Name: Form:

Overview of Assessment

This course is made up of three units. You must pass each Unit individually to pass the overall qualification.

Unit 1 – 35%, Unit 2 – 35%, Unit 3 – 30%

Overall grade boundaries:

50-59% - C, 60-69% - B, 70-79% - A, 80%+ - A*

Content Unit 2a/2b

Key terms and phrases Foreigh Exchange Exchange rates – strong and weak currency Exchange rates and trade Financial planning and money management Financial providers Financial products Budgeting Impact of personal spending habits How to work our a budget and manage the outcomes Tools to manage money Personal life cycle Attitude to risk Economic cycles and demographics

CERTIFICATE IN FINANCIAL

EDUCATION: Unit 2a/2b

Society (The Ecomy)

Grade Boundaries for Unit 1 and Unit 2

A* 28-35 marks

A 25-27 marks

B 21-24 marks

C 17-20 marks

Fail 0-16 marks

Grade Boundaries for Unit 3

A* 26-30 marks

A 23-25 marks

B 19-22 marks

C 15-18 marks

Fail 0-14 marks

Key Terms and Phrases: Use this space to write down any key terms and their definitions/explanations. You may want to write this down during the lesson, or jot down anything you think you may need to come back to later to recap.

Exchange rates and trendsForeign exchange (FX/forex) is…

Currency of other countries

Conversion of one country’s currency to another

The main time when you will see this is when you go on holidays abroad. You will take your £s (Pounds) and exchange them at a given rate for $ (Dollar), € (Euro) or other international currency.

However, foreign exchange also impacts our personal finances. International trade plays a huge part in our national economy.

International trade is import and export business.

____________ – buying things from outside of the UK

____________ – selling things from inside of the UK

Foreign exchange may affect you through… (some missing, some filled in!)

•

• Buying goods online from overseas (to be delivered here)

•

• Sending money to family abroad

• Buying a house abroad (we can dream!)

•

The foreign exchange rate compares the value of one currency to the value of another. You can exchange currencies at any Bureaux de change.

This is how much £1 buys. If you come back and sell your foreign currency back, they’ll give you less!

How much these change (expressed as a % change over a period of time) will show how strong the GB Pound is. The benefit of a strong pound is that we’ll receive more Euros/Dollars/Yen for our money.

You have to buy money, so that you can use the ______________________________ (type of money) that is accepted in that particular country.

Bureaux de changes are all profit making businesses. They make their money in two ways;

• _______________ (a one-off, flat fee for using their service)

Many will have signs showing “No Commission” to try and attract more customers

• Calculating the ____________________________________

Currency prices change hourly and daily. To counteract this, the Bureaux de change sets the price slightly above the accepted price.

This protects them from any fluctuations that may occur short term, as well as making them additional profit.

Exchange RatesThe biggest impact of foreign exchange rates is in terms of international trade – or exporting and importing goods. Every country imports and exports, and has companies that conduct business overseas.

When a country or company imports something, it has to pay for that item in the currency of the country from which it is buying it. So it buys the currency; then it buys the item. This type of foreign exchange is generally done automatically through a bank.

• Exchange rates are set on the basis of how much people _________________________ a particular currency (through international trade, imports and exports, moving currency internationally).

• As the exchange rate is constantly changing, a currency is either strong or weak in relation to others.

Effects of fluctuating exchange rates

A _________ currency means that its value against other currencies is low, due to low demand.

A _________ currency means that its value against other currencies is high, owing to high demand.

When the value of a currency increases, this is called ______________________________

When the value of a currency decreases, this is called ______________________________

Impacts on the economy of a STRONG currency (Pound/£)

• Why does a strong currency mean that imported good are cheaper?

• If imported good are cheaper, why does that mean local businesses may suffer?

• How will this impact the other areas?

Using the STRONG currency diagram as a starter (on previous page), draw your own to represent the impacts of a WEAK currency on the economy and society.

Q: What happened in 2008 that had such a dramatic effect on the value of the pound?

Conclusion: The impact of exchange rates

A strong currency

Impact on countries

Foreign trade may be cheaper to buy in (imports)

Impact on society:

Economic hardship could occur if businesses are unable to sell their goods

Impact on individuals

Less spent on holiday costs; incomes could decrease as it becomes cheaper for businesses to buy imports from abroad, therefore spending less on local products

A weak currency

Impact on countries

Foreign trade (imports) may be more expensive, so people buy local instead

Impact on society:

More jobs may be created locally as demand for local products increases and holidays become less common.

Impact on individuals

More spent on holiday costs, other costs could decrease as businesses fight to remain competitive. Income could increase as people are needed to produce more goods and services.

Financial planning and money management

Why should we manage our finances and money?

In Charles Dicken’s famous Victorian novel, David Copperfield, annual income was twenty pounds. This was close to a realistic income in 1850. In Victorian times, people who couldn’t pay debts could be sent to debtor’s prison.

Some key terms to make sure we know:

__________________________________The process of managing money, including budgeting, banking, saving, investing and paying the minimum amount of tax legally required

_________________________Part of money management. Making sure your day to day money is managed and that you have enough to pay bills, buy food etc.

_______________________________Another part of money management. It looks at the person’s needs and objectives (short term and long term) and how best to achieve them.

Financial Objectives

People set objectives to have targets they hope to achieve. In a financial planning context, these come down to two closely linked types:

_____________ objectives

What the individual wants to achieve.

Example:

_____________ objectives

How the individual will provide the money to reach the personal objective.

How much money do you need in 5 years in order to achieve this?

Example:

Why should we manage our finances and money?

Emergency funds. The suggestion is that between 3 to 6 months worth of essential expenditure is an appropriate amount to have saved in a bank/building society.

Example:

Make better financial decisions Avoid unnecessary debt Help make decisions on savings, spending and progress in reaching goals Provides a blueprint for families to follow (teaching children good habits) Helps show what you have to do to get to where you want to be

Planning for now, planning for the future

Short term to long term planning

Short term: Between ____________________________. Involves budgeting, saving for short term goals.

Example =

Medium term: Between _______________________________Example =

Long term: __________________________________Example =

The most important consideration here is planning for needs and wants. Needs are the basic essentials such as food, clothing and shelter, as well as things we need to maintain a quality of life, for example a car to travel to work. Wants are things you aspire to, rather than something you need. It’s the difference between a car and a top of the range car.

Financial providers

• _________________________ are ‘proprietary’ organisations, which means they are business owned by, and responsible to, shareholders. They have three main roles

• Provide a safe place for people to keep their money

• Provide a way for account holders to receive payments and pay bills

• Provide loans and mortgages for those who need to borrow money

• _________________________Provide a place for people to put their savings and

therefore receive _________________. The funds raised were used to provide loans for their members to buy a house or pay for other needs.

• Also provide current accounts, investments and other services like a bank.

• The key difference is that they are owned by members, rather than just profit driven shareholders. This means you may be able to get lower interest rates on loans or higher on savings.

• __________________________________

• Provide insurance policies to help businesses and people reduce financial risk caused by a number of events such as death, serious illness, damage to buildings/vehicles.

• You pay into an insurance policy on a monthly/annual basis. If you claim on that policy you receive a pay-out. The reward for the company is if you don’t claim on the policy, they receive your money with no pay-out.

• __________________________

• Company experts invest money for people to make profit for them from stocks and shared that are expected to grow in value. These represent risk as there is no guarantee of a profit.

Financial products

Current accounts: Offered by banks and many building societies. Customer’s money is held in a safe place and is well protected by regulations. Designed for day to day finances, and provide the following main features:

• Receive _____________, pensions and other regular payments

• Payment of regular _______ through direct debits (automatic payments you can set up)

• A ___________________, allowing the holder to buy things in shops or online, and allows you to take money out of an automatic teller machine (ATM or cash machine)

• Cheque books, allowing you to write cheques which can be cashed. These are far less common with the technology advancements in debit cards.

• Online banking allowing you to check your balance and manage payments online or through apps

• Interest paid on your balance (money in the account)

• Some ___________________options, allowing you to temporarily go into a negative balance. This is a short term measure and usually charges interest

• Printed bank statements to show account holders all of the inflows and outflows of the account.

Savings account: Banks and building societies offer savings accounts, allowing you to collect interest (at a larger rate that a current account) on the balance. These can’t be used as day to day accounts and may have restrictions on how often you can withdraw money.

• Borrowing products. Examples =

• Insurance products. Examples =

Budgeting A budget is…

Part of a financial plan to achieve particular short-term, medium-term and / or long-term goals

Involves estimating money coming in and going out over a certain period of time and making plans to ensure that spending doesn’t exceed income over that period

Then… checking these estimates against actual inflows and outflows

And… accounting for times when you will spend more (family birthdays, Christmas, etc.)

Draw a basic flow diagram to represent how budgeting works

Why budget?

If we do not budget effectively as part of our financial planning it could lead to a number of negative consequences, primarily overspending (living beyond what you can afford/spending more money than you have!)

Economy

Businesses

Write down as many negative consequences of overspending that you can think of for;

Individuals

Impact of personal spending on society: It can stimulate economy…Every £1 you spend on a product in a shop pays to allow that business to run. It allows the business to pay for utility bills, rent and wages.

These wages allow this person to have a quality of life, make spending decisions and spend in other businesses.

Businesses make profits, allowing the business to expand. This can create more jobs = reduced unemployment. All of these create more opportunities for further economic growth.

However, when we overspend, the opposite is true!

Budgeting involves making basic calculations to help you decide on your spending choices. When budgeting, you ask yourself;

• Can I afford this now or do I need to save first?

• What are my options to pay for something I need now if I don’t have the money right now?

Key terms we need to know

• _________________ – the amount of income received after tax and other deductions are taken off

• _________________ – what we spend each month on a regular basis

• _________________________ – what is left after taking away regular expenditure from net income, i.e. what is left after the bills are paid!

This leads you to one of three outcomes

• A _____________ budget – when income and expenditure are equal

• A budget ___________ – when income is more than expenditure

• A budget ___________ – when expenditure is more than income

When working out our expenditure, we need to consider the following;

• ___________________________ – bills that must be paid by law (council tax, tv license, car insurance, road tax)

• __________________________ – bills essential to a family’s way of life (rent, mortgage payments, essential clothes, insurance, utility bills)

• __________________________ – things we might like to buy if we have the money but aren’t essential (CDs, meals out, books, hobbies)

• Cash flow refers to the money that moves into and out of an account. You need to check that the money going out of your account will not be more than the money coming in!

How to deal with budgeting/cash flow scenarios

What are the negative impacts of being in a DEFICIT?

What are some measures you can take if you are in deficit, to try and create a balanced account or even create a surplus?

The real cost of spending

“Value for money”

Paying a fair price for a product

This doesn’t mean that cheap is better value for money. It’s about finding the right balance between the cost and the quality.

Some branded clothing suppliers charge high prices because of a brand or logo and there is no discernible difference between their quality and that of cheaper substitutes

In other instances, low cost brands are low cost for a reason – they’re made of low quality materials and suffer from poor quality control

Price comparison websites / shopping around How and where to buy- online marketing can often save you money

Hidden charges

Online shopping / teleshopping additional charges:

postage and packing; booking fees; service charges

The total price may not appear to be the bargain it seems to be. When purchasing products online or through the telephone (Distance Selling) you are protected by Distance Selling Regulations, which state:

Seller must publicise delivery arrangements and cancellation rights

Goods much arrive within the time frame agreed

Buyer has the right to cancel the order at any time

If goods are faulty or don’t match the given description

If goods are returned, the seller must refund the delivery costs

If you find yourself in a SURPLUS, what could you do to improve your financial situation further?

Main saving options: Deposit accounts / savings accounts

Subject to two financial regulators – the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) which protect you and your money if anything goes wrong with the bank

Put your money in, collect the interest

Annual Equivalent Rate (AER)

Some rates of interest assume that interest is paid once, at the end of the year. Some accounts pay more often than that, such as monthly or quarterly. Compounding means that if you get paid interest of 5p on your balance one month, your next month’s interest will also pay interest on that 5p as it is added to your balance.

The table shows the result of investing £100 at 6% nominal interest, with interest accredited quarterly (every 3 months). This means the quarterly rate is 1.5%. So as you can see, in the first quarter the interest added is 1.5% of £100. The second quarter add interest of 1.5% of the new total, which is £101.50. After the four quarters of the year have passed, the interest total (AER) is 6.14%, which is 0.14% more than the nominal rate of 6%.

Using tools to manage money, create a budget and financial planActively monitoring your finances is important in budgeting, making spending choices and remaining financially secure. In order to do this, people need to have up-to-date and relevant information in their accounts and ways to carry out a range of transactions.

You will have a range of document which will help you manage your money:

• Bank statements:

• Arrive through the post/email and can be used to monitor spending and create a cash flow forecast.

• They can also be seen on your online banking account.

• They list transactions both in and out of an account in date order so that you can keep track

• Bills statements

• Internet and telephone banking

• In bank/face to face banking

• Checking balance regularly

• Online/telephone/mobile banking

• Tracking expenditure (mandatory, essential and discretionary)

• Cash flow forecasts

• Tracking savings

Tools for transferring money from one account to another

_____________ – used to access money from an ATM or in a Chip and Pin machine _________________ payments - can be used to pay for payments of up to £30 instantly,

without having to enter a PIN (Personal Identification Number) Cheques Mobile apps (Benefits of use: quick; easily accessible; easily monitored) Direct debit – setting up a _________________________________ by filling in a form and

authorising the bank to make the transaction for you automatically Standing order – similar to a direct debit, but the amount. This proves unhelpful when the

bill amount is likely to change (such as electricity bills which may vary depending on usage) PayPal – a website allowing you to use a range of bank account cards to make a

transaction between you and another user

“The budget” for the country!

In November 2018 Phillip Hammond (The Chancellor of the Exchequer) presented the budget for the whole of the Great British economy.

It looks at the income of the UK’s government and the spending decisions that must be made.

This could be reducing spending on certain public services or changing taxes to raise more money.

What affects this overall budget?

Interest rates

Fluctuation in savings and repayments**

As interest rates increase you may need to pay more back in loan repayments, affecting your expenditure

Alternatively you may receive more interest on any savings, which could lead to meeting a financial objective quicker

Adjust budget accordingly

Be aware of changes in the interest rates that affect you

Inflation rates

If prices rise by 5%, how much does your income need to rise by in order to maintain your quality of life?

Foreign exchange

Fluctuation in costs of holidays when the GB Pound increases in value or decreases in value

Adjust budget accordingly

REMEMBER! **Interest rates change for three main reasons

1. The Bank of England changes the base rate, which is the platform for bank and building society interest rates. They don’t have to follow these changes, but a change in the base rate will normally affect their rates.

2. The cost to banks and building societies of raising the money that they need in order to provide their services. If they have to raise more money to be able to provide loans, they may increase interest rates on lending in order to receive more income

3. Lenders need to make profit. Therefore they will seek to receive income to cover their costs (wages, bills etc)

The personal life cycle Birth infanthood childhood teenager young adult mature adult middle age old age/retirementThe stages of the personal life cycle

• Comprises the stages through which we pass

• No matter what is happening with the

Income at different stages of the life cycle

• We all have different income levels over time. This is mainly because experience is rewarded through higher pay in a large number of jobs.

What does this graph tell us about the effect that the type of job you do, can have on your short term finances and your long term finances?

In a non-professional career, such as a waiter, the hourly rate earned will likely not change drastically over a number of years unless you earn a promotion

On the other hand, in a professional career (doctor, teacher, accountant, lawyer) the salaries start off higher and increase over time. People usually study for a number of years to qualify in this profession.

The stages of the personal life cycle

• Comprises the stages through which we pass

• No matter what is happening with the

Professional

Non-professional

How do attitudes about risk and responsibility change as you go through the personal life cycle?

Physical risks; emotional risks; financial risks Certain events more likely to happen at certain life stages People are more likely to get married and buy houses at certain points People are also living longer, therefore money has to last longer Consequences of risks vary in each life stage

When do people do these things?

Now Then

Get married

Having children

Life expectancy

Where can we get advice to help our planning at different stages of life?

Advisory services

Citizens Advice Bureaux, a registered charity that assists in legal and financial issues Money Advice Service, an independent body set up by government to give advice on

financial affairs Paid-for advice from financial advisors Peers and family

Financial service providers

Banks Building societies

Life Cycles

What personal factors influence the plans we make?

For each of the age categories annotate how their circumstances may differ. Think about;

- Where their income comes from and amount

- What their expenditures may be

- What factors may be causing them to spend more money at different stages

- What their priorities might be

Attitude to Risk

Birth infanthood childhood teenager young adult mature adult middle age old age/retirement

• People have different attitudes towards risk. This is especially important when thinking about saving or investing. You must consider risk v reward.

• The theory is simple, the higher you risk, the higher the potential reward. However, the higher the risk, the more likely you are to lose your investment.

Investing Money- Risks vs rewards

___________________– investing in a bank or building society is safe as the original money is protected and will not reduce in value. Interest is added on a regular basis to increase the value of the investment.

_______________________ – gilts are investments where you lend money to government for a set term, usually between 5 and 30 years, in return for a fixed rate of interest each year and a return investment at the end.

Corporate bonds are the same but loans to large companies rather than government. Both gilts and bonds can be sold during the term, but the price you can charge may change (positively or negatively) depending on the status of the investment at that time, therefore may be risky.

__________________– this refers to commercial property (hotels, factories, shops, offices). Most people are unable to do this as it carries a very large cost. Most people can’t do this alone so partner up in “collective property funds”

______________ – companies offer shares (or equities) to investors to raise money for the business. You buy a “share” of the business.

You have two options to make money from this. A) you sell your shares at a later date for a higher price. Or B) when the company makes a profit, they pass some of the profits on to shareholders through what is called a dividend. These are made once or twice a year.

______________________ – the same as above but riskier as the UK has no control over how their market operates so there are more variables that could negatively affect your investment

_____________________________ – this is where you invest on future prices of shares or commodities such as oil, gold and other natural resources.

They carry a large level of risk. If this goes well, great, but if the prices drop you could find yourself losing all of your investment.

Economic cycles and demographicsChanges in the economy over time can be unforeseen and therefore difficult to plan for. These movements in the economy are called economic cycles.

Predicting these movements is difficult – but easier in the short term than long term. This makes planning for financial decisions more difficult.

For example, if you take out a loan and can afford the interest, half way through repayments your interest rate could rise, which might make it difficult or impossible for you to meet loan payments.

What could you do to make sure you are equipped to cope with this?

This economic cycle shows how an economy goes through ups and downs over time. This cycle tends to follow an upward trend in the long term, as our society becomes bigger and more advanced, but in the short term has more dips.

This particular graph measures GDP (gross domestic product). This is the value of total national income in an economy. It measures the value of all goods and services produced by the UK’s economy. Every haircut, every loaf of bread, every car.

Over the past 50+ years the value of our economy has grown considerably. This is due to an increased population, huge advances in technology making production of goods and services significantly easier.

The Government want their economy to grow at a stable rate. When this doesn’t happen, and instead the amount we produce falls, we can have a recession (such as 2008/2009).

Government also has two other aims:

That prices rise at a ________________________ (i.e. not too much more than people’s incomes)

That _________________________________________(more people working = more tax and less benefits to pay)

The short term and long term effects of economic cycles

Easier short-term planning as the economy won’t change drastically over a short period of time (i.e. months)

Can impact negatively on long-term planning: e.g. when taking out a mortgage, long-term economic cycles (e.g. increases in interest rates) are not always planned for and can result in financial difficulty in later stages of life cycle

The impact of demographic changes on personal financeDemography is the study of a population and its different groups by:

•

•

•

•

•

What is the current make-up of the UK population?

The three biggest demographic impacts

• Geographic distribution (where people live)

• The majority of the UK live in cities

• Patterns of migration

• Internal migration (people moving to cities from rural areas or urbanisation)

• International migration (people moving to the UK from other countries)

• Ageing population

• More old people proportionately

This chart shows the number of people living in the UK of each age category, comparing 1901 to 2010. How has this changed?

What impact is an aging population going to have on the economy overall?

SummaryPersonal finance is how you use your money – ie what you earn, and how you decide to spend and save it. This is known as ‘money management’.

Good money management entails many things. It means borrowing to buy items that will help us to reduce our living costs (such as a washing machine so that we don't have to buy new clothes all the time) and / or which are likely to increase in value (such as our own home), and being able to repay our debts on time.

Poor financial choices are the opposite of these. Poor financial choices involve high risk and instability, leaving people without the means to survive when they run into difficulties, and with little or no security in old age. This, in turn, affects the economy as a whole, because these people will need help from the benefits system.

• How individuals manage their money is closely connected to the economic system as a whole.

• Both good and poor personal financial choices have particular effects on the economy and society.

• The main effects of good financial choices are: ■ less ‘bad debt’ in the economy; ■ less borrowing overall; and ■ increased spending and increased saving, because when people borrow less, they repay less from their earnings.

RECAP! Pay and TaxTax is…

Compulsory contribution paid to the state (Unit 1A)

The most common taxes used to support government spending are Income tax, National Insurance, VAT and Corporation (Business) Tax

We have gone through in Unit 1A what this tax contributes towards

How is tax calculated?

For employees of a business – your business does it for you (providing they have the right information)

For self-employed – self-assessment calculations via completing a tax return (based on income)

Types of income

____________ income

Money received for doing a job or carrying out a trade/profession. It covers both employees and self employed people (and pensioners)

__________________________ income

Income received from a wide range of savings or investment products (such as interest from a bank or building society account)

______________ income

Income received by renting out property

How taxes are calculated

Personal allowance

Everyone is allowed to earn a certain amount of income before they start to pay tax. This is known as the personal allowance. In 2014/15 this was £_____________. This means that anyone with income up to £__________ will not pay tax, and anyone with income above this will only pay tax on income above £_____________

From April 2017 this allowance will rise to £_____________

Income tax rates

There are three rates of income tax. They are applied to total income from all sources after the personal allowance has been taken off.

________ rate income tax is charged at 20% on the first £31,865 after the personal allowance

________ rate income tax is charged at 40% on the next £118,135 (which is the band between £31,865 and £150,000)

_____________ rate income tax is charged at 45% of anything over that £150,000

Therefore, the more money you earn, the more tax you will pay. People who pay higher rate or additional rate income tax usually have to complete a “self-assessment tax return” each year.

It’s important to know how much tax you pay each year in order to plan for your disposable income

Income tax codes

_________

The most common code. This is the personal allowance divided by 10, meaning they can earn £10,000 before the employer deducts tax. The L represents the HMRC’s own code for the type of allowance they receive. Some people have different letters for different allowances.

_________

This is Basic Rate. This instructs the employer to deduct basic rate on all earnings without taking off personal allowance. This often happens when someone starts a new job as a temporary measure until HMRC can sort out the correct tax code. Any overpaid tax is refunded.

National Insurance rates

Employers are also responsible for collecting and paying NI for their employees.

Employees pay NI Class 1 which is shown below:

Pay is…

Reward for labour and enterprise

The components of a payslip

Employee details including national insurance number and tax code

Gross / net pay

Year to date

Deductions: income tax; national insurance; any additional deductions e.g.; total deductions

How do you pay tax?

Employed people – taxed under a system called PAYE (Pay As You Earn) where the employer deducts tax from their pay and send it to HMRC (Her Majesty’s Revenue and Customs)

Self-employed people – these people are a business, so therefore their taxable income is any profit they make from their business activities (business revenue – business costs = profit)

The P45 and the P60

Common tax documents that must, by law, be given to you

P45: used when employment with a business ceases; record of the taxable income earned during a tax year; should be kept safe as will be required by next employer

P60: summary of pay and the tax deducted in a tax year; provides tax code information and enables check of tax paid

Value Added Tax (VAT)

Government tax levied on goods and services: buyer pays seller’s price plus tax

Value Added Tax is a tax charged on most goods and services that VAT-register businesses provide in the UK

• standard rate; 20%

• reduced rate; 5% and applied to certain goods and services, including gas and electricity suppliers, children’s car seats etc

• zero rate; no VAT charged, such as foods, books, and newspapers, children’s clothing and shoes, and fares on public transport

Starting Point Test

1. The most popular country for British people wanting to emigrate is:

a. Australiab. Germanyc. The Netherlandsd. The Philippines

2. Poor financial choices can lead to:a. Falling pricesb. Low levels of personal debtc. Overspendingd. People saving more money

3. The term for people moving from one town or city in the UK to another is:

a. Emigrationb. Internal migrationc. Immigrationd. Urbanisation

4. The UK’s currency is:a. Dollarsb. Eurosc. Pound sterlingd. Yen

5. Which of the following groups of people is likely to have the most irregular income pattern?

a. Childrenb. The employedc. The retiredd. The self-employed

Case Study 1

Chloe has been making hand-made cards using a variety of crafting methods for many years now. She has sold them to friends and family, donating any proceeds to a local mental health charity. However, having taken voluntary redundancy from her administrative job in a large financial services firm, she now plans to turn her hobby into a small business.

Chloe has just come to an agreement with her local library to run a craft-stall in their foyer five mornings a week. She will give the library 15% of her profits instead of paying rent for the stall. Unfortunately, there are no “chip and PIN” facilities at the library, but, there is a local branch of Chloe’s bank within walking distance where she can deposit her daily takings. Chloe’s only savings are held with this bank and amount to £7,500.

6. Given the location of her stall and the facilities available, what choice of payment methods is Chloe most likely to want to offer her customers?

a. Cash or chequeb. Cash or credit cardc. Cash or debit cardd. Debit or debit card

7. Once her stall is up and running, Chloe’s main source of income will be from:a. Employmentb. Savingsc. Self-employmentd. The state

8. In making her own goods and selling them on her stall, Chloe is contributing to the economy in the roles of both:

a. Distributor and wholesalerb. Producer and consumerc. Producer and distributord. Wholesaler and consumer

Mid Way Review Test

1. The decimalisation of British currency occurred in the:a. 1950sb. 1960sc. 1970sd. 1980s

2. The main source of a full-time teacher’s income is most likely to be:a. Pension incomeb. Salaryc. Savings incomed. State benefits

3. Which of the following is exempt from value added tax?a. Adult’s clothingb. Biscuitsc. Furnitured. Postage stamps

4. A way of becoming a UK citizen is by:a. Emigrationb. Immigrationc. Naturalisationd. Voting

5. Disposable income is:a. Gross pay minus taxes and National Insuranceb. Income minus all expensesc. Income minus taxesd. Pay before deduction of tax and National Income

6. Taxes are government:a. Borrowingb. Interestc. Revenued. Spending

7. The main purpose of taxation is to:a. Encourage earningb. Encourage spendingc. Fund public spendingd. Fund social enterprises

8. When more people are employed by businesses:a. Less income tax is collectedb. More income tax is collectedc. More Jobseeker’s Allowance is paidd. The national debt goes up

End Review Test

1. Low inflation results in:a. Greater levels of savingsb. Greater unemploymentc. Lower interest ratesd. More expensive houses

2. Over time, the value of money:a. Accumulatesb. Appreciatesc. Depreciatesd. Stays the same

3. The UK government’s inflation target is:a. 1%b. 2%c. 3%d. 4%

4. Interest that is calculated only on the principal amount is known as:

a. Compound interestb. Gross interestc. Net interestd. Simple interest

5. Lower interest rates mean people will:a. Borrow lessb. Save morec. Spend lessd. Spend more

6. Poor financial choices can lead to:a. Effective planningb. Increasing debtc. Less spendingd. Lower interest rates

7. Which of the following does inflation measure?a. Economic growthb. Interest ratesc. The cost of borrowingd. The rate of increase in prices

8. When interest rates fall, this is bad news for people with:

a. Credit cardsb. Mortgagesc. Overdraftsd. Savings

9. Interest is the cost of:a. Saving instead of spendingb. Spending instead of savingc. Using someone else’s moneyd. Using your own money

10. Which of the following countries uses dollars?a. Australiab. Germanyc. Japand. United Kingdo

Starting Point Test

9. A sensible minimum amount for an emergency fund for most families would be three to six months’:

a. Discretionary expenditureb. Disposable incomec. Essential expenditured. Gross income

10. For a young person, which of the following would typically be classes as a long-term financial plan?

a. A deposit on a flatb. A holiday in two years’ timec. College or universityd. Their retirement

11. Which of the following is a correct definition of “value for money”?

a. A budget productb. A low cost brandc. The cheapest productd. The right product at the right price

12. Which of the following hidden charges typically applies to both in-store and online purchases?

a. Bookingb. Deliveryc. Service

d. VAT13. An impact of reduced consumer spending is

increased levels of:a. Employmentb. Government borrowingc. Personal incomed. Taxation receipts

14. An example of good debt is:a. A car loan for business useb. A payday loanc. Borrowing for a holidayd. Borrowing for designer clothes

15. Which of the following payment methods makes it harder to stick to a budget?

a. Coinsb. Credit cardc. Debit cardd. Notes

16. The best person to get impartial financial advice from would be:

a. A building society adviserb. A friend or family memberc. A solicitord. An independent financial adviser

Mid Way Review Test

9. Where would be the best place to keep money for an emergency fund?

a. In a long-term fixed deposit accountb. In a safe place at homec. In an instant-access savings accountd. With an adviser

10. Planning can be undertaken for the short, medium or long term. What period of term would be classified as medium term?

a. 1 to 12 monthsb. 1 to 5 yearsc. 7 to 15 yearsd. 10 to 20 years

11. Which of the following is the most accurate definition of budgeting?

a. Borrowing money from the bankb. Checking your bank statement regularlyc. Estimating money coming in and going

out over a period of timed. Using online banking to track

transactions

12. In terms of the impact of personal spending on an economy, which of the following statements is true? Increased personal spending generally creates:

a. Higher levels of unemploymentb. Increased company profitsc. Lower receipts for the governmentd. Reduced personal income

13. When purchasing tickets online for a theatre show, what hidden charges might apply? The:

a. Cost of a programme at the theatreb. Drinks during the interval of the showc. Face value of the ticketd. Online booking fee

Case StudyKaren and Ian have decided to update their kitchen. Their dream kitchen will cost £12,000 to buy. They have £12,300 in a savings account earning interest at a rate of 3.5% per annum. They are thinking about using these savings but are considering other options as they are concerned that this course of action would use up most of their emergency fund.

They are worried that, in the event of a further recession, one or both of them might lose their jobs and then they would regret having used their savings on the kitchen. If they did use their existing savings, they would want to immediately start putting money aside each month to build them back up again. The other options are:

Using their joint credit card with a variable interest rate of 18.9%, making the minimum repayments each month and then whatever extra they can afford.

Taking up the store credit offer of pay nothing for 12 months and then either paying off the kitchen in full or paying it off over 4 years at a fixed rate of 9.9%.

Taking out a personal loan at a fixed rate 8.9% for 5 years.

14. Which of the following would be the cheapest way for Karen and Ian to buy their new kitchen?

a. A personal loanb. A store loanc. Their credit cardd. Their existing savings

15. Which of the available options would have the least impact on Karen and Ian’s financial budget in the short term?

a. Credit cardb. Existing savingsc. Personal loand. Store loan

16. Which of the available options would cause the most damage to Karen and Ian’s budget in the event of an interest rate rise?

a. Credit cardb. Existing savingsc. Personal loand. Store loan

End Review Test

11. Tom has a fixed-rate loan. If interest rates go up, what will be the immediate impact, if anything, on Tom’s loan repayments? They will:

a. Fall by the rate of inflationb. Go upc. Reduce, but rise over timed. Remain unchanged

12. What is someone looking for if they want to make sure they are getting the best goods for the cash they have available?

a. The longest guaranteesb. The lowest-priced dealsc. The most expensive goodsd. Value for money

13. Which of the following is the easiest and most effective way to shop around?

a. Reading the adverts in the local newspaper

b. Spending the afternoon in a large department store

c. Using price-comparison websitesd. Visiting the town centre for the day

14. Which of the following measures could a government take to help reduce personal spending?

a. A combination of raising taxes and cutting government spending

b. Cutting government spendingc. Neither cutting government spending nor

raising taxesd. Raising taxes

15. An example of good debt is:a. A mortgage to buy a houseb. A payday loanc. Borrowing for a holidayd. Only making the minimum repayments

each month on a credit card

16. When would an overdraft be useful?a. To buy a propertyb. To buy an expensive item such as a carc. When extra money is needed for a short

period of timed. When extra money is required over a

long period

Case Study 1 Joe and Natalie have been married for two years and live in a small flat. Natalie runs a mobile hairdressing business and is self-employed. Last year she earned an income of £17,000 and incurred business expenses of £2,000. Joe is a construction worker for a national firm of house-builders and earns a salary of £18,000. His contract states that he must work 38 hours a week; if he works more than 38 hours a week he may claim overtime. The workers at Joe’s firm also receive a quarterly bonus when jobs are completed on time. Joe’s last monthly payslip included the following information:

Tax code 1000L Basic pay: £1,500 Overtime: £500.

Joe also owns a second property, which he inherited from his aunt. He rents this property out through an agency and receives £600 a month rental income from the agency directly into his current account.

1. Which of the following sources of income will not appear on Joe’s payslip?a. Bonus b. Overtimec. Propertyd. Salary

2. Because Natalie is self-employed she will pay taxes based on her:a. Annual incomeb. Annual income after deductible business expensesc. Monthly incomed. Monthly income after deductible business expenses

3. What form will Joe’s employer send to him after the end of each tax year to confirm his annual earnings and deductions?

a. P45b. P60c. Payslipd. Self-assessment

4. According to Joe’s payslip, how much tax-free income is he entitled to in the current tax year?a. £1,000b. £1,500c. £10,000d. £15,000