Commerce Study Notes

Income from labour income from non-labour sources

Wage- money received by workers usually on a weekly basis e.g mcdonalds

profits from business

Commission - the percentage of a sales price re-ceived by a salesperson for her or his services e.g real estate

interest on savings

Salary- a fixed amount of money paid on a regular basis (usually fortnightly or monthly) e.g teacher

inheritance- inheriting money from family members

fees- money paid to others for their services government payments- paid by government to help people in need

dividends- sum payable as profit for sharesrent- regular payment made by a tenant to an owner for the use of the owners building or landroyalties- a sum paid to authors, musicians as a percentage of their proceeds form their workwinnings- lottery etc

Fixed Expenses - expenses that are the same amount every time

Variable expenses- expenses that change overtime

Fixed Expenses Variable Expenses

Bills ; electricity, water, gas etc movies

weekly groceries shoe shopping

monthly fees home rennovation

car service holidays

Benefits of Saving money

- House mortgage- save for a holiday- major purchases e.g car house (These factors depend on characteristics of people)- retirement- save for an emergency- earn interest on savings- sense of satisfaction

Borrowing money

People borrow money mainly for major purchases since many people dont have a lot of money with them.

Reasons For Borrowing money reasons against borrowing money

1.Immediate satisfaction. You can have the use of an item and pay for it later.

1.Interest charges. The cost of borrowing is usually high.

2.Convenience. If you use a credit card, you do not have to carry large amounts of cash.

2. Impulse buying. Because you do not hand over any cash, you may be tempted to buy more goods or expensive items.

3.Possible savings. You can take advantage of special sales or discount offers.

3.Additional costs. Retailers can now pass on to you their merchant fee costs.

5.Improve your quality of life. Acquiring more as-sets may improve your standard of living.

5.Inability to repay. This can make you very un-happy and ruin your quality of life.

6.Forced ‘saving’. You have to put money aside to meet the regular repayments.

6.False sense of security. You may have an unre-alistic perception of how wealthy you are.

Interest: A payment made for the use of the money that has been borrowed Types of loans

Personal loans -

- Secured loans: Something is deposited guaranteed

- Unsecured loans-:something that isn't deposited therefore higher interest e/g car , furniture, home, travel lender repossesses assets if you cant pay back

Mortgage Loans: When taking out a loan for a house or land. C: repossess assets if cant payback

Bank Overdraft: Withdrawing more money then whats in your account

Credit Cards: Have interest rates p.a for inability to pay money borrowed.

Payday Loans: Getting a payment from your weekly pay insurance ; Extremely high interest

Main Financial insti- tutions that lend money —————

Credit Rating - (credit Reputation)

When you apply for a loan you will need to have a good credit rating so the lender knows your abil-ity to repay the money you have borrowed.

Main factor which influence whether your loan is approved or declined

Includes:

o Whether you have had any problems in the past repaying loans/debts

o Whether you pay bills late, etc.

o Address and age

o Employment details

3 C’s

Character: This refers to persons reputation for honesty and reliability in paying debts trustworthy

Capacity: Refers to ability to repay debts, i.e job, income. if you have the right income to support repaying of debts.

Collateral: This refers to assets used as security of payment for the loan. assets will be forfeited if borrower can not repay the loan

Steps to follow to ensure Responsible financial management

1. ensure when borrowing a loan that you have the ability to repay2. to maintain a good credit rating (reputation in loaning industry) 3. budgeting4. saving5. monitoring and record keeping

Guarantor, repossession, garnisheed

Guarantor:

o Someone who guarantees to pay back the money if the borrower does not

o Can be very risky, because people cannot always be relied upon

o Many cases where adult children have defaulted on their loan (not being

able to make repayments), requiring their parents to repay the outstanding

amount

o If you are going to act as a guarantor, you must see and sign the contract

and sign off on the terms and conditions if the borrow defaults on his/her

loan

Repossession:

o Take assets and goods away

Garnisheed:

o A lender has applied to get a legal order so that a certain amount of money

can be taken out of the borrower’s wages

o This money is deducted until the debt is paid

Insurance - paying a premium to ensure that major assets are covered in costly situations. e.g house or car sets on fire. Insuring assets in case of unexpected events leading to financial loss.

Premium: the amount of money to be paid to receive insurance cover

Insurance works when consumers pay a premium to insure an asset for example i pay 2000$ to in-sure my car

Types of insurance:

- Car- Home- life- travel- income- health

It is important to have insurance incase of emergencies that result very costly and leave people in an unstable financial crisis.

consequences of poor financial management

Financial Legal Social

repossession of assets and goods; leave you in crisis

Debt- money you owe domestic violence

Financial Legal Social

garnisheed- lender takes money out of you wages legally; leaves you in financial crisis

debtor- person who owes the money

emotional illness

declared Bankrupt creditor- person who is owed the money

family crisis

lack of money for necessities suicidal conceptions

Define :

default notice : a document from a lender stating that a person has failed to carry out the terms of the contract

credit bureau: an organisation that keeps on file the credit records of consumers.

Bankruptcy: when a person is judged by a court to be insolvent i.e unable to pay his debts

The law That covers Bankruptcy

The Financial Services Reform Act (FSRA) 2001

minimum amount owed to be declared bankrupt : $5000

Sources of Financial Advice:

The Role Of ASIC

ASIC is responsible for

- monitoring the financial service industry- monitoring the provision of financial services such as investment advice- providing consumer protection in financial services including shares, insurance, super etc

Changes to the FSRA 2001

- provision of a product disclosure statement (PDS) - licensing of all financial organisations- licensing of financial planners

National Consumer Credit Code act 2009establishes a single, standard, national system for the regulation of consumer credit. this code im-proves consumer protection

Investment

putting money into something in order to make a profit.

Reasons for investing:

Major Purchaseshaving to save for expensive items i.e car or house

Extra Incomegain extra income by investing in shares from a company

Retirementinvest to financially secure life in their old age.

Types of Investments:

Shares: Purchasing ‘equities’ which represent small slice of the ownership

of a company in return, you’re paid a ‘dividend’ based on the company’s

performance.

Property: Purchasing land or buildings in the expectation that they will

increase in value over time. This is called ‘capital appreciation’.

Managed Funds: Available through major financial institutions. Offer a

higher rate of return hat term deposits (because money is invested in both

high and low risk investments)

Superannuation: Setting aside a percentage of your income each year to

contribute towards your income when you retire. Employers must make a

compulsory contribution of 9% (now 12%)

Investments fail to obtain the best money return because :

- they may be inexperience and fail to carry out sufficient research- poorly advised- economic conditions may change- not keeping up to date records.