Case Study(Vea)

Question 1

Family info

Answer 1

• 18
• lives at home with her mother + four older brothers in Bradford
• family live in a small, rented property
• mother works at local hospital full time -> struggled to provide for her family for many years

Question 2

Her education

Answer 2

• been at local community college for the last two years
• just achieved three A* in a level results - worked hard to accomplish this

Question 3

Current financial position

Answer 3

• has a young person’s bank account with Barclays
• has been working part time at her local cinema, while studying at college
• Vea has been giving some of her wages to her mum to help with household bills
• Vea has no savings

Question 4

Future education

Answer 4

• Vea has applied for degree apprenticeship course in computer science for a major financial firm in Leeds
• results mean she’s been offered the role
• salary £18,000 per annum
• will work 30 hours a week, over 4 days
• will complete university work at home or uni

Question 5

Future costs (travel)

Answer 5

• doesn’t feel she can afford to live in Leeds + would need to borrow money -> would have to accept being in debt
• can’t drive
• train ticket -> £3 per day from Bradford to Leeds
• will have to travel, to different office locations as part of training -> will be reimbursed after

Question 6

Future costs (wages)

Answer 6

• Vea will start her job in one month time
• will get her first month’s salary paid a month after starting

Question 7

Business clothing issue

Answer 7

• doesn’t currently own any business clothing
• researched online -> can buy four suitable outfits for £300
• this will be enough for the first month -> can expand wardrobe each month after getting paid
• store card -> 20% off her first purchase + reward points to use on future purchases - APR 45.9%

Question 8

Overdraft

Answer 8

• Vea has spoke to bank about transferring to a current account -> has been approved for a £500 overdraft at 39.9% APR
• Barclays credit card as well -> approved with a a £1,000 credit limit and 0% interest on purchases for the first 3 months (25.9% after period)

Question 9

Pros of overdraft

Answer 9

• good option as it allows Vea to take out more money than she has up to an agreed limit of £500
• has no savings, she may be about to experience cash flow problems - starting work in a month but won’t be paid until the end of the month
• if she has finished work at the cinema she’ll have to wait 2 months for cash but will still need to make payments, e.g. mothers rent, travel costs, and other expenses
• will need to travel around the country for work + won’t be reimbursed until after her travel -> will need extra up-front payments to make

Question 10

Cons of overdraft

Answer 10

• charges high rates of interest on the amount overdrawn (39.6% APR)
• may be better of using credit card to pay for certain items e.g. travel to different locations, as credit card has 0% interest for 3 months
• this means she will stay in credit with her current account - therefore avoiding the overdraft interest charges
• she can pay of the credit card once she’s reimbursed - therefore a better alternative especially in the first 3 months to stay in credit with her current account + avoid overdraft
• higher charges if she exceeds £500

Question 11

Pros of store card

Answer 11

• first purchase qualifies for 20% discount -> she buy her 4 outfits that she is planning on buying in the first visit + oay £240 instead of £300 -> a considerable savings of £60
• she is then advised to set up a direct debit to pay off the full amount by the date on the statements to avoid paying interest -> store card has high interest rates - 45.9% APR

Question 12

Cons of store card

Answer 12

• following initial purchase she may choose to use store card again for more clothes needed -> but depends on how much savings she can make with reward points + how much money is in her account
• if the reward points don’t save much -> will most likely go into overdraft when she needs to repay store card
• may be better off using a credit card for additional clothing purchases as interest is free for 3 months + will have more more purchase protection rights - however needs to be careful not to put too much on the credit card as she may not be able to pay it all off in 3 months

Question 13

Pros for credit card

Answer 13

• good option when paying for travel, food and everyday items -> interest free for 3 months, can use it to avoid her using an overdraft
• when buying items it gives more customer rights + offers purchase protections

Question 14

Cons of credit card

Answer 14

• Vea will need to budget carefully + be strict in her spending so she can pay off the full balance in 3 months
• however, she seems to be the sort of person who can do this as she is not keen on going into debt and so she did not move to Leeds

Question 15

How could Vea earn some more money?

Answer 15

• by working at weekends
• is an ‘A’ grade student -> could offer online tuition or work at the cinema again

Question 16

Using both credit card + store card

Answer 16

• I would encourage her to use the credit card in a disciplined manner as this can also build up her credit score if she wanted to borrow in later life to buy a car or apply for a mortgage
• unless significant savings can be made with the store card, she could just use it once for initial purchase + then use credit card carefully for future purchase when needed
• after setting up a direct debit to repay the full amount when it’s due

Question 17

Conclusion

Answer 17

• veas choice of differed borrowing products will depend on her ability to extract the benefits of each one while minimising costs
• therefore, she will need to monitor expenditure + income closely
• follow a strict budget
• pay off credit card or store card payments on time with the use of direct debit

Question 18

Advantages of store cards (non case study)

Answer 18

• good option for people who have custom loyalty to store
• they are easier to acquire than a normal credit card - gives opportunity to build up credit score - important for being accepted for future loans
• often carry higher rewards + offers throughout the year
• benefits if used wisely + a direct debit is set up
• no annual fee

Question 19

Disadvantages of store cards (non case study)

Answer 19

• higher rates of interest than credit cards
• you can only use the card at that store (or occasionally related brands)
• most have a low credit limit, even if you have good credit
• there are cheaper alternatives for borrowing such as a traditional credit card

Question 20

Difference between youth accounts and standard current accounts

Answer 20

• youth account is for under 18s
• youth accounts are similar to current accounts but with certain restrictions - no overdraft facility + security features controlled by the adult
• teenagers can set up junior ISAs to save with until 18
• most youth accounts offer either a debit card or cash card

Question 21

Advantages of overdraft (non case study)

Answer 21

• easy to withdraw cash
• can be quick to access cash
• flexible borrowing
• good for occasional short term borrowing

Question 22

Disadvantages of overdrafts (non case study)

Answer 22

• tends to be used for smaller amounts of
• interest rates + fees can be high
• interest is added to the balance monthly
• your overdraft can be cancelled anytime
• not good for regular or long term borrowing

Question 23

What’s the difference between a credit card and overdraft?

Answer 23

• credit cards usually ask you to pay a minimum payment each month
• any 0% deals on purchases and balance transfers will only last a set number of months (agreed at the time you take the card out)
• overdrafts have no set repayment date
• however, they can be withdrawn at any time by your bank
• any interest free period you’re given may only last a set period, such as a year