Unit 3 - Personal and Business Finance Kinga Jaronczyk
Revision Notes
Functions of money (Money has Functions 4 medium, measure, standard, store) -
❖ Unit of account
➢ Money can be used to place a value on goods and services. You can exchange
money for an equipment value in goods and services - this is the price.
❖ Means of exchange
➢ Money is used to sell, buy or trade goods and services. Money makes this process
simpler, otherwise, products and services would be used in means of swapping to
trade (bartering).
❖ Store of value
➢ Money has value. It can be stored, e.g. in a bank, and then used in the future to
purchase goods and services.
❖ Legal tender
➢ Money is the legal means you use to pay for goods and services. Legal tender is the
national currency of a country. It is the official method of payment.
Roles of Money -
❖ Personal attitudes
➢ Personal attitudes towards risk and rewards
➢ How a person chooses to borrow, spend and/or save money
❖ Life Stages
➢ As a person goes through the 5 life stages;
■ Childhood
■ Adolescence
■ Young Adult
■ Middle Age
■ Old Age
➢ One's financial priorities and needs may change.
❖ Culture
➢ A person's background, culture, religious beliefs and/or ethical principles may shape
one's view of money.
❖ Life Events
➢ Major life events can affect a person's view of the value of money;
■ Moving home
■ Made redundant
■ Repossession of house
❖ External Influences
➢ The events outside a person's control;
■ The state of the economy
■ Availability of jobs
❖ Interest Rate
➢ May have a major impact on whether a person decides to save or borrow.
■ Low-interest rates - are good for borrowers but not savers
■ High-interest rates - make money's value expensive to borrow but savers
receive more interest on their deposits.
1
, Unit 3 - Personal and Business Finance Kinga Jaronczyk
Revision Notes
Planning Expenditure - (It is important to plan out expenditures to mostly avoid getting into
financial difficulty.)
❖ Why plan expenditure?
➢ Control costs
➢ Avoid legal action and/or repossession of goods or your home
➢ Provide insurance against loss or illness
➢ Avoid Bankruptcy
➢ Maintain a Good Credit Rating
➢ Generate income & Savings
➢ Manage money for funding purchases
➢ Set financial targets & goals
➢ Counter the effects of inflation
➢ Avoid getting into debt
❖ Benefits of Planning (Careful planning will help to ensure you have money to meet future
financial needs.)
➢ A good credit rating means a person would be able to borrow money to fund a large
purchase.
➢ Money not spent on essentials can be saved & earn interest to generate an income.
➢ Savings can be used to fund purchases or be available to pay for unexpected
expenses.
❖ The Risks of Not Planning (Failure to control expenditures may mean you are at risk of;)
➢ Getting into debt because you cannot pay bills
➢ Having insufficient funds to pay loan repayments
➢ Having legal action taken against you for non-payment of loans or losing goods that
you are unable to pay for (repossession)
➢ A poor credit rating, which affects your ability to borrow money
➢ Not being able to save for the future
Ways to Pay - (There are many different ways to pay for products and services.)
❖ Cash - notes & coins
➢ Accepted in most places
➢ Can be stolen or counterfeited
➢ Cannot be used for online purchases
❖ Debit Card - issued by banks
➢ Payment is taken directly from the cardholder’s bank account
➢ A secure method, no need for cash
➢ ‘Contactless’ cards can be used for small amounts
➢ Minor risk of cardholder overspending
➢ Online purchases available may encourage overspending
➢ Risk that cards details may be hacked
❖ Credit Card - issued by banks & financial companies
➢ Goods and services are paid for directly by the card issuer
➢ The cardholder receives short interest-free period, usually a month, on the amount
borrowed
➢ Card issuer charges interest on the balance outstanding after the interest-free period
➢ Risk of cardholder overspending and getting into debt
➢ Can be used for online purchases which may encourage overspending
➢ The risk that card details may be hacked
➢ Some retailers charge a fee for payments made by credit card
2
Revision Notes
Functions of money (Money has Functions 4 medium, measure, standard, store) -
❖ Unit of account
➢ Money can be used to place a value on goods and services. You can exchange
money for an equipment value in goods and services - this is the price.
❖ Means of exchange
➢ Money is used to sell, buy or trade goods and services. Money makes this process
simpler, otherwise, products and services would be used in means of swapping to
trade (bartering).
❖ Store of value
➢ Money has value. It can be stored, e.g. in a bank, and then used in the future to
purchase goods and services.
❖ Legal tender
➢ Money is the legal means you use to pay for goods and services. Legal tender is the
national currency of a country. It is the official method of payment.
Roles of Money -
❖ Personal attitudes
➢ Personal attitudes towards risk and rewards
➢ How a person chooses to borrow, spend and/or save money
❖ Life Stages
➢ As a person goes through the 5 life stages;
■ Childhood
■ Adolescence
■ Young Adult
■ Middle Age
■ Old Age
➢ One's financial priorities and needs may change.
❖ Culture
➢ A person's background, culture, religious beliefs and/or ethical principles may shape
one's view of money.
❖ Life Events
➢ Major life events can affect a person's view of the value of money;
■ Moving home
■ Made redundant
■ Repossession of house
❖ External Influences
➢ The events outside a person's control;
■ The state of the economy
■ Availability of jobs
❖ Interest Rate
➢ May have a major impact on whether a person decides to save or borrow.
■ Low-interest rates - are good for borrowers but not savers
■ High-interest rates - make money's value expensive to borrow but savers
receive more interest on their deposits.
1
, Unit 3 - Personal and Business Finance Kinga Jaronczyk
Revision Notes
Planning Expenditure - (It is important to plan out expenditures to mostly avoid getting into
financial difficulty.)
❖ Why plan expenditure?
➢ Control costs
➢ Avoid legal action and/or repossession of goods or your home
➢ Provide insurance against loss or illness
➢ Avoid Bankruptcy
➢ Maintain a Good Credit Rating
➢ Generate income & Savings
➢ Manage money for funding purchases
➢ Set financial targets & goals
➢ Counter the effects of inflation
➢ Avoid getting into debt
❖ Benefits of Planning (Careful planning will help to ensure you have money to meet future
financial needs.)
➢ A good credit rating means a person would be able to borrow money to fund a large
purchase.
➢ Money not spent on essentials can be saved & earn interest to generate an income.
➢ Savings can be used to fund purchases or be available to pay for unexpected
expenses.
❖ The Risks of Not Planning (Failure to control expenditures may mean you are at risk of;)
➢ Getting into debt because you cannot pay bills
➢ Having insufficient funds to pay loan repayments
➢ Having legal action taken against you for non-payment of loans or losing goods that
you are unable to pay for (repossession)
➢ A poor credit rating, which affects your ability to borrow money
➢ Not being able to save for the future
Ways to Pay - (There are many different ways to pay for products and services.)
❖ Cash - notes & coins
➢ Accepted in most places
➢ Can be stolen or counterfeited
➢ Cannot be used for online purchases
❖ Debit Card - issued by banks
➢ Payment is taken directly from the cardholder’s bank account
➢ A secure method, no need for cash
➢ ‘Contactless’ cards can be used for small amounts
➢ Minor risk of cardholder overspending
➢ Online purchases available may encourage overspending
➢ Risk that cards details may be hacked
❖ Credit Card - issued by banks & financial companies
➢ Goods and services are paid for directly by the card issuer
➢ The cardholder receives short interest-free period, usually a month, on the amount
borrowed
➢ Card issuer charges interest on the balance outstanding after the interest-free period
➢ Risk of cardholder overspending and getting into debt
➢ Can be used for online purchases which may encourage overspending
➢ The risk that card details may be hacked
➢ Some retailers charge a fee for payments made by credit card
2
