Budgeting/loans
Define a budget
A budget is a financial plan and a list of all planned expenses and revenue
It can be a plan for saving, borrowing and spending
Explain the difference between a debit and credit card
Debit cards use your own money, credit cards use money you are borrowing from the banks
Explain what interest rates are
They determine the cost of your loan and what you pay back each month
Explain what interest free- finance is
The period in which interest is not applied to your purchase. At the end of the period, the interest can be extremely high
Identify the two different ways you can pay for your mobile phone
Plan vs pre-paid
Explain what a ledger is
•A ledger is a place where you create your budget
Usually done on excel
Define what credit is and give an example of a type of credit you can access
Credit is borrowed money that you have to pay back
eg. credit card, line of credit, personal loans, interest
Who sets the cash interest rate?
RBA- Reserve Bank of Australia
Why to people sign up for interest free finance deals
interest-free financing allows you to take the goods home immediately. Buy-now-pay-later deals
Explain the difference between a mobile phone plan and pre-paid
A plan is paid for monthly and the provider tells you how they will charge you for using your phone. Often have to sign a contract
Pre-paid- use a mobile phone that you already own and pay in advance for using your phone on a mobile service provider's network
Name 5 things you would expect to see on a budget
1.Income
2.Food
3.Rent
4.Phone bill
5.Electricity bill
6.Water bill
7.Family expenses
8.Fuel
9.Insurance
10.Rego
11.Entertainment items (i.e. Spotify, Netflix etc)
Explain how credit cards work and how often is the fee charged
Credit cards allows a person to borrow money up to a certain limit as long as you make regular minimum repayments
Annual fees
Explain the difference between a fixed and variable interest rate
Variable- Your interest rate goes up and down in response to changes in the cash rate and other changes by your credit provider
Fixed- A fixed rate allows you to lock in an interest rate on your loan, typically for 1 to 5 years
Explain how interest free finance deals can go wrong
In most cases, the minimum required payment is not enough to repay the loan balance within the interest-free period. Any outstanding balance at the end of the interest-free period will begin attracting interest charges, often at around 20 per cent per annum.
People can get caught out at the end of the interest free period with outsanding money to pay at a high rate
Explain what a cap is
Some plans let you go over your monthly allowance or limit. In these cases, you will be charged extra ― sometimes a lot extra!
Explain the difference between a secured and unsecured loan
Secured loans are business or personal loans that require some type of collateral as a condition of borrowing- lender can seize the collateral if you default
Unsecured loans are not secured by collateral
If a person has a card without an ______________-______________ period, they pay interest either from the ____________they make a purchase or from the day their monthly ________________ is issued.
If a person has a card without an interest-free period, they pay interest either from the day they make a purchase or from the day their monthly statement is issued.
Explain what the cash interest rate is, how often it is reviewed and how does this impact the interest rates we pay?
The Reserve Bank of Australia sets the ‘cash’ interest rate, which is reviewed every month.
Credit providers (such as banks) set their own rates and can choose to increase or decrease the rates in line with the cash rate.
Identify and explain 3 things you might need to consider when purchasing a phone
Phone, usage, coverage, contract, package deal, contract length and cost, locked phones, overseas calls, warranty, payments
What are the consequences of bankruptcy when you can't meet the repayments of your loans/debts?
- permanently affect whether you can get credit in the future
- bankrupt for 3 years and 1 day from the day you apply.
- cannot be a director of a company or operate a business
- may not be able to work in particular trades and professions
Explain how credit card interest is calculated
Credit card interest is calculated on your account’s outstanding balance on a daily basis.
Explain what the comparison rate is and why we use it
The comparison rate includes the interest rate or weekly repayment amount, plus most fees and charges.
We use this to compare and work out the best rate for us
Gary has just turned 18, he is in year 12, about to graduate school in a month and currently working a part time job. Gary has decided that he would like to buy a new phone but cannot decide if he should purchase a pre-paid credit deal or a sign up to a monthly plan.
Explain to Gary 2 Advantages and 2 disadvantages of a pre-paid credit deal
Advantages
•Budget friendly
•People know what they are spending each time they buy credit
•Competitive value deals
•No nasty surprises / phone bills
•Doesn’t allow you to overspend – go over your limit
•If your phone is stolen, the thief is unable to run up a large phone bill
Disadvantages
•You need to pre-purchase credit
•Once the credit runs out, you are unable to make calls, send texts etc
•You may be stuck somewhere because you have no credit
•Purchasing credit often can be more expensive than paying a monthly plan amount