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Flashcards

CeFS Unit 2 Key Terms

Steve Gidley English 5.0Average rating 5.0 out of 5 (4 ratings) 99 cards

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  1. 1AERAnnual equivalent rate is the interest that will be earned on the money in one year and takes into account how often the provider pays the interest (for example, monthly or annually), the effect of compounding the interest and any fees and charges
  2. 2Affinity savings accountAn account linked to a particular charity or good cause. The provider makes a cash payment, from its own funds, to this charity or cause based on the average balances held in the affinity group accounts. The more supporters save in their chosen scheme, the bigger the cash payment the charity will receive.
  3. 3AffordabilityAn important concept in helping people to choose financial products, based on budgeting and forecasting to help individuals decide what they can afford to spend.
  4. 4Annual exempt amountThe annual tax-free allowance for capital gains tax.
  5. 5AnnuityA financial product that pays a regular guaranteed income, in return for a lump sum paid to the product provider. It is used by people when they retire.
  6. 6APRAnnual percentage rate – the total cost of borrowing over one year, including the interest charged and any fees.
  7. 7ArrearsAn unpaid overdue debt.
  8. 8AspirationsThings or experiences that people would like to have in the future, for example owning a home instead of renting, having a luxury holiday or buying a sports car.
  9. 9AssetsThings that a person or a business owns. For a person their assets might include property, jewellery or financial products such as company shares.
  10. 10AttitudesPeople’s thoughts and feelings, at a given time and place, about another person, an event or an issue. Usually quite general and limited to socially significant issues or events, they can be changed by circumstances, events, experience or advice.
  11. 11AuditAn evaluation of a person’s finances.
  12. 12BalanceIncome minus expenses.
  13. 13Bank RateThe interest rate that the Bank of England uses when it lends money to other banks. Financial services providers take account of the Bank rate when they decide how to set interest rates on their own products.
  14. 14BankruptcyA situation in which a person cannot pay their debts and is the subject of a court order that shares out their assets between their creditors.
  15. 15BeliefsSpecific and detailed personal convictions about how things are. They can be religious but also otherwise, and can be ‘absolute’ (A is acceptable but B is not) or ‘causal’ (cause A leads to effect B).
  16. 16BeneficiaryIn relation to trusts, a beneficiary is a person whose property is held as part of a trust and looked after by a trustee. See also trust.
  17. 17BenefitA government payment made to individuals who meet specific conditions to help them meet their living expenses. For example, people who are unemployed, unable to work because they care for a disabled person, or have a disability may be entitled to benefits if they meet the criteria.
  18. 18BrandThe name of the provider and what it signifies to the customer – eg security, trustworthiness, innovation, etc.
  19. 19BrokerA person or organisation that earns commission by arranging transactions between buyers and sellers.
  20. 20BudgetA plan of expected incomings and outgoings over a set time period such as a month. The Budget is also the term given to the government’s annual spending plan, which the Chancellor (see below) sets out in the House of Commons in March each year.
  21. 21Budget deficitA situation in which outgoings exceed income.
  22. 22Budget surplusA sum of money available once all the essential expenditure in a given period, eg a month, has been made.
  23. 23Buy-to-let mortgageA long-term secured loan taken out by a person who is buying a property with the intention of letting it to tenants.
  24. 24CapitalThe money or other assets owned by an individual or a business. In the case of a financial services provider, it refers to the funds provided by the shareholders, not deposits from customers.
  25. 25Capital gains taxA tax payable on the gain (profit) made when you sell or give away an asset, for example property or shares. Each person is allowed to make a certain level of profit before being taxed on it (see annual exempt amount above).
  26. 26Capital growthAn increase in the market value of an investment, over and above the amount the investor paid for it or paid into it.
  27. 27Capital sumThe total amount borrowed or saved / invested, before the addition of interest. For instance it can refer to the amount borrowed with a mortgage loan, or the amount paid into an investment product.
  28. 28Cash flow analysisPutting a monthly budget together by looking at cash inflows and outflows and calculating the net balance at the end of a specified time period.
  29. 29Cash flow forecastA plan of expected incomings and outgoings over several time periods, such as the next three months.
  30. 30Cash ISA (individual savings account)An account that pays interest tax-free on cash savings up to a certain level.
  31. 31Children’s BondAn investment bond taken out by a parent, legal guardian or (great) grandparent for a child under the age of 16. Investing between £25 and £3,000, the investor is guaranteed interest at a fixed rate for five years, after which the Bond matures. A nominated parent or guardian controls the Bond until the child reaches 16
  32. 32Child Trust Fund (CTF)A long-term savings account only available to children born between 1 September 2002 and 2 January 2011. CTFs were set up by the government to encourage people to build up savings for their children
  33. 33Citizens AdviceA charity providing free, independent, confidential and impartial advice on citizens’ and consumers’ rights and responsibilities.
  34. 34Civil partnershipA legal union between same-sex couples.
  35. 35Collective investmentsInvestment products such as unit trusts or open-ended investment companies (OEICs) that let many retail investors pool their money together.
  36. 36CommodityGoods that share the same characteristics wherever they are produced and whoever produces them – unlike a manufactured product, where different manufacturers can add specific features. Examples include raw materials such as iron ore, gold and silver, or agricultural produce such as wheat and rice.
  37. 37Competitive demandA situation in which two or more products fulfil the same need or want and therefore are in competition with each other for the customer’s money – eg different types of savings product.
  38. 38Consolidation loanA loan used to pay off a number of different debts, meaning that there is then only one payment to make each month, to the loan company.
  39. 39Consumer creditThis is another term used for borrowing. It is important to understand that ‘taking credit’ or ‘buying on credit’ refers to borrowing. However, a credit into a bank account means paying money in.
  40. 40Consumer durableA useful product with an expected long life (eg TV, car).
  41. 41Corporate bondA product that companies can use to borrow money over periods of five years or more. The company offers a number of bonds for sale; buyers can then sell the bonds on to other investors if they wish. A key difference between bonds and shares is that bondholders do not own a share in the company.
  42. 42Corporate social responsibility (CSR)Any action or project in which a company goes beyond the interests of its shareholders and senior management in order to benefit other stakeholder groups, normally with either a social or an environmental purpose. Also known as citizenship or sustainable responsible business.
  43. 43Corporation taxA card that allows the holder to make purchases face to face, online or over the phone, and to withdraw cash from an ATM. Unlike a debit card, where the money is taken from the holder’s own account, transactions are paid by the card provider. The card holder repays the amount owed to the provider either in one payment or in instalments. The provider charges interest on cash withdrawals from the time the withdrawal is made and on purchases after a certain period.
  44. 44Credit historyA record of money borrowed and repaid by an individual. These records are held by credit reference.
  45. 45Credit ratingAn assessment of an individual’s creditworthiness – their eligibility to borrow money – based on their record of money borrowed and repaid.
  46. 46Credit reference agencyAn independent organisation that maintains records of people’s credit history –that is, what they have applied to borrow, what they have actually borrowed and whether they have paid it back. The data is provided by lenders.
  47. 47Credit reportDetails of money borrowed and repaid by an individual. These records are held by credit reference agencies and providers will check them when a prospective customer applies for a borrowing product.
  48. 48Credit unionA mutual organisation (that is, owned by its members) that provides a range of financial products eg savings accounts and personal loans to members. Members of a credit union must share a common bond eg all work for the same employer or all work in the same district
  49. 49CreditworthinessThe extent to which an individual is seen as being likely to pay back any money they borrow.
  50. 50Critical illness insuranceInsurance that pays out a guaranteed cash lump sum if the insured person dies or is diagnosed with a specific critical illness.
  51. 51CultureA society’s set of norms about behaviour and attitudes across social groups. It indicates what society considers to be acceptable and unacceptable.
  52. 52Culture (organisation)An organisation’s set of norms and shared values about behaviour and attitudes. It indicates what an organisation considers to be acceptable and unacceptable, and how it expects people to behave
  53. 53Debt management planA detailed plan drawn up by a debt management company (DMC) and sent to an individual’s creditors (people and organisations to which they owe money). It sets out an affordable monthly payment shared between the creditors.
  54. 54DefaultTo fail to repay borrowing when the repayment is due.
  55. 55DependantA person who is financially reliant on someone else, eg a child on a parent or guardian.
  56. 56DepositA sum of money placed by a customer with a financial services provider.
  57. 57DepreciateTo fall in value below the amount paid for it.
  58. 58Discount mortgageA variable-rate mortgage that gives the customer a set discount off the provider’s standard variable rate (SVR) for an agreed period. The rate charged can still rise or fall.
  59. 59Discretionary expenditureSpending on products and services that people want now, and savings towards items they aspire to buy in the future; it is spending that people choose, rather than have to do.
  60. 60Distribution channelThe medium through which information is transferred to its intended recipient, eg email, telephone. In financial services, it refers to the way a customer can contact their provider and manage their account. It is also referred to as a communication channel.
  61. 61DiversificationSpreading investments across a range of different products, funds or types of asset so as to reduce the potential impact of any doing particularly badly.
  62. 62DividendA payment of profits from a company to its shareholders, often at
    twice-yearly intervals, either as cash or (depending on the plan) as further shares or reacquisition of shares.
  63. 63DownsizeTo reduce in size or number for financial reasons; it is often used to describe people’s decision to move to a smaller home, or a business’s decision to reduce the number of staff it employs
  64. 64Earnings thresholdA minimum amount of earnings set by a provider, below which it will not allow a person to purchase the related product. HM Revenue & Customs also uses earnings thresholds for various reasons, eg to determine when someone has to start paying back a student loan, or paying Class 4 NI contributions
  65. 65Economic sustainabilityConcerned with reducing the undesirable consequences of economic activity by maintaining consumption on a sustainable scale
  66. 66Electoral rollA record of all citizens registered to vote.
  67. 67Endowment policyAn insurance product that pays out a lump sum after a specified term or if the insured person dies before the end of the term. Endowment policies are often used as a way of saving over the long term
  68. 68Environmental sustainabilityConcerned with reducing the negative human impact on the earth’s ecosystems.
  69. 69EquityThis has two meanings: a) when talking about investments, an equity is another name for the shares of a company quoted on the Stock Exchange; b) when talking about property, it refers to the difference between the value of a property and the amount of money still outstanding on the mortgage.
  70. 70Essential expenditureSpending on items required to live, eg rent or mortgage repayments, food and drink, water supplier, gas and electricity.
  71. 71EstateThe sum of a person’s assets minus all debts and obligations. Also known as net worth.
  72. 72Ethical investingWhen someone chooses to save in a way that means the money will be used for what that individual considers to be good purposes. Ethics are a set of ideas about what people believe is morally right.
  73. 73Ethical investmentAn investment made in a company that takes into account the wider impact of its activities on society and the environment.
  74. 74Ethical Investment Association (EIA)An organisation that brings together and gives support to financial advisers who want to promote green (environmentally friendly) and ethical investment.
  75. 75EthicsThe moral principles that govern a person’s behaviour or the conducting of an activity. It is particularly important in the financial sector because money and finance depend on trust.
  76. 76EquityThis has two meanings: a) when talking about investments, an equity is another name for the shares of a company quoted on the Stock Exchange; b) when talking about property, it refers to the difference between the value of a property and the amount of money still outstanding on the mortgage.
  77. 77Equity withdrawalAdditional borrowing based on the difference between the value of a house and the outstanding mortgage
  78. 78Exchange rateThe price of one currency in terms of another; for example, it enables people to calculate how many US dollars can be purchased with one pound sterling.
  79. 79Feedback effectThe notion that thoughts and feelings have a direct influence on behaviour. As expectations can be self-fulfilling, people’s own attitudes affect the outcome of events
  80. 80Final salary schemeA type of occupational pension that pays an income related to the amount of the last salary an individual earned before retirement.
  81. 81Financial Conduct Authority (FCA)One of the two main regulators of financial services in the UK (the other is the Prudential Regulation Authority).
  82. 82Financial footprintThe record or ‘footprint’ that every financial transaction, and thus every person, leaves behind them. This includes: outstanding debts; missed payments; loan applications; increases in borrowing; and previous borrowing.
  83. 83Financial Ombudsman Service (FOS)An independent body set up by Parliament that settles customer complaints about providers at no charge to consumers.
  84. 84Financial personalityA person’s attitude to risk and the way they manage their money. The key factor in an individual’s decision-making process when choosing a financial product.
  85. 85Financial Services Compensation Scheme (FSCS)A compensation scheme that pays compensation to account holders of up to £85,000 per provider if the provider is in default (in other words cannot pay account holders the money they have in their accounts).
  86. 86Financial planningPlanning one’s expected incomings and outgoings over the short, medium or long term.
  87. 87Fixed interestPaying the same rate of interest until the end of the savings, investment or loan term.
  88. 88Fixed-rate mortgageA mortgage loan whereby the interest rate is fixed for a stated number of years at the beginning of the mortgage. This benefits the borrower if interest rates rise during the fixed period, but not if they fall.
  89. 89FlexibilityIn financial terms, an individual’s ability to react to unexpected events. A financial plan should take such events into account, allowing a person to make changes to the plan when necessary.
  90. 90Friendly societyA mutual organisation that offers its members a wide range of financial products.
  91. 91FTSE 100The Financial Times Stock Exchange Index, known as the ‘footsie’. It is an index of the share price of the 100 companies with the highest ‘market capitalisation’ (total value of issued shares) listed on the London Stock Exchange.
  92. 92GiltA bond issued by the UK government – it is a way for the government to borrow money. Most gilts are issued with a redemption date, that is the date at which the government agrees to buy them back. Between their issue and the redemption date the gilts can be traded.
  93. 93Government bondA bond issued by a national government – it is a way for the government to borrow money. Gilts (see above) are bonds issued by the UK government.
  94. 94Hedge fundAn organisation that takes in funds from investors such as
    pension companies, insurance companies and very wealthy individuals and invests those funds to try to get a high return.
    Investment in such funds is seen as a high risk.
  95. 95Hire purchaseA type of secured consumer credit to finance items such as cars and furniture, which involves the borrower repaying over a number of years.
  96. 96HMRCHer Majesty’s Revenue and Customs – the organisation that collects taxes on behalf of the government.
  97. 97Ijara mortgageA form of Islamic mortgage. The provider purchases the property, takes the legal title and sells the property to the customer at the purchase price. The customer makes repayments over an agreed number of years and also pays rent to the provider for the use of the property. At the end of the agreed term, the ownership of the property is transferred to the customer.
  98. 98Impact of riskThe effect on someone’s life of sustaining loss or damage.
  99. 99IncomeEarnings, savings and interest payments received.

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Flashcards on CeFS Unit 2 Key Terms, created by Steve Gidley on 19/03/2015.
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Steve Gidley
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