Savings ECO

Question Answer
1. Things you need in a budget A list of your spending each week. Can keep receipts to do this.
2. Things you need in a budget Your bank statements and bills for at least the last three months. Will show how much you've been spending on rent, credit cards e.t.c.
3. Things you need in a budget A list of costs that you pay from time to time. e.g medical expenses, car liscensing, gifts + holidays.
4. Things you need in a budget A list of income, benefits or other government support or interest earned form savings.
5. Things you need in a budget A list of any regular savings you make
Define Interest Rate Part of a loan that is charged as interest to the borrower,
Define APR Annual percentage rate A.K.A interest RATES. It stands for the annual percentage rate.
Explain Interest (NOT INTEREST RATES) Interest is essentially a rental or leasing charge to the borrower for the asset's use and using the asset.
How is interested charged Interest is charged from the lender's (or bank's) as compensation for you using their asset.
Define saving Savings are your disposable income that is NOT SPENT. Some of your disposable income is spent so the rest is savings.
What is disposable income? Your income with tax already deducted.
Explain how compound interest works Compound interest is interest earned on interest and it works best if you give it time to fructify.
Define fructify Grow overtime
When is the best time to start saving? NOW!
What is the rule of 72 72 divided by INTEREST RATE = How many years for your money to double
How long will it take for the savings to double: $20,000 saving at an interest rate of 6% 72 divided by 6% = 12 years.
Is interest rates good? It depends whether your are the SAVER or the BORROWER
The magic of Compund Interest Over time, interest fructifies on interest.
1. Name 4 reasons to save Future Income (retirement) + independance to do whatever you want when you're older. <<LONG-TERM>>
2. Name 4 reasons to save Financial goal. << SHORT TERM FOR AROUND A YEAR OR 2 MONTHS >>
3. Name 4 reasons to save Emergencies — security and peace of mind that you're covered. <<SHORT TERM + ENOUGH FOR 3 MONTHS>>
4. Name 4 reasons to save Liquidity — So that bills can be paid on time. You should save for your bills. (SHORT-TERM)
1 (A). List the steps needed to reach a Saving Goal (A) Choose the goal.
2 (B). List the steps needed to reach a Saving Goal (B) How much $ you need.
3 (C). List the steps needed to reach a Saving Goal (C) How much have you already saved.
4 (D). List the steps needed to reach a Saving Goal (D) Is ( B)-(C) = $Saving goal.
5 (E). List the steps needed to reach a Saving Goal (E) How much can you realistically save per week/month/year.
6 (F). List the steps needed to reach a Saving Goal (F) Divide answer in (D) by (E) and that tells you how long it will take you to reach your goal.
7 (G). List the steps needed to reach a Saving Goal (G) What steps will you need to take?
List influences on savings Family, Income, Peer Pressure + the Media, Education, Interest Rates, Government policies and Inflation
Define inflation When all goods + services prices rise and replaces the average price with a higher one.
What effect does inflation have on savings Since the prices in the shops keep rising, it makes people just want to spend because you might never get a better deal so they might as well buy it now which = savings go down.
Define credit Obtaining goods and services BEFORE paying for them in full.
How does cash buy goods and services Pays in full before receiving item. Eftpos or cash/coinscheque/voucher. Laybuy (pay regularly and they hold it onfor you and doesn't cost any extra. Only receives after payment).
How does credit buy goods and services Receives them before paying in full, credit card, store credit (you receive it with no extra costs or interest but pay it all at the end of the month), mortgage, personal loan, student loans, mortgage and Hire Purchase.
Define hire purchase Get the item straight away whilst still paying for it, almost like opposite of laybuy.
Explain how banks work The save puts money into the banks which a borrower will take out. This will add interest to pay from the borrower which is then earned to the saver.
What happens if everyone needs to get their money from the bank at once? The bank goes bank-rupt because they are always giving out the money to borrowers and savers and so won't have enough for everyone.
1. List the advantages of Credit You get to use item straight away
2. List the advantages of Credit VITAL items can be obtained before full payment e.g house, car (if it financially benefits you), education.
1. List the disadvantages of Borrowing +Credit If you don't pay it off on time the price will fructifty with interest and interest rate are high because you're a borrower.
2. List the disadvantages of Borrowing +Credit You end up paying back more
3. List the disadvantages of Borrowing +Credit Easy to overspend
4. List the disadvantages of Borrowing +Credit Stressful
5. List the disadvantages of Borrowing +Credit Loss of future financial freedom and independance. e.g your debt keeps growing and so you only have enough to satisfy needs and not wants.
Important message on borrowing (IMPORTANT TO REMEMBER) Buy assets that build wealth e.g houses, businesses and shares.
Important message on savings To pay expenses and buy things that do not build value/wealth. E.g holidays, emergencies, shoes
6. List the disadvantages of Borrowing +Credit Loan Sharks
Define Loan Sharks CASH loan sharks companies feed on low-income earners and vulnerable people while charging high rates. They do this by advertising and target the vulnerable which is why they're called sharks.
List the types of borrowing Personal Loan, Credit Card, Hire Purchase, Student Loan and Store Card
Define mortgage Convey (a property) to a creditor as security on a loan.
1. Four Important Terms when borrowing money Principal – Amount of $ borrowed
2. Four Important Terms when borrowing money Interest — The $ charged by lender to the borrower
3. Four Important Terms when borrowing money Interest Rate — Interest paid as a % of the principal. Interest Rate divided by Principal x 100
Define Interest rate Interest paid as a % of the principal. Interest Rate divided by Principal x 100
Define principal Amount of $ borrowed
What is the formula to get the interest rate INTEREST divided by PRINCIPAL x 100
4. Four Important Terms when borrowing money Finance Rate. The true cost of borrowing (includes all other costs as well).
Define Finance Rate The true cost of borrowing (includes all other costs as well). ALL COSTS divided by PRINCIPAL x100
What is the formula to get the Finance Rate ALL COSTS divided by PRINCIPAL x100
Define mortgage Atype of credit. A loan you to take out to purchase a property (secured loan)
Define secured loan A type of credit. When the business feels secure enough of an asset to sell with a low interest rate
Define credit card A type of credit. Enables credit purchase from a wide variety of retailers.
Define student loan A type of credit. Tertiary education fees.
Define Hire purchase A type of credit. Receive item before you've paid
Define Store Card A type of credit. Credit purchases at that particular store that you pay at the end of the month.
Define Personal Loan A type of credit. Credit purchase for personal use. e.g car, clothes
Define overdraft A type of credit. Permission to spend more than is in your account. (Short-term loan). Given after you graduate.
Name a risk of borrowing The riskier it is for the person borrowing the money to pay the loan back, the higher is the chance of high interest rates to fructify over time. Always pay back in time.

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