PERSONAL ECONOMICS
Housing
Renting
Many people cannot afford to buy their own homes. Renting is when a tenant pays money to a landlord (owner) for the use of a house.
The landlord is responsible for repairs to the building. The tenant is not allowed to make alterations to the building without the landlord's permission.
A tenant has security of tenure, ie he cannot be forced out of the house by a landlord. If a tenant thinks his rent is too high then he can go to a rent tribunal where a government rent officer will decide a fair rent. The tenant and the landlord have to accept the decision of the rent officer.
Houses can be rented from private landlords but there is a great shortage of rented accommodation. Local authorities provide council housing but there is still not enough to go round. People wanting a council house are put on a waiting list. Priority is given to families in need. Tenants now have the right to buy their council houses from the local authority.
Buying
Houses cost thousands of pounds. Most people buying a house take out a special loan (mortgage) from a bank or a building society which they repay usually over twenty-five years. There are two main types of mortgage:
An ordinary mortgage is where the loan is repaid with interest in monthly instalments over twenty-five years.
An endowment mortgage is more expensive than an ordinary mortgage. Every month a premium is paid to an insurance company, and interest is paid on the loan to a building society. After twenty-five years the insurance company pays out enough money to pay for the house and the owner keeps any money left over.
Home ownership is encouraged by the government which reduces the cost of monthly repayments by giving tax relief (a reduced tax bill).
People buying their own home have a good choice of property. If house prices go up, they may be able to sell at a profit.
Moving House
The shortage of rented property makes if difficult for tenants to move house. Home owners are faced with various 'hidden' costs when moving. They have to pay for:
An estate agent who keeps a list of houses for sale in an area and arranges for potential buyers to see them. The seller pays commission if the agent finds a buyer.
A surveyor who checks the house to see if it is well built and in good repair.
A solicitor who checks the seller actually owns the house and draws up a contract between the buyer and the seller.
A removal firm which transports belongings to the new house.
Stamp duty which is a tax on the purchase of a house.
The cost of moving can add up to several thousand pounds.
Transport
Private Transport
There are two types of cost involved in running a car:
Fixed or standing costs which must be paid even if the car is not used. These include the interest lost by not having the money used to buy the car in the bank, depreciation, insurance and car tax.
Variable or running costs for petrol and servicing.
Public Transport
A car is convenient but costs hundreds of pounds a year to run and maintain. Public transport by bus, rail or underground offers a cheaper alternative. An increase in the number of private motorists using public transport would reduce pollution because there would be fewer cars on the road.
Insurance
Pooling Risks
Insurance is a system where in return for a previous payment a company will give money to repair accidental damage. Insurance is based on the pooling of risks. Thousands of policyholders pay a small sum of money (premium) into a central pool. The pool is then large enough to meet the expenses of the small number of people who actually suffer an accident. Insurance companies use the principle of indemnity which means that the insured is returned to the same financial position as before the accident. The policyholder is given enough money to repair the damage and no more.
Companies use data (information) to calculate a particular risk and the premium to charge.
Main Types of Insurance
Liability insurance.
Household insurance covers damage to the building and the contents.
Motor insurance covers damage to your car, to other people and their property. There are three main types of car insurance:
Third party. You are the first party; the insurance company is the second party; anyone else is a third party. You are covered for damage to other people and their property, only.
Third party, fire and theft. As for (1) plus you are covered for damage to your own car through fire or theft, only.
Comprehensive. You are covered for any damage to your own car, other people and their property.
Life assurance which covers dependants and provides for retirement. There are three main types of life assurance:
Term. Money is paid to dependants if death occurs within a stated period, eg twenty-five years.
Whole life. Money is paid to dependants upon your death.
Endowment. Money is paid at death or after a stated period. Whichever is the sooner.
National insurance. Workers pay 5 per cent or more of their wages into a pool. If they are ill or unemployed they receive benefits (money). Once they are over 65 they receive a pension.
Leisure
Leisure is free time when someone is not doing paid work, or at school or looking after the house. The average worker spends 45 hours each week on employment and travel. The average worker has 2.6 hours of free time each weekday and 10.2 hours of free time per weekend day.
The principle of opportunity cost is used to value leisure time. For example, the cost of going to the cinema is the cost of the ticket plus any lost overtime payments that could have been earned from working.
Retailing and Advertising
Types of Retail Outlet
A retail outlet is a shop. There are several types:
A unit or corner shop is local, convenient, friendly, open long hours and offers credit to known customers but is also expensive and has little choice.
A multiple or chain store is several shops using the same name. Chain stores are cheap and offer a large choice but they are not always local or friendly places to shop.
A department store is several shops under one roof. They are luxurious, stock all types of goods and offer personal service but they are found only in city centres and can be expensive.
Supermarkets have goods on shelves (open display) and customers help themselves (self service). Payment is made at tills.
Hypermarkets are huge supermarkets found on the outskirts of large towns. They have their own car parks.
Advertising
Advertising is the publicising of goods and services. Advertising creates a brand image whereby consumers buy more of a good because they believe it is better than substitutes.
There are two types of advertising:
Informative which gives details about the use, price quality, etc. of a product.
Persuasive which gives opinions about a product.
Consumer Protection
Legislative Protection
Many laws have been passed to protect the consumer when he buys a good. Here are a few:
Trades Descriptions Act. Goods must be marked with their country of origin. A good on special offer must have been on sale at a higher price for at least twenty-eight days in the last six months.
Weights and Measures Act. The weight of a good must be shown on a packet. It is an offence to sell under weight goods.
Sale of Goods Act. Goods sold must match their description. Goods sold must be undamaged. Goods sold must live up to their description. For example, a waterproof coat must be waterproof.
Goods Act. If you are sold faulty goods you are allowed your money back or a replacement. Proof of purchase must be given.
Voluntary Protection
The Consumers' Association is an independent watchdog which investigates products and applies pressure on the government on behalf of the ordinary shopper. The Association publishes a monthly magazine called Which? Giving impartial information about products.
Personal Budgeting
Making a Budget
Budgeting means making your expenditure less than your income. You draw up a budget plan by:
Making a list of all the money you receive each month (income).
Making a list of all the money you spend each month (expenditure).
If your expenditure is greater than your income you will have to buy fewer things.
Credit
Credit involves buying a good now and paying for it later. The annual rate of interest for borrowing money on credit can be as high as 18 per cent. This means that for every pound borrowed you must pay back 18 pence in interest each year.
With hire purchase the customer pays a deposit and then makes monthly repayments including interest. The customer does not get a discount (money off) when using hire purchase but the good can be returned with nothing more to pay once half the repayments have been made. The customer does not own the good until the last payment has been made.