Post on 12-Jul-2020
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How can I understand financial risks and rewards? Presentation
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Define
Gambling
Return Risk Saving
Investing BorrowingInterest
%
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Return
The profit or loss you
have on your investments.
%Risk
Considering what could
happen, not what will happen,
as there is the element of
uncertainty. When deciding
what risks people are prepared
to take, various factors such as
emotions and personal
circumstance will be important.
Saving
When you put money aside,
often on a regular basis, to
make a lump sum. You might
save towards a certain goal,
such as a holiday or a deposit
to buy a property, but you can
also set aside money to cover
emergency costs. Saving often
involves putting money into
cash products, like bank
savings accounts.
Interest
Money paid regularly
at a particular rate for
delaying the repayment
of a debt.
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Investing
When you use money to buy
things that might grow in
value – for example stocks,
property, or shares in a fund
or business venture. The aim
is to make the money
increase more quickly or get
a better return than you
would from the interest from
a savings account.
Borrowing
When you ask for and receive
money that you must pay
back, usually with an additional
amount – interest – and within
a certain time. Borrowing can
include loans, overdrafts or
credit cards.
Gambling
When you put money towards
an activity or game of chance
with the hope of winning more
money back. Examples include
the lottery, sports bets, slot
machines, casino games and
scratch cards.
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Why might people save, invest, borrow or gamble?
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What are the chances of matching all six numbers in the National Lottery?
Gambling odds
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• What are the chances of matching all six numbers in the National Lottery?
• 1 in 45 million
• You can also think about it in terms of how long it would take before you can expect to win. If you enter one ticket in both draws each week, you could wait up to 432,000 years!
• How would you describe the risks and rewards in this situation?
Gambling odds
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• Views about risks and rewards are personal
Risk and reward
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• What options can you think of for borrowing?
• What are the risks when borrowing?
• What are the benefits when borrowing?
Borrowing options
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• When you save or invest money, two of the most important factors are risk and return
• The risk associated with an investment is a way of describing how likely it is to lose money, i.e. a deposit in a bank savings account is considered very low risk, but buying shares in a new business can be considered high risk
Saving and investing
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• Investments can increase and decrease, and some types of investment carry more risk than others
• Generally, the more risk, the greater the potential return – but also the greater the potential loss
• People invest for growth and income
Saving and investing
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Generally, banks and agencies recommend:
• To save until you have an emergency cash reserve, then you could consider investing
• If you’re likely to use the money in the next five years, save
• If it’s likely to be ten years or more before you use the money, invest
• If you’re likely to use the money in five to ten years’ time, you could consider saving or investing and should consider whether you’ll need a certain amount at a particular time
Saving and investing
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Risks and rewards
Interactive activity
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Understanding financial risks and rewards
Activity sheet
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Don’t put all your eggs in one basket