Reference no: EM13371959

Question 1

a. 25%/100x£1200=£300  £1200-£300=£900 £900:12=£75 council tax per month

b. 50/100x360=180 180+360=540 3x360+540=1620:12=£135 electricity gas and water bill per month

c. 5/100x50=2.5 50-2.5=£47.5 cable TV per month

d. £960:12=£80 holiday per month

Monthly income and expenditure

Net income                                                                                                                

Earnings                                                         2047

Expenditure

Mortgage                                                       650                 

Council tax                                                      75                  

Electricity, gas and water                               135                  

Cable TV                                                         47.5                

Motoring goods                                               80                    

Other travel                                                    125                   

Food and drink                                                490                   

Household goods                                            85                    

Entertainment                                                 160                   

Holiday                                                             80                    

Insurance                                                         75                     

Total expenditure                                             2006            

Surplus                                                               41

There is a possibility that he can have a higher surplus of money left as some of the commitments like his electricity, gas and water bill are coming quarterly, household goods and holidays are occasional spending.    

a. Gross income£32400 (2700x12=32400)

Personal allowance£8105

Taxable amount at 20%£24295

Income tax £ 4859

National insurance at 12%£2977

Net income £24564

Monthly netincome £2457

c.These corrections on Charles's monthly expenditurehave a big effect on his monthly average surplus but alsoit has provided a more accurate picture on his finances. We can see that the he has a cash flow of £41 to spend a big difference from his previous estimate of -£2188. Therefore he would be able to afford the new TV but he should consider that hiscircumstances may change in the future, for example if he loses his job can he afford the repayments.

1.2

a. Managing and budgeting money in everyday life as a couple is not easy but having a baby will put more financial pressures on the household which can lead to disagreements between Charles and Ellen. To avoid this they will need to, control their spending, check if there is enough money to pay bills without borrowing and plan for the future.

c.In order to achieve all this they would need to combine and adjust their income and prioritise spending therefore they will need to make a detailed cash flow statement in order to set their budget.As they now live together they can save money on utility bills, (economies of scale) and their fixed costs, shop for better deals on their mortgage and discounts for bills, finally plan for their future, buy bigger house, better savings account pension plan and increase income so they can maintain their standard of living.

Question2

2.1

a. APR is annual rate of interest thatis charged for borrowing expressed as a single percentage which represents the yearly cost over the term of the loan, including any fees and additional charges associated with the transaction.

b. When paying a loan we are usually charged the interest rate and APR,Interest rates will vary on the current market conditions and APR on the personal credit history.

2.2

a. For the three years she would pay £299

b. It would take her two years.

c. If Ursula decides the first option it will take longer to pay off the debt, monthly instalments are less and spread over alonger period of time with higher interest and will cost more.If she decides to take the second option she will pay off the debt more quickly, monthly instalments are higher in less time and she would pay less interest at a lower cost.

2.3

a. He would not be able to pay of the bank loan on time, due to the fact he won't be able to pay the capital in the period of three years with the monthly payments of £120.

b.

i.The real amount on the loan after 3 years at inflation rate of 5% is £4319.

ii. I think the very important aspect of the argument will be the inflation for which Gerald think will help him. However his parents will be worse off if they give him the money because they will buy less goods and services due to the higher prices when they get the money back without interest. Also his earnings would have fallen therefore now he has even less money, so his ability to repay the loan has decreased more.

Part B

If we look back in the last 10 years people have experienced a lot of changes in the social and economic environment. To start with living standards have increased, nearly doubled over the years which meant that more money was passing through the households. All this was because of the easy access of mortgages, loans, credit cards overdraft and the constant advertisement of the same.

 However there was a arising problem of disproportion as this changes affected poor people more than the rich, one of the reason for this was they did not had the same access to all financial services and they  experienced a financial exclusion ending up paying more.

 All this changes were influenced by a number of factors such as the increased use of plastic cards which has overtaken cash and cheque payments by 2004, personal debt and liberalisation of the financial services.  We can see from figure 1 that In 1993 the total UK debt was 400millions and in 2009 it was 1.4billions that's an increase of 28.58% from which secured debt was 380millions in 1993 in 2009 was 1.2billions increase of 31.66%, credit card 20millions in 1993 to 190millions in 2009 increase of 10.50, and other consumer debt from about 10millions to about 40millions in the same years 25%increase, whilst 2008-2012 it has levelled up with 0 increase.

Some of this is due to online shopping which has increased greatly by 2009 due to the fact that people gained more access to the internet and used plastic cards for payments. Also with the development in the mobile technology more people have internet on their smart phones and there are an increasing number of people that checks their balances make payments or do mobile banking on their phones. This has been on increase in the last couple of years and it has been forecasted to grow even more. Another two specific development that occurred during the period 1998 to 2009 where we can see a very rapid increase of 35%mortgage lending which was influenced by the rise in house prices, people tried to increase their level of secured debt by increasing the size of their mortgage in order to gain access to the equity they had in their property, secondly is the increase than decrease in secured debt where people replaced unsecured debt with a cheaper secured one and by paying of their expensive credit cards.

 As we all live in a consumer society and a big importance has been put on to buy more and our identity is shaped by what we buy. With the development of new technology and sourcing products from all over the world, have introduced a new product onto the market accompanied by a lot of marketing and advertising to which none of us is immune. This has led to a bigger demand for financial products for example in order to buy this new product we need more money, money which we need to borrow on credit card, overdrafts, personal loans or mortgages. With the easy access to all of them it has helped to increase personal indebtedness in the 2000s.

 All this easy access to borrowing money was specific for the period of liberalisation of the financial services industry which dated back to the 1980s when the three financial services acts were passed and implemented by the financial institutions into a lot of new different activities, relaxed rules on the use of by lenders to borrow money from other institutions in the world financial markets in order to finance their personal lending and encourage a bigger competition amongst other lenders. Lenders were and still very active in encouraging people to take on more debt via their marketing machines. Some of them offered interest free periods and higher credit limits even without the borrower needing one or asking for one all in order to win new customers and retain old ones. Nowadays it has become normal for banks to advertise sales as it is any other high street shop.

They are not only meeting demand but encouraging customers to take on more debt ,,buy now pay later,, and because of this there is a lack of competition in the provision of this type of card therefore the charges to this type card are bigger.

 The consumer society is closely linked with the liberalisation of the banks as they provide the money so the consumer can purchase all the new available products. This included the feel good factor if people felt confident about the future they borrowed more money and that was until the financial crises 2007-09 where a lot of banks were collapsing (Meryl lynch, Lehman brothers) and the others like (NatWest, Lloyd many others) were helped by the government, people attitude started to change as they were concerned about the economy, growing unemployment failing incomes and they started to pay back the money they owed. We can see from figure one that during the recession the demand for debt product remained same while the annual growth on unsecured debt in the next two years until 2012 was zero.