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Unit 3 Revision Learning Aim A

The document discusses personal and business finance topics including the functions and role of money, managing finances at different life stages, and planning expenditures. It provides revision materials including matching exercises to identify money functions, factors that influence the role of money, financial needs and implications at each life stage, and principles for planning expenditures. For example, it notes that middle-aged individuals may need extra money to fund moving to a larger home or saving for children's education.

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0% found this document useful (0 votes)

294 views27 pages

Unit 3 Revision Learning Aim A

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C1 Bands

We take content rights seriously. If you suspect this is your content, claim it here.

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Download as DOCX, PDF, TXT or read online on Scribd

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Unit 3: Personal and

Business Finance
REVISION BOOKLET 1

Learning Aim A: Understand the importance of managing personal finance,

including:

Functions and Role of Money (A1)

Different ways to pay (A2)
Current Accounts (A3)
Managing Personal Finance (A4)
The Functions of Money – A1
Revision Task 1: Match the following functions of money with their corresponding explanation.

Unit of Account Means of Exchange Store of Value Legal Tender

Function of Money Explanation

Enables businesses to trade with other business
and customers.
It allows businesses and customers to use it in
the future as it keeps its value.
It allows a monetary value to be placed on
goods and services.
It is a recognised method of payment.

Exam Style Question:

Money is used by individuals and businesses on a daily basis. Being able to handle and
control money is crucial for the success of businesses and personal finance.

Q1. Give two functions of money.

1. ..........................................................................................................................

....................................................................................................................................

2. .......................................................................................................................

.....................................................................................................................................

...........
Total for Question 1 = 2 marks

1|Page Unit 3: Personal and Business Finance

Revision Task 2: Complete the table below by matching the factors which impact on the role of
money with their corresponding description.

Culture Life Stages External Influences Interest Rates

Personal Attitudes Life Events

Factor Description
The Economy can impact on an individual’s view of money. During a
recession jobs are difficult to find and this can make individuals cautious
whereas during periods of growth individuals can be more willing to take
on debt.
The interest rates set by the Bank of England can have an impact on
individuals’ attitude to money. If interest rates are high, individuals are
more likely to save and less likely to buy items on credit. If interest rates
are low the opposite is true.
Different cultures and religious beliefs can influence individuals attitude to
money e.g. The Chinese used to have a culture of saving but this has
changed recently with younger generations buying shares and purchasing
items on credit.
Key events in an individual’s life can change their view of money e.g. saving
for a wedding or changing financial plans after staring a family.

Individuals have different attitudes to risk and reward. Some individuals

save money and avoid credit others will have little or no savings and buy
numerous items on credit.
Individuals financial needs change as they move different stages of their
life. Middle Aged individuals may need to obtain finance to move home
whereas during old age individuals may downsize their properties to a
smaller house and pass on funds to children or grandchildren.

Exam Style Question:

Q2. Outline two factors which affect the role of money

1...........................................................................................................................

....................................................................................................................................

2. .......................................................................................................................

.....................................................................................................................................

...........
Total for Question 2 = 2 marks

2|Page Unit 3: Personal and Business Finance

Revision Task 3: The exam requires you to know the key features of each Life stages (childhood,
adolescence, young adult, middle age, old age) and the financial needs and implications at each
stage.

Match the following financial needs and Implications with the life stages table.

Financial Needs Implications

May need money to support family members, Mortgage may be paid off.
saving for children to go to university, may May need to sell property to pay for health
need extra money to fund a move to a larger care.
house due to growing family. May find it difficult to obtain loans.
Reliant on Parents and therefore limited May be employed or looking for part time
financial needs beyond pocket money. work.
May still rely on pocket money.
May be looking for money to fund university Too young to work and therefore reliant on
course, or to pay a deposit for a flat or car. pocket money or receiving money as part of
birthday gifts. Parents may try to encourage
saving.
May have a part time job and therefore may be May apply for a student loan to fund university.
less reliant on parents. Now have a desire to May take out a loan for a car or a mortgage to
be more independent from parents and seeking buy a property.
money for socialising with friends.
May have assets such as a house or flat but low May apply to set up a saving account for
levels of cash. May need money to pay for children’s education. May apply for a new
health care. mortgage to fund move to larger house.

Life Stage Financial Needs Implications

Childhood

Adolescence

Young Adult

Middle Age

Old Age

3|Page Unit 3: Personal and Business Finance

Exam Style Question:

Q3. Outline two financial implications for a Middle Age individual who owns a house with a small
mortgage but still needs to support their family, with children planning to going to university and get
married.

1...........................................................................................................................

....................................................................................................................................

2. .......................................................................................................................

.....................................................................................................................................

...........
Total for Question 2 = 2 marks

Revision Task 4: Planning Expenditure - Fill the gaps using the following words:
debt credit rating bankrupt over spending too high
solvent interest

Individuals will consider many principles when planning their expenditure. They will be
keen to avoid .............................................. as this can place them into financial difficulties.
By controlling their costs individuals can avoid getting into ...................... If an individual’s
expenditure is ........................................ .then they may be paying more money out than
they are receiving. Entering into debt will be expensive for the individual because they will
be charged .......................... on the money they owe. If these debts are not paid then it will
affect the individual’s ............................................ and this will impact of their ability to
borrow in the future. If the debts are not fully paid as requested then this can lead to the
individual being declared .........................

When planning expenditure an individual aims to remain ..................................... which

means they can meet their day to day expenditure and repay their loans.

4|Page Unit 3: Personal and Business Finance

Common Principles of Financial Planning
Revision Tip:

The BTEC Specification lists 9 common principles of Financial Planning

1. to avoid getting into debt

2. to control costs
3. avoid legal action and/or repossession
4. remain solvent
5. maintain a good credit rating
6. avoid bankruptcy
7. to manage money to fund purchases
8. generate income and savings
9. set financial targets and goals
10. provide insurance against loss or illness
11. counter the effects of inflation

However it is probably easier to group these into 3 principles

Principle Explanation
Ensure Income is greater than This principle will ensure that the individual:
Expenditure  Avoids getting into debt.
 Avoids legal action / repossession of belongings
 Remains Solvent / individual has enough income to pay all
expenditure
 Avoids bankruptcy

Plan for the future This principle may lead to the individual:
 Making investments to counter the effects of inflation e.g.
buy shares which are paying returns greater than rate of
inflation.
 Saving for future large expenditure items e.g. deposit for a
home or a car.
 Take out a loan to cover future costs e.g. student loan to
cover university fees.
 Contribute to a pension scheme
 Put money into long term investments e.g. banks will pay
higher interest on savings if the individual commits to keep
the savings untouched for a certain period e.g. 12 months
or more. During this time the individual cannot make
withdrawals.
Plan for unforeseen events This principle may lead to the individual taking out:
 insurance to cover mortgage payments if they lose their
job
 life insurance – this policy pays out money on the death of
an individual which can be used to cover funeral costs,
mortgage costs or clear the individuals debts so their
dependents (children) do not have to pay them.
 Medical Insurance to pay for unexpected health costs.

5|Page Unit 3: Personal and Business Finance

REVISION PROGRESS CHECK
You have now completed the tasks related to the Functions and Role of Money – complete
the table below to identify content you are confident about and areas you want to revisit.
Once you are happy, move on to the next section which will focus on Different ways to pay.

A Understand the importance of managing personal finance

A1 Functions and role of money

Checklist Yes No - must

revise
I understand that the Functions of money include
 a unit of account.
 a means of exchange
 a store of value
 legal tender
I understand the role of money is affected and influenced by a
number of factors including:
 personal attitudes towards risk and reward, borrowing,
spending and saving.
 life stages (childhood, adolescence, young adult, middle
age, old age).
 culture, including religious and ethical beliefs.
 life events which vary the personal life cycle from individual
to individual.
 external influences / trends and the financial related
effects.
 interest rates, cost of borrowing versus reward of saving.
I understand the common principles to be considered in planning
personal finances include:
 to avoid getting into debt
 to control costs
 avoid legal action and/or repossession
 remain solvent
 maintain a good credit rating
 avoid bankruptcy
 to manage money to fund purchases
 generate income and savings
 set financial targets and goals
 provide insurance against loss or illness
 counter the effects of inflation

6|Page Unit 3: Personal and Business Finance

Different Ways to Pay – A2
One key function of money is its ability to be used as a means of exchange enabling
individuals to use it to buy things. There are however many different methods of payment.
Revision Task 5: Match the following method of payment with its corresponding definition.
Cash Debit Card Credit Card Cheque
Electronic Transfer Direct Debit Standing Order
Pre-Paid Card Contactless Card Charge Card Store Card
Mobile Banking BACS CHAPS

Method of Payment Definition

Includes notes and coins of different amounts
(denominations).
An agreement by the owner of the bank account and their
bank to allow a third party to withdraw a fixed sum of
money from their account on a certain.
A written document instructing the bank to make a
payment from one person’s bank account to another.
The ability to complete banking transactions on mobile
devices and internet connected computers.
Similar to a credit card but can only be used in certain
stores. The owner can use the card to buy items from that
store on credit.
A card issued by banks to be used to purchase goods and
services with payment taken directly from the users
current accounts.
When financial payments are electronically transferred
from one bank account to another.
A system which enables transfers from one bank account
to another, known as BACS.
An agreement by the owner of the bank account and their
bank to allow a third party to withdraw money from their
account on a certain.
A card which contains technology to enable it to be
touched on a contactless terminal and for funds to be
withdrawn.
Issued by financial institutions allowing goods and services
to be purchased with payment delayed.
A system which enables transfers from one bank account
to another, known as CHAPS.
Issued by financial institutions to enable customers to
delay payment for a certain period. The balance has to be
paid in full once the statement has been received.
A card with money already transferred onto it, payments

7|Page Unit 3: Personal and Business Finance

can be made until all the money has been used.

Revision Task 6: The specification requires you to understand the advantages and
disadvantages of the different payment methods. Complete the table below by including
one advantage and one disadvantage for each payment method.

Method of Advantage Disadvantage

Payment
Cash

Debit Card

Credit Card

Cheque

Electronic
Transfer

Direct Debit

Standing Order

Pre-Paid Card

Contactless
Card

Charge Card

Store Card

Mobile Banking

BACS

CHAPS

8|Page Unit 3: Personal and Business Finance

Exam Style Question:

Q4. Outline two advantages of using a store card as a means of payment.

1...........................................................................................................................

....................................................................................................................................

2. .......................................................................................................................

.....................................................................................................................................

...........
Total for Question 2 = 2 marks

Exam Style Question:

Q5. Outline two disadvantages of using cash as a means of payment.

1...........................................................................................................................

....................................................................................................................................

2. .......................................................................................................................

.....................................................................................................................................

...........
Total for Question 2 = 2 marks

9|Page Unit 3: Personal and Business Finance

REVISION PROGRESS CHECK
You have now completed the tasks related to the Different ways to pay. Complete the table
below to identify content you are confident about and areas you want to revisit. Once you
are happy, move on to the next section which will focus on Current Accounts.

A Understand the importance of managing personal finance

A2 Different ways to Pay

Checklist Yes No - must

revise
I can describe cash and the advantages and disadvantages of this
payment method.
I can describe debit cards and the advantages and disadvantages of
this payment method.
I can describe credit cards and the advantages and disadvantages of
this payment method.
I can describe cheques and the advantages and disadvantages of
this payment method.
I can describe electronic transfer and the advantages and
disadvantages of this payment method.
I can describe direct debit and the advantages and disadvantages of
this payment method.
I can describe standing order and the advantages and
disadvantages of this payment method.
I can describe pre-paid cards and the advantages and disadvantages
of this payment method.
I can describe contactless cards and the advantages and
disadvantages of this payment method.
I can describe charge cards and the advantages and disadvantages
of this payment method.
I can describe store cards and the advantages and disadvantages of
this payment method.
I can describe mobile banking and the advantages and
disadvantages of this payment method.
I can describe BACS (Banker’s Automated Clearing Services) and
the advantages and disadvantages of this payment method.
I can describe CHAPS (Clearing House Automated Payment
System) and the advantages and disadvantages of this payment
method.

10 | P a g e Unit 3: Personal and Business

Finance
Current Accounts – A3
Revision Task 7: The specification requires you to know the different types of current
accounts, their features, advantages, disadvantages and the different services offered.

Your task is to complete the three column table below, writing the definition of the account
in column one and the advantages and disadvantages in the other columns.

Features of Account Advantages of Account Disadvantages of Account

Standard

Packaged Premium

Basic

Student

Exam Style Question:

11 | P a g e Unit 3: Personal and Business

Finance
Maria has asked for advice on opening a current account.
Maria has obtained a place at university for the coming September. She has been working
for a family friend as a Junior Accountant during her school holidays and has managed to
save £3,000. Currently Maria does not have any debts and she is very frugal and avoids
spending money on lots of clothes and DVDs.
Maria is risk adverse and doesn’t like borrowing money. Despite this, Maria has applied for
a student loan which will cover her tuition fees and cost of textbooks. Her university is
within a short train or bus journey from her parents’ home and she intends to live there rent
free during her course.
Maria’s best friend from college is moving away to city located 3 hours away to start an
apprenticeship. Maria hopes to visit her quite regularly at the weekends.

Summary of current accounts for students

Provider Credit Interest free Additional Unauthorised Incentives
Interest Overdraft Overdraft Overdraft
Santander 1% for £100 £1,500 N/A £5 daily charge 16-25
2% for £200+ railcard
3% for £300+
Nationwide 1% £3,000 N/A N/A (you won't None
be able to use it
until you get the
balance back
under your limit)
Lloyds 0% £1,500 £6 monthly Daily fees: Free 3 Year
fee and Up to £10 - no NUS Extra
8.21% EAR. charge. Card,
Up to £25 - £5. 15% cash
Over £25 - £10
back on
selected
retailers
Co-operative 0% £2,000 9.9% EAR Daily fee £5 £60 Amazon
Fixed penalty of voucher + 1
£25 year Prime

12 | P a g e Unit 3: Personal and Business

Finance
Q6. Evaluate which student current account would be most suitable for Maria.
.....................................................................................................................................