Finance Unit 1- Topic 1

anything that is widely accepted as a means of making payments

-specify that ‘money’ means coins, notes and the electronic balances held in bank accounts

-make payments Sellers use

-Sellers use money to set the price of goods (how much someone must pay for them).

-People can store their money and so save it for making payments in the future.

-Money makes it possible for people to buy items now, even if they do not have enough money themselves to make the purchase. They can borrow the money they need from someone else and repay the lender in the future.

   limitations of barter led people to create systems where the local community used an item they all valued as a means of payment. 

E.g. Buyers and sellers would agree how much rice an item was worth: the buyer would then give the seller the agreed quantity of rice and receive the goods they wanted in exchange. practical drawbacks with early forms of money. 

-Some items are not durable – for example, cattle and pigs die, and grain can perish if not stored correctly. 

-Some items cannot be divided into small amounts to enable people to make low-value purchases or to give change. It has an intrinsic value of its own because it is rare and in demand to make items such as jewellery. However, suppose a particular source of gold runs out or a war prevents buyers and sellers from meeting to trade. Gold becomes scarcer and its value rises. One week, a trader might offer an ounce of gold for two cows; a month later, they might want four cows in exchange for their single ounce of gold.

Over time, the coins were made into standard shapes that look much like round, modern coins. Different coins came to represent different values, and the value was written on them, just as modern coins come in different denominations such as 5p, 20p and 50p.

Using paper notes as money instead they deposited the coins with a trusted person,

who gave them written receipts stating how much was stored in their name.

Rather than paying for goods with the actual coins, merchants paid by passing the receipt for the coins to the person selling the goods, who could claim the coins in storage.

Over time, people no longer claimed the coins from storage because buyers and sellers agreed that the banknote represented the value of the coins and would accept the banknote as payment, knowing they could use it to make payments of their own

  Modern payments

Most purchases are now made using coins and banknotes or by transferring electronic balances between bank account

LETS is a local network that enables people to exchange goods and services with each other without using money

-acceptable;

- durable;

- recognisable;

- portable;

- stable;

- scarce but sufficient;

-divisible; 

-homogeneous

-     Acceptable People are only willing to accept money as payment for goods and services if they are confident that others will, in turn, accept money from them as payment in later transactions.

-We have seen that coins, banknotes and balances in bank accounts all represent value rather than having an intrinsic value of their own. This means that people have to trust that they will be accepted. aspect of faith in the monetary system is that sellers will receive the funds

-      transferred between bank accounts electronically. This money is transferred using a variety of payment mechanisms such as payment cards and cheques

-Cash received must be recognisable so that people are confident they're receiving genuine coins and banknotes.

-Must have security features to ensure that it is difficult to make forgeries. e.g. features such as metallic thread, raised print, UV features, watermarks etc. but features such as watermarks and metallic thread are easy for merchants to verify but UV features require specialist equipment. 

-Money needs to hold its value so people are confident that the money they accept now is worth the same or similar amount in the future.

- Inflation, the general level of prices in an economy rises , means the same amount of money will buy less in the future so the value falls in real terms.

-Coins and banknotes must be provided in different denominations so people can use them in different combinations to make transactions of different sizes. 

-Having smaller denominations allows people to pay with larger amounts of cash and receive change.

-Payments from bank accounts are specific amounts and don't need to be divisible

-Coins and banknotes need to be strong enough to be used many times before they are replaced by the bank of England.

-Although UK coins are coloured gold, silver bronze they are made of metal alloys to make sure they are durable because, pure gold, for example, is soft and damages easily.

- People must be able to carry coins and banknotes they need for everyday use.- Another reason why money is produced in different denominations and notes are used for larger amounts.

- Payment methods used to transfer bank balances are portable for example cheque books and payment cards such as debit cards.

Bank Of England manages the supply of cash in economy so there's enough for peoples transaction needs .

-Important that there's not too much money in circulation, because this leads to inflation and value of money fall.

- All coins and banknotes of certain denomination nee to homogeneous , so they look and feel the same.

-Helps to make it recognisable and therefore acceptable.

-Designs on coins and banknotes vary but shapes and main features remain the same ,

-Measure Value,

-Make payments,

-Save,

-Borrow.

- Money offers a standard measure of financial value, enables people to compare prices between goods and to see how prices value changes over time or between countries.

-Measure used in accounting and on bank statements to record transactions and provide balances

Certain banknotes and coins are 'legal tenders'. this means the must be accepted in a settlement of a debt.

-Coins worth £1 and more are legal tenders throughout the UK .

- Coins smaller than £1 are only legal tenders up to a certain amount as it's not practical to pay off large amount in small coins.

-Money held in bank accounts is not legal tender but people accept transfers of this money into their bank account because they trust their banking system

- Money is used to store financial value for future uses. e.g people can save money in the bank and they keep small stores of cash to spend in the future.

-People can borrow money to buy goods that they cannot afford out of current income. 

-Instead of paying full amount over a period of months or years, these small payments are the repayments they make to the lender. 

During borrowing term the lender cannot use loan money for other purposes, borrowers, therefore, must compensate lenders by paying interest.

-Technical term for this function is money acting as a standard measurement of deferred (delayed) payments

-When people plan how to use their money, a key consideration is its current and future purchasing power. The purchasing power of money is the quantity of goods and services it can buy.

-Inflation can reduce the purchasing power of the money saved over time

-The aim, therefore, is to find a savings interest rate higher than the rate of inflation. This enables savers to maintain or grow their purchasing power

-Same goods can cost different prices in different countries because of factors such as cost of living, wage rates, and taxation

-Majority of money is held as bank account balances rather than as coins and banknotes,

-Different bank accounts designed to fulfil the different purposes of money. 

-Current accounts offered by a range of providers including banks, building societies and post offices. People can use them to deposit money and make payments by withdrawing cash or issuing instructions to the provider. Instructions can take place in many forms such as cheques, standing orders, and payment card transactions.

-Statements list the incoming and outgoing transactions on the account and balance at the end of the accounting period.

-You can use current accounts to store money for future use. If account holders plan to spend the money more than 1 or 2 months in the future, they would benefit from transferring the money into a savings account that offers a high rate of interest.

-Overdrafts enable people to borrow from the provider by paying out more money they have stored in the account. Overdrafts are designed for short-term use.

-When people plan their finances they need to consider how much they can afford to spend, save and borrow from their income to be able to pay for the items they want now and in the future. 

-Proportions of spending, saving and borrowing are likely to vary at different stages in a persons life.

-People at different stages of their life have different financial circumstances.

-When planning current and future finances it is useful to consider the financial circumstances that tend to apply to each life stage and the financial consequences of possible life events.

- Financial services providers such as banks, building societies, credit unions, friendly societies and insurance companies offer products that are designed to enable people to pay for the life events that tend to happen at different life stages.

-The life cycle is broken down into life stages based on age.

-Considering typical life stages for certain life events can help people plan their finances, not just for themselves but for others they may support (e.g. parents).

Typical life cycle-

Birth and infanthood                 0-2 years old

Childhood (pre-school)              2-5 years old

Childhood (school)                     5- 12 years old

Teenager                                   13-19 years old

Young adult                                18-25 years old

Mature adult                               26-40 years old

Middle Age                                41-54 years old

Late Middle age                        55- 65 years old

Old age                                     65 onwards       

Death                                        Possibly any age but more likely here.

-Life events

-Levels of income

-Levels and patterns of spending

-Amounts of savings and attitudes towards savings

-Amounts of debt held and attitudes to debt

-Family sizes and structures

-Levels of education

-Attitudes to risk (and to the future)

3 reasons, why people spend money:

-To pay for essential items they need,

-To pay for optional items they want now; and

-To save for items they aspire to buy in the future.

Needs relate to items people must have to survive, such as food, drink and a place to live.

Wants are optional items that are desirable but not necessary.

Aspirations are items or experiences that people wish to have in the future. 

When planning finances, people pay for needs first. if they have spare income after paying for these needs, they will consider paying for wants and saving towards aspirations.

There are financial costs associated  with many of these events.                                                                    

Some of these costs are needs, such as food and somewhere to live.                                                                   

Other costs are wants, such as spending on hobbies, entertainment, and fashion. People may be saving for future events or experiences to which they aspire, such as a holiday.

In early stages of an individuals life, the costs of needs, wants and aspirations are met by parents/ Guardians and other relatives.

where in the world, or country a person lives influences their life events such as starting ending full-time education and getting a permanent job.

-The decision on when to leave full-time education depends on whether the family can afford to send their child to school rather than to work. 

-Opportunities to work can vary from country to country from region to region in a country depending on unemployment rate.

The amount of money people have coming in from their earnings, benefits, a pension or other sources and financial circumstances of the family in which the person is born in influences the options they have at different life stages.

-People who suffer from long-term poor health or disabilities may have shorter life expectancy than others. May need ongoing medical treatments and specialist care and may not be able to work. In the UK