Module: Personal Finance
Lecture 4 – Debt
Learning Objectives
The role of debt in society and economics
The wide variety of lending products available
The relative cost of different forms of borrowing
The different circumstances when borrowing might be sensible or
inappropriate
Why do it?
It allows you to manage expenditure to match your needs.
There is a relationship between debt, borrowing credit and accounting.
Dr Expenses or assets
Cr Loan
A business will get a loan in order to grow their business.
People get loans to increase their assets or get it for expenses.
Developments in 1990s and 2000s
Total household debt to income level peaked at about 150% in 2007
Income had expanded but debt levels increased at an even higher rate
Rising house prices encouraged homeowners to take out second mortgages
Use of unsecured debt to fund holidays and special occasions rather than
using savings
Often for home improvements
Greater use of credit cards
Consumers have continued to borrow more and more outside of essential
borrowing
Essential borrowing: mortgage, student loan etc. It is where you take out a
loan to better yourself.
Bank of England
Lecture 4 – Debt
Learning Objectives
The role of debt in society and economics
The wide variety of lending products available
The relative cost of different forms of borrowing
The different circumstances when borrowing might be sensible or
inappropriate
Why do it?
It allows you to manage expenditure to match your needs.
There is a relationship between debt, borrowing credit and accounting.
Dr Expenses or assets
Cr Loan
A business will get a loan in order to grow their business.
People get loans to increase their assets or get it for expenses.
Developments in 1990s and 2000s
Total household debt to income level peaked at about 150% in 2007
Income had expanded but debt levels increased at an even higher rate
Rising house prices encouraged homeowners to take out second mortgages
Use of unsecured debt to fund holidays and special occasions rather than
using savings
Often for home improvements
Greater use of credit cards
Consumers have continued to borrow more and more outside of essential
borrowing
Essential borrowing: mortgage, student loan etc. It is where you take out a
loan to better yourself.
Bank of England
