shape. Money Advice Service - -Free and impartial money advice, set up by government. Offers advice and guides to help improve finances. Tools and calculators to help keep track and plan ahead. Support over the phone and online The Money Charity - -empower people across the UK to build the skills, knowledge, attitudes and behaviours, to make the most of their money throughout their lives Financial Advisers - -Independent financial advisers (IFAs) must recommend products and solutions from the whole of the market Restricted advisers can offer products from one company or a limited number of companies Short-term planning - -a period of between one week and 12 months Medium-term planning - -a period of between one year and five years Long-term planning - -a period of five years or more a need - -something that we should - or must - have as part of our life e.g. food, shelter and clothes. a want - -something that a person would like or would aspire to, rather than something that they absolutely need e.g. the latest smartphone personal objectives - -what the individual needs or wants financial objectives - -how much money a person needs to achieve what they want and how best to get there Prudential Regulation Authority (PRU) - -the UK regulator responsible for making sure that financial firms are authorised to operate in the UK and are financially sound Financial Conduct Authority (FCA) - -the UK regulator responsible for the way in which financial firms market and sell their products Financial Services Compensation Scheme (FSCS) - -protects savers' money up to £85,000 per person 1.5 Describe the need to review and adjust financial plans linked to the various stages of the personal life cycle. - -Priorities change when moving from one stage of life cycle to another Anticipating foreseen and unforeseen events Emergency fund Plan should be fluid Emergency Fund - -a pot of money that can be used to cover emergencies, such as unexpected spending, loss of income or other unexpected financial problems Budgeting - -managing day-to-day money to pay bills, buy food, save and pay for other essential spending 2.2 Tools used to manage a personal financial budget - -bank statements; balances; online and telephone banking; keeping track of expenditure; cash flow forecasts Savings options - -deposit accounts, instant access, notice accounts, bonds, Sharia compliant, credit union, ISAs Corporate bonds - -similar to gilts, but the borrower would be a large company, rather than the government. Gilts - -The government issues gilts when it needs to borrow money, and promises to pay a guaranteed rate of interest each year and repay the money at the end of the term. Gilts usually have a fixed term of between 5 and 30 years and are usually bought by large organisations and investment companies Shares - -the shareholder actually owns a share in the company. Shares will go up or down in value, according to how investors and large financial organisations think the company is doing. Deposit - -cash in a savings account Bond - -a savings account that offers a fixed rate of interest for a fixed term Individual savings account (ISA) - -a tax-free savings and investment account Instant access - -a savings account that allows the saver to take out money as and when they need it Notice Account - -a restricted deposit account where you can only withdraw money after giving a notice period Savings interest - -money earned by putting money in a deposit account Personal savings allowance - -the amount of interest that someone can earn on their savings tax-free in a tax year Surplus - -When there is some money left in your account after paying all of your expenditure Shortfall - -When you don't have enough money in your account to cover the amount of all of your expenditure Deficit - -The amount of money that is overspent if expenditure is greater than income Balanced budget - -when expenditure equals the same amount in income 2.3 Calculate the impact of different interest rates on a budget. - -Fluctuation in costs Could result in surpluses and shortfalls Adjust budget accordingly Cash flow forecast - -a tool used to monitor and estimate the money flowing into and out of your bank account over a period of time Credit card - -a form of borrowing offered by banks, building societies and some specialist firms. It allows the cardholder to borrow money by paying for things using the credit card, but is generally the most expensive way to borrow, unless the balance is paid in full every month Mortgage - -a secured loan to help people buy houses or flats. They are offered mainly by banks and building societies and can last for up to 30 years Variable-rate mortgage - -where the interest rate changes whenever the lender changes its rate. It will usually change because the Bank of England base rate changes or because the lender decides to change it for commercial reasons Tracker mortgage - -a type of variable-rate mortgage, but this time the rate will only change if the Bank of England rate changes, because it follows (tracks) the base rate. The interest rate is usually set at a percentage above the base rate. Fixed-rate mortgage - -where the interest rate (and so the monthly payment) is fixed for a number of years - usually for two, three or five years. This is good for people who need to budget carefully, because they know exactly how much they will have to pay each month for a set period Personal loan - -offered by banks, building societies and some specialist firms. It is usually paid back over a much shorter term than a mortgage, and tends to be unsecured, so the providers charge higher interest rates to cover the risk Borrowing interest - -The charge for borrowing money from a financial provider 3.3 Outline the impact of personal spending on society - -Can stimulate economy Savings provide investment in economy Impacts of increased or reduced consumer spending 4.1 Compare the different channels for managing money. - -Paper statements Internet and telephone banking inclu