Unit 2Personal Finance
Unit 2
At the end of this unit, students should be able to:
On completion of this unit, students will be able to: Understand the difference between
cash and credit. Describe the term debt Define the term borrowing and
differentiate the different categories. Compare credit union loans to other
financial institutions loans
Unit 2
What is Personal Finance?
“Personal finance is the application of the principles of finance to the day to day decisions of an individual or family unit as regards money…”
Unit 2
Cash v Credit
Cash is used immediately to make payment for goods and services but credit is a promise of future payment
Credit Unions and Other Financial Institutions were set up to provide credit but Credit Unions were initially set up to help people, who could not get credit from banks. “Buy now pay later”
* Worksheet on advantages and disadvantages of credit
Unit 2
Debt
Debt can be defined as the amount of money a person owes to someone else.
Poor management of credit can lead to unsustainable debt
When the Celtic Tiger was here it was easier to obtain credit but if your financial situation changes, problems arise where repayments are not met!
Unit 3
How to avoid Debt?
Create a cash budget for planning and controlling finance
Always seek advice before borrowing
Decide whether it is a need or want
Make sure you can meet repayments
Shop around for the best options
Unit 2
How to avoid Debt?
Before borrowing, consider a number of factors:
1) Is it a need or want?
2) Do I require it immediately or can I save for it?
Unit 3
Borrowing
3) If I need to borrow, how much and can I meet the repayments?
4) Shop around with other financial institutions and see how flexible they are
Unit 2
Borrowing
Short Term: 0 - 1 year, e.g. holiday
Medium Term: 1-5 years, e.g. car
Long Term: 5 + years, e.g. mortgage
Unit 2
Terms of loans
Unit 3
Which Term of Loan?
When choosing a loan decide:
How long will it take to repay the loan, the longer you take, the more interest you pay!
What interest rate is being charged?
Terms and conditions of loan? Does lender require savings, a
guarantor or other form or security as collateral?
What is the full cost of borrowing over the term?
Consider forms of Collateral ?
Unit 2
Which Term of Loan?(continued)
Borrowing Options
Personal Loan - bank or credit union Hire Purchase - watch out for hidden
charges Credit Card - very high interest if not
repaid promptly In-store credit – very high interest
rate after interest free period is over Moneylenders – very high rates
Unit 3
Credit Check When someone applies for a loan,
creditors often run a credit check Gives the lender a full picture of person’s
credit history, good or bad When you apply for credit, you give the
creditor permission to send information on you to a credit reference agency.
This information forms part of your credit history
Irish Credit Bureau (ICB) The ICB is biggest credit referencing An electronic library of performance of
credit agreements Information stored on borrowers
Name, Address, Date of Birth History of loans applied for / taken History of loan repayments A Credit Bureau Score A record of any legal action
Golden Rules of Credit Only borrow what you can comfortably
afford to repay Think about the unexpected Match short with short Protect your credit rating/ ability to borrow Avoid high cost credit options Take responsibility Pay off high interest sources first
Financial Planning
Unit 2
What do need money for? - To purchase items - To have fun! - To socialise with friends and family - To go on holidays, travel - Independence - - To pay bills - To be responsible for my money - To be able to give some money to charity - Savings - To plan for the future – pensions, retirement - To help pay my way at home - To get what I want – travel - To be able to own my own home - To plan for the future – pensions and retirement
Unit 3
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