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Your Money Matters
Financial Awareness:
Money and Transactions
Become more aware of your finances and the importance of the personal lifecycle. We will look at:
Consumption vs disposable income in different phases of life.
How you choose to spend: needs vs wants, essential vs non-essential spending. The role of personal values.
The meaning of “value for money”.
Understand how to plan for medium and long-term financial needs
Importance of financial planning.
The foreseen and unforeseen influences that have an impact on financial budgeting.
This video will include:
- Role of personal values - Needs, Wants and Aspirations
- Financial needs across the life stages
- Value for Money
- Financial planning and informed choices
- Importance of financial planning
Life Stages
Every stage throughout our lifetime presents different financial circumstances. The influx and outflow of money will also vary depending on various factors, i.e. do you still live at home, are you a minor, if you are financially independent and if you have a family to support.
Money management skills develop throughout the course of our lives based on many things – did you receive an allowance as a teenager? Were you dependent on your parents until you got your first job? What your spending habits are like, and if you are financially responsible and prepared for retirement. The more you know about these life stages, the more prepared you can be in knowing the demands of each one and how to work your way through each stage.
There are stages of life, based on age, that we all travel through, however, and life events such as getting married and having children that happen to many of us.
When planning current and future finances it is useful to consider the financial circumstances that tend to apply to each life stage and the financial consequences of possible life events. Such as school and university fees, everyday expenses, travel and leisure expenses, medical and elderly care.
A typical life cycle
| Birth and infanthood | 0–2 years old |
| Childhood (preschool) | 2–5 years old |
| Childhood (school) | 5–12 years old |
| Teenager | 13–19 years old |
| Young adult | 18–25 years old |
| Mature adult | 26–40 years old |
| Middle age | 41–54 years old |
| Late middle age | 55–65 years old |
| Old age | 65 onwards |
| Death | Possible at any age but more likely here |
At each stage, people tend to have different:
External Influences
The length of the various life cycle stages and what happens during each one, is affected by external influences, beyond an individual’s control, including socio-economic trends.
Social trends:
Economic trends:
Needs, Wants and Aspirations
There is a pretty big difference between what you want, what you need and what you hope for. We all also have very different spending habits regarding each one. Let’s break it down.
Needs are essential, ‘must-have’ items that everyone must have to survive, such as water, food and shelter. Needs are quite limited.
Wants are optional, ‘nice-to-have’ items that are desirable but not essential, for example jewellery, a big house or going to the cinema.
Aspirations are hopes for the future. They are the items or experiences that people wish to have in the medium-term or long-term future – for example, going on an exotic holiday, or getting a good job or owning your own home.
It is important to distinguish between needs and wants. Essential items such as water, basic food and clothing are needs for everyone. More expensive food and fashion clothing are not necessary and so they are wants. If a person’s budget changed, they would make different decisions about what to buy under the heading of ‘food’. So, needs and wants are related to the price of products and to people’s ability to buy them.
Needs and wants change according to:
Spending on Needs, Wants and Aspirations
There are three main reasons why people spend money:
To pay for essential items they need
To pay for optional items they want now
To save for items they aspire to buy in the future
The distinction between needs, wants and aspirations is an important one for financial planning.
Let’s look at some examples:
When planning finances, people should pay for needs first. If they have spare income after paying for these needs, they will consider paying for wants and saving towards aspirations.
Financial Products and Satisfying Needs, Wants and Aspirations
In order to satisfy their needs, wants and aspirations, people have to be able to finance them – in other words, they must have enough money to afford them. Below is a list of various financial products:
A financial product is an instrument in which a person can either: make a financial investment (for example, a share); borrow money (for example, credit cards, loans or bonds); or save money (for example, term deposits). They buy financial products because such products enable them to satisfy their needs, wants and aspirations.
Medium-term and Longer-term savings
Financial products offered by banks allowing you to save over a longer period of time.
Investments
A longer-term form of saving; people invest to save for a longer-term want or aspiration. It is riskier, but it can bring in a higher return.
Pensions
Many people save money in a pension scheme throughout their working lives to finance their retirement.
Longer-term Borrowing
An example is a mortgage, which is a loan secured on the value of the property being purchased. Hire purchase is a type of secured consumer credit to finance items like cars and furniture, where the borrower repays over several years.
Insurance
Insurance policies can cover long-term risks. For example, people who buy their own home can insure the property and its contents against loss from a range of risks. Life assurance allows people to protect their loved ones in case they die, and some products also enable people to save money for a later stage of their lives.
Borrowing Money
Prior to making the decision of borrowing money, it is important to first decide not to buy the things that we want. A question to put things into perspective is – “do I really need this?”. For expenses that are not mandatory nor essential it is a good habit to save for them, creating short- and long-term goals and saving until one has enough money, instead of borrowing.
A reason to borrow money is if it would take a long time to save up enough money to buy the item needed, and it is required straight away. However, if that is the case, one should ensure you have enough future income to pay back the debts.
Internal Factors Affecting Needs, Wants and Aspirations
Internal factors are those that come from within people themselves. The key internal factor that affects someone’s choices is their own personal set of values, beliefs and attitudes.
External Factors that Affect Needs and Wants
External factors are those that are not within your control, such as:
Marketing, social media and advertising
Peer pressure
Trends, fashion, and role models
Trends can affect:
How Attitudes towards Financial Risk Relate to the Life Cycle
People’s attitude to risk can be influenced by the stage they have reached in the life cycle. Certain events are more likely to happen at certain stages. For example, older people may prioritise paying for health insurance, younger adults may not be too concerned about the future, and those with families also go through different stages which can impact their approach to spending.
Income
Income is money received and it includes money coming in from all sources, both earned and unearned.
Value for money
A big concern for most types of spending is getting value for money. This does not always mean getting something at the cheapest price. Value for money is defined as the most advantageous combination of cost, quality and sustainability to meet your requirements.
Money and Currencies
The meaning of money:
UAE
In 1973, the UAE Currency Board issued the nation’s first banknotes. In 1982, the Central Bank of the UAE released a second issue of UAE paper currency, following the transition from the UAE Currency Board to the CBUAE, instituted by Union Law No. (10) of 1980. As a result of this transition, the current CBUAE banknotes - which are familiar to us today - replaced the previous issue of UAE Currency Board notes. Alongside currency used for everyday transactions, the CBUAE also mints commemorative coins to celebrate the many highlights and achievements of the United Arab Emirates.
Financial Planning and Informed Choices
Medium and long-term financial planning is done because people want to achieve their aspirations and to finance life events. Examples of planned events include:
Do you have an Emergency Fund?
Any extra income can be put in a savings to access instantly in an emergency. It’s best to maintain a fund that can support you for about 3 months, if possible, however anything you can set aside helps!
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