Question 1: Define the term 'budget.' Why is it important to create a budget when managing personal finances?

Answer: A budget is a plan that outlines expected income and expenditure over a period of time. It is important because it helps individuals track spending, avoid debt, and save for future needs.

Question 2: List three different types of bank accounts and describe their main purpose.

Answer: Savings account: for saving money and earning interest. Current account: for everyday transactions like deposits and withdrawals. Student account: designed for younger people, often with low or no fees and tailored features.

Question 3: Explain what interest is and distinguish between 'saving interest' and 'loan interest.'

Answer: Interest is a fee paid for borrowing money or earned on savings. Saving interest is earned on money kept in a bank account, while loan interest is the cost paid when borrowing money.

Question 4: Imagine you receive a monthly income of £1,200 and spend £900 each month. Calculate how much money you save in a month and how much you save in a year if your spending habits stay the same.

Answer: Monthly savings = £1,200 - £900 = £300. Yearly savings = £300 x 12 = £3,600.

Question 5: Describe two advantages and two disadvantages of using credit cards.

Answer: Advantages: They allow for convenient purchases and offer rewards or cashback. Disadvantages: They can lead to overspending and accumulating high-interest debt.

Question 6: Draw a simple diagram showing the flow of money when making a purchase using a debit card. Include a bank, the store, and the customer.

Answer: A correct sketch would depict a customer using a debit card at a store, with arrows showing money moving from the bank to the store's account, illustrating the transaction process.

Question 7: List three things you should consider before taking out a loan.

Answer: Interest rate, repayment terms, and whether you truly need the loan.

Question 8: Explain what payday loans are and identify one potential risk associated with using them.

Answer: Payday loans are short-term, high-interest loans typically borrowed to cover urgent expenses. A risk is that they can lead to debt cycles due to high interest and fees.

Question 9: Create a short budget plan for a week where you expect to earn £50 from a part-time job and spend £30 on food, £10 on transportation, and £5 on entertainment daily. How much money will you have left at the end of the week?

Answer: Total weekly income = £50. Total expenses = (£30 + £10 + £5) x 7 days = £55 x 7 = £385. Since weekly income is £50, the expenses are higher than income, indicating a deficit of £335, or if considered daily expenses, calculations need to be adjusted accordingly. Alternatively, if expenses are daily: total expenses = £45 per day x 7 = £315; weekly income is £50, so the weekly savings or deficit is £50 - £315 = -£265.

Question 10: Sketch a diagram illustrating the cycle of saving and spending, including the concepts of income, expenses, saving, and spending.

Answer: A clear diagram would depict income flowing into a person, with arrows pointing to expenses and savings. Expenses lead to outflows of money, while savings are shown as money set aside, with arrows indicating the flow back into savings account or investments.