Australian Financial System
Identify four major institutions in the Australian financial system.
Reserve Bank of Australia (RBA), commercial banks, insurance companies, and superannuation funds.
Explain the difference between good debt and bad debt.
Good debt is used to invest in assets that grow in value or generate income (e.g., education, property), while bad debt is used for non-essential or depreciating items (e.g., luxury goods).
Define what an emergency fund/saving buffer is.
An emergency fund or saving buffer is money set aside to cover unexpected expenses or financial emergencies.
What is a loyalty program?
A loyalty program is a marketing strategy where businesses reward customers for repeat purchases, often through points, discounts, or exclusive offers.
What is one potential financial risk of using a Buy-Now-Pay-Later (BNPL) service?
A potential financial risk is accumulating debt if repayments are missed, as BNPL services often charge late fees and can lead to financial stress if not managed properly. Additionally, it may encourage overspending since payments are deferred.
Explain the function of the Australian financial system.
The Australian financial system facilitates the flow of funds between savers and borrowers, supports economic growth, and ensures financial stability.
Why can good debt still be risky?
Good debt can be risky if the borrower cannot meet repayment obligations due to changes in income, interest rates, or unforeseen circumstances.
Identify individual financial risks.
Risks include job loss, illness, unexpected expenses, and investment losses.
List two advantages and two disadvantages of loyalty programs.
Which financial option is generally the most sensible option: taking a loan, using a BNPL service, or saving the full amount? Explain why.
Saving the full amount is generally the most sensible option because it avoids paying interest or late fees associated with loans or BNPL services. Additionally, saving ensures you only spend money you already have, reducing the risk of financial stress or debt.
Explain the role of banks in personal financial decisions.
Banks provide services like savings accounts, loans, and credit cards, helping individuals manage their finances and achieve personal financial goals.
Describe the consequences of having too much debt.
Consequences include financial stress, reduced creditworthiness, inability to meet essential expenses, and potential bankruptcy.
Explain risk mitigation strategies for individuals.
Strategies include having insurance, diversifying investments, building an emergency fund, and budgeting effectively.
Identify a financial risk and reward of starting a small business.
What is one financial risk of taking out a loan with interest?
One financial risk is that the borrower may struggle to make repayments if their financial situation changes, leading to additional interest charges, penalties, or even defaulting on the loan. This can also negatively impact their credit score.
Explain the role of banks in business financial decisions.
Banks provide businesses with loans, lines of credit, and financial advice, enabling them to invest, expand, and manage cash flow.
Identify warning signs of over-indebtedness.
Warning signs include missing payments, relying on credit for daily expenses, and being unable to save money.
Explain risk mitigation strategies for businesses.
Strategies include purchasing business insurance, diversifying revenue streams, managing cash flow, and conducting risk assessments.
What steps could a person take to protect themselves when shopping online?
Use secure websites, avoid public Wi-Fi for transactions, check for reviews, and use credit cards for added protection.
What are two factors to consider when deciding between borrowing money and saving for a purchase?
Explain how the financial sector impacts the economy.
The financial sector supports economic growth by allocating resources efficiently, providing credit, and fostering investment and innovation.
Explain strategies for avoiding excessive debt.
Strategies include budgeting, avoiding unnecessary loans, building an emergency fund, and paying off high-interest debts first.
Identify suspicious signs that could indicate an online offer is a scam.
Signs include unsolicited offers, requests for personal or financial information, unrealistic promises, and poorly designed websites.
Explain the importance of opportunity cost when making financial decisions.
Opportunity cost is the value of the next best alternative foregone when making a decision. It helps individuals evaluate trade-offs and make informed financial choices.
Explain how the concept of opportunity cost applies when making financial decisions.
Opportunity cost refers to the value of the next best alternative that is foregone when making a financial decision. For example, if you spend money on a luxury item, the opportunity cost might be the inability to save that money or invest it in something that could generate future income. Understanding opportunity cost helps individuals make informed decisions by considering what they are giving up in exchange for their choice.