Commerce Study Notes

Income from labour

income from non-labour sources

Wage- money received by workers usually on a

weekly basis e.g mcdonalds

profits from business

Commission - the percentage of a sales price

received by a salesperson for her or his services e.g
real estate

interest on savings

Salary- a fixed amount of money paid on a regular

basis (usually fortnightly or monthly) e.g teacher

inheritance- inheriting money from family members

fees- money paid to others for their services

government payments- paid by government to help

people in need
dividends- sum payable as profit for shares
rent- regular payment made by a tenant to an owner
for the use of the owners building or land
royalties- a sum paid to authors, musicians as a
percentage of their proceeds form their work
winnings- lottery etc

Fixed Expenses - expenses that are the same amount every time
Variable expenses- expenses that change overtime
Fixed Expenses

Variable Expenses

Bills ; electricity, water, gas etc

movies

weekly groceries

shoe shopping

monthly fees

home rennovation

car service

holidays

Benefits of Saving money

-

House mortgage
save for a holiday
major purchases e.g car house
retirement
save for an emergency
earn interest on savings

(These factors depend on characteristics of people)

- sense of satisfaction

Borrowing money
People borrow money mainly for major purchases since many people dont have a lot of money with
them.

Reasons For Borrowing money

reasons against borrowing money

1.Immediate satisfaction. You can have the use of

an item and pay for it later.

1.Interest charges. The cost of borrowing is usually

high.

2.Convenience. If you use a credit card, you do not

have to carry large amounts of cash.

2. Impulse buying. Because you do not hand over

any cash, you may be tempted to buy more goods or
expensive items.

3.Possible savings. You can take advantage of

special sales or discount offers.

3.Additional costs. Retailers can now pass on to

you their merchant fee costs.

5.Improve your quality of life. Acquiring more

assets may improve your standard of living.

5.Inability to repay. This can make you very

unhappy and ruin your quality of life.

6.Forced saving. You have to put money aside to

meet the regular repayments.

6.False sense of security. You may have an

unrealistic perception of how wealthy you are.

Interest: A payment made for the use of the money that has been borrowed
Types of loans
Personal loans - Secured loans: Something is deposited guaranteed
- Unsecured loans-:something that isn't deposited therefore higher interest
e/g car , furniture, home, travel
lender repossesses assets if you cant pay back
Mortgage Loans: When taking out a loan for a house or land. C: repossess assets if cant payback

Bank Overdraft: Withdrawing more money then whats in your account

Credit Cards: Have interest rates p.a for inability to pay money borrowed.
Payday Loans: Getting a payment from your weekly pay insurance ; Extremely high interest

Main Financial
money

institutions that lend

Credit Rating - (credit Reputation)

When you apply for a loan you will need to have a good credit rating so the lender knows your
ability to repay the money you have borrowed.
Main factor which influence whether your loan is approved or declined
Includes:

o Whether you have had any problems in the past repaying loans/debts
o Whether you pay bills late, etc.
o Address and age
o Employment details
3 Cs
Character: This refers to persons reputation for honesty and reliability in paying debts trustworthy
Capacity: Refers to ability to repay debts, i.e job, income. if you have the right income to support
repaying of debts.
Collateral: This refers to assets used as security of payment for the loan. assets will be forfeited if
borrower can not repay the loan
Steps to follow to ensure Responsible financial management
1.
2.
3.
4.
5.

ensure when borrowing a loan that you have the ability to repay
to maintain a good credit rating (reputation in loaning industry)
budgeting
saving
monitoring and record keeping

Guarantor, repossession, garnisheed

Guarantor:
o Someone who guarantees to pay back the money if the borrower does not
o Can be very risky, because people cannot always be relied upon
o Many cases where adult children have defaulted on their loan (not being
able to make repayments), requiring their parents to repay the outstanding
amount
o If you are going to act as a guarantor, you must see and sign the contract
and sign off on the terms and conditions if the borrow defaults on his/her
loan

Repossession:
o Take assets and goods away
Garnisheed:
o A lender has applied to get a legal order so that a certain amount of money
can be taken out of the borrowers wages
o This money is deducted until the debt is paid

Insurance - paying a premium to ensure that major assets are covered in costly situations. e.g
house or car sets on fire. Insuring assets in case of unexpected events leading to financial loss.
Premium: the amount of money to be paid to receive insurance cover
Insurance works when consumers pay a premium to insure an asset for example i pay 2000$ to
insure my car
Types of insurance:
-

Car
Home
life
travel
income
health

It is important to have insurance incase of emergencies that result very costly and leave people in
an unstable financial crisis.

consequences of poor financial management

Financial

Legal

Social

repossession of assets and

goods; leave you in crisis

Debt- money you owe

domestic violence

garnisheed- lender takes money

out of you wages legally; leaves

debtor- person who owes the

money

emotional illness

Financial

Legal

Social

creditor- person who is owed the

money

family crisis

you in financial crisis

declared Bankrupt
lack of money for necessities

suicidal conceptions

Define :
default notice : a document from a lender stating that a person has failed to carry out the terms of
the contract
credit bureau: an organisation that keeps on file the credit records of consumers.
Bankruptcy: when a person is judged by a court to be insolvent i.e unable to pay his debts
The law That covers Bankruptcy
The Financial Services Reform Act (FSRA) 2001
minimum amount owed to be declared bankrupt : $5000
Sources of Financial Advice:

The Role Of ASIC

ASIC is responsible for
- monitoring the financial service industry
- monitoring the provision of financial services such as investment advice
- providing consumer protection in financial services including shares, insurance, super etc
Changes to the FSRA 2001
- provision of a product disclosure statement (PDS)
- licensing of all financial organisations
- licensing of financial planners
National Consumer Credit Code act 2009
establishes a single, standard, national system for the regulation of consumer credit. this code
improves consumer protection

Investment
putting money into something in order to make a profit.
Reasons for investing:
Major Purchases
having to save for expensive items i.e car or house
Extra Income
gain extra income by investing in shares from a company
Retirement
invest to financially secure life in their old age.
Types of Investments:
Shares: Purchasing equities which represent small slice of the ownership
of a company in return, youre paid a dividend based on the companys
performance.
Property: Purchasing land or buildings in the expectation that they will
increase in value over time. This is called capital appreciation.
Managed Funds: Available through major financial institutions. Offer a
higher rate of return hat term deposits (because money is invested in both
high and low risk investments)
Superannuation: Setting aside a percentage of your income each year to
contribute towards your income when you retire. Employers must make a
compulsory contribution of 9% (now 12%)
Investments fail to obtain the best money return because :
-

they may be inexperience and fail to carry out sufficient research

poorly advised
economic conditions may change
not keeping up to date records.