Planning Personal Finance on Different Life Stages - Literature review Example

Planning Personal Finance xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Lecturer xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Date Introduction There are various stages of the typical lifecycle of an individual in the United Kingdom today. The stages go hand in hand with the alternating period of plenty and want. The life of an individual in the United Kingdom is characterized by various alternating periods of comparative plenty and wants (Hagan 2002). Poverty characterizes early childhood, this follows periods when the individual is earning income and living under the care of his or her parents. Other stages in lifecycle follow as well. This report provides empirical and contemporary perspective on the various stages of the typical lifecycle of an individual in the United Kingdom today. This report also identifies the most relevant financial products that individuals should consider at each of the stage. To be able to identify the relevant financial products in each of the life stages, the report identifies the income dynamics that associate with the different life stages. Financial needs keeps changing through the life and stages of an individual lifecycle. The financial products will be dependent on the characteristics and factors in the specific lifecycle. These financial products will help the individual achieve success by implementing and development of the financial products. These products will help the individual to have stable income and therefore avoid financial difficulties. This is especially important because, there are stages in the lifecycle whereby an individual does not work (Byrne 2005). They will therefore help an individual have the standard of living that they desire. As such, they will depend on the characteristics, values, choices, goals, life events, lifecycle needs and lifestyle conditions. Birth and Early Childhood An individual is born. This lifecycle involves special and attentive care of the child by the parents. The early childhood also involves care of the child by the parents. The parents determine the course of the child. The parents do the planning and therefore at this stage, parents are in total control of the individual. The parents execute the financial products relevant in this stage as part of their financial planning (Gourieroux & Jasiak 2001). Studying and Leaving School Studying is where an individual lays foundation for his or her life. An individual is very active in this stage and makes many and crucial decisions that will concerns and affect the rest of his or her life. The relevant financial product at this stage purposes at maximizing returns on education and avoidance of debt while studying. Credit card is important at this stage but an individual at this stage may misuse the credit card and hence accumulate debts. It is therefore recommendable that individuals at this stage avoid using credit card. An individual at this stage should have a current account student loan and travel insurance. These financial products are important in ensuring that the individual maximizes finances at his or her disposal while at the same time avoiding accumulating debts (Lange 2001). After leaving school, an individual considers getting employment. As such, current account and credit card are important because they will ensure that the individual will meet their daily needs and live within their means of income. It is at this stage where an individuals in the United Kingdom start planning about financial investments and making investments as well. A deposit account is important in making savings. As the individual progresses, they start making huge investments, as such, fixed term bonds are very good. These financial products have high return rates and they are secure thereby guaranteeing extra income to the individual. This stage involves making the most out of every pound that the individual gets. In addition, a home mortgage is important. It is good to take a home mortgage as early as possible so that it the individual services the mortgage a good time before retirement. It helps in retirement planning as indicated in the later stage of the same (Gourieroux & Jasiak 2001). Life occurs in stages that for an individual’s life cycle, these stages are defined by individual’s age and life events that they are experiencing at different stages. As people move through the different life cycles, their life needs and financial needs change. They become much independent and with increasing responsibilities, they increase the number of dependants at some point. Individuals have higher income at the peak of their employment compared to when they leave school, are just employed or when they retire. Due different needs in a person’s life cycle, individuals have different financial products that are appropriate to their specific needs; this is also because they also have different income points. Unlike when one is a child, individuals are expected to earn their income and so no longer depend on pocket money the expenditure points for individuals also vary across the life cycle. Thus, at different stages people tend to have different levels of incomes, events to attend to, spending rates, savings, education level, employment experience, and attitude towards things like risks, investing and debts (Wang et al 2008). Cocco et al (2005) says that, when young people have gained employment their source of income becomes the employment where they get their earnings, so they are no longer reliant on their parents or guardians. Because they have gained employment and have earnings, most young people will move out of their parent’s home and opt to stay alone or move to another city. This means increased financial responsibility for the individual. They will be expected to pay rent, cater for their food and pay for their electricity, water and telephone bills. The young still have a life and other responsibilities ahead that will come with time they also increase their savings in preparation for the future. Employment Stage For individuals in the stage of gaining employment they are starting to pay up their education loan and those who want to further their education are getting loans for it. Those who have left their parents to live alone may also take up a mortgage instead of having to pay rent. Thus, in this cycle the financial products that most people may opt for are mortgages, loans to cater for further education and savings in preparation for future families. In this stage the young people have mostly not secured a full time job, this means that most have an average income and thus their expenditure is limited and their amount for savings is also low. Finnveden et al (2009) support that, since at the stage of gaining employment most people are in their early youth life their status does not yet require much of their finances, though most are saving for their marriage or for their future family. Since most people at this age have a lot ahead in their future, they are very positive about savings and sacrifice their spending to ensure they save. The young people since they have no or few dependants at the time they are being employed so they tend to engage themselves in more risky physical activities. Most of the young people in UK will not get to family life before they have a job they are sure will support their families. That is why in the gaining of employment stage most young people start engaging themselves in starting up families. Promotion Stage In the promotion stage, an individual has gained experience in their employment and are considered for a higher position in employment. At this stage, most individuals have a family and other dependants, which mean increased responsibility on their part. According to Oliveira et al (2009), due to the promotion their earnings and employment benefits are increased which means that they are able to meet more other financial obligations. With increased income and having children to cater for the individual has increased expenses and since they are expectant about the future and that of their children they spend more on savings. Most individuals in this stage have bought homes and so are spending part of their income in the payment for their mortgages (Gourieroux & Jasiak 2001). They are also paying household bills and catering for their dependants expenses, which increase their financial obligation. At the promotion stage people are very keen about the future and that of their dependants, thus, they have taken up insurance cover such as health and education for their children. They have also started contributing for their pension funds to prepare for their time out of employment. Therefore, the financial products available for people at the promotion stage are mortgage payment, pension scheme and investment in the insurance fund. All these facilitate their responsibilities now and in the future. At these stage individuals have other societal responsibilities that may require the commitment of their finances, thus as much as they have increased their earnings and benefits so does the expenditure points increase. At this point people are also worried in case they lost their job, thus, they are also contributing to the unemployment fund so that in case they are unemployed then they will be able to meet their financial obligations (Xiao 1996). Unemployment Stage In the unemployment stage, individuals only depend on income from their unemployment fund and their savings. They are having financial obligations that include those of their dependants. Thus, to ensure that they meet their expenditure most individuals tend to give up spending for leisure and use what they have to meet their need. For individuals who had incurred debt during employment such as a mortgage they will prefer to continue paying them rather than accumulate the interest, which increases the cost of the mortgage. At this point, most people will not take additional loans since they fear being unable to pay back. The financial products at this stage are insurance and pension payments so that even without employment people get to prepare for the future especially because of their children. Retirement Stage Retirement is the final stage in the individual life cycle, at this stage most people are 65years and above and still have financial obligations. Since they are no longer employed their income sources include government pension, savings and money from the unemployment fund. Most at this age have paid up their mortgage loans; have invested much for the future so that they have a lower consideration for savings. At retirement, stage people are also preparing for death and so they may be investing for their funeral to ensure they get a decent send off. At this stage, individuals have spent on so many things such that they now have reduced their expenditure. According to Shapiro (2010), at retirement stage people are also not so anxious about the future. They do not spend much on their savings especially if the individual is a dependant and has no dependants. Thus, at this stage the financial products that may be appropriate for the person are insurance payments in preparation for their funeral and life assurance policy so that they leave something for their dependants in case they die. At this stage, individuals have a negative attitude towards taking risks both financially and physically which means they spend less since they are not engaged in so many activities and they save less. At this stage, individuals will ensure they have a will so that in case they die they have stated the fate of their wealth. They also incur less debt and will often have paid up their mortgages. Conclusion Essentially, individuals in the United Kingdom pass through the above stages. The stages have different characteristics and therefore each stage dpres4ents different needs, wants, goals, targets and spending patterns. The various stages of a typical lifecycle of an individual in the United Kingdom present different financial needs and motives. As such, the researcher describes various financial products that individuals in the respective lifecycle stages. These financial products provide investment and security needs according to the financial needs of the stage of which an individual pass through. In essence, each of the stage is important because the decisions that an individual makes affects the next stage. Individuals in the United Kingdom take their retirement stage very seriously and therefore they put adequate planning for both financial and social planning. They ensure that they purchase a house during their employment and promotion stages so that they will not have to finance loans during their retirement or unemployment stages. The report also discusses the importance of the employment and promotion stages. These are the stages whereby an individual in the United Kingdom makes the best use of each pound that she or he gets. They make maximum the use of funds such that they make investments and income generating investments in order to supplement their income. These stages are also characterized by maximum utilization of funds. Conclusively, there are many aspects of basing typical lifecycle stages of an individual in the United Kingdom. The above stages are therefore based on the financial needs of individuals in the United Kingdom. References Byrne, K. 2005, How do consumers evaluate risk in financial products? Journal of Financial Services Marketing, 10(1), 21-36. Cocco, J, F, Gomes, F, J, & Maenhout, P, J, 2005, consumption and portfolio choice over the life cycle, review of financial Studies, Vol.18,Iss.(2), Pp491-533. Finnveden, G, Hauschild, M, Z, Ekvall, T, Guinee, J, Heijungs, R, Hellweg, S, ... & Suh, S, 2009, recent developments in life cycle assessment, journal of environmental management, Vol.91,Iss.(1),Pp1-21. Gourieroux, C., & Jasiak, J. 2001, Financial econometrics: Problems, models, and methods (Vol. 1). Princeton, NJ: Princeton University Press. Hagan, B. P. 2002, U.S. Patent No. 6,415,267. 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