Topic 2 The personal life cycle

Learning outcomes

After studying this topic, you will be able to:

distinguish between the key stages of the personal life cycle; and analyse the effect of key influences on it.

People at different stages of their life have different financial circumstances.

They will probably have different amounts of money coming in (collectively called incomings or income), such as pocket money when they are a child, an allowance in their teens, earnings or benefits when they are an adult, and a pension when they are retired.

Introduction

A person’s life cycle starts when they are born and ends when they die. The details of each person’s life are different.

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.

Life cycles are broken down into life stages based on age. The exact age at which someone begins school or retires, for example, will vary from person to person. Considering typical life stages for certain life events can help people plan their finances, not only for themselves but for others whom they support.

Identify four people, either friends or family, and state what stage of the life cycle they are at and how you think this might affect their relationship with money.

For example, how do they get it, how do they spend it, can they borrow it, can they save it?

Try to pick people who are at different stages of the life cycle.

Activity 2.1

Go to www.youtube.com and search for ‘Lloyds TSB adverts’. View two or three of these and then answer the following questions:

• How did Lloyds TSB use its knowledge of the personal life cycle in its adverts? • Which of the adverts is your favourite and why?

Activity 2.2

Introducing the Martins: Lets look at the Martins (in your textbook pages 19-21) Lets discuss!

The case study on the Martin family highlights three reasons why people spend money:

to pay for essential items they need;

to pay for optional items they want now; and

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.

Paying for needs, wants and aspirations

Activity 2.3

Activity 2.4

The amount of money people have coming in from earnings, benefits, a pension or other sources and the financial circumstances of the family into which the person is born influence the options they have at different life stages.

Some life events maybe delayed compared with other people or previous generations. Can you give examples?

2.3.2 Income

Activity 2.5

Activity 2.6

Activity 2.7

How has this changed recently

Activity 2.8

Activity 2.9

Activity 2.10-what can you find?

Location Where in the world, or in a country, a person lives can influence their life

events, such as starting and ending full-time education and getting a

permanent job.

In Northern Ireland, for example, compulsory schooling starts at age 4, in

England, Scotland and Wales it is 5, in Romania, Bulgaria and India it is 6

The ages when people can leave school vary as well: for example, in Bangladesh compulsory schooling ends at age. In India it is 14, in Scotland it is 16, and in England children starting school now must be in education or training until they are 19

These ages are the legal requirements for schooling. Children may start pre-school at younger ages and continue in education after compulsory schooling ends.

Lets have a look at: Table 2.2 in your books:

Typical life events and financial requirements

What factors can influence if you stay at school or leave?

Income The amount of money people have coming in from earnings, benefits, a pension or other sources and the financial circumstances of the family into which the person is born influence the options they have at different life stages. Some life events may be delayed compared with other people or previous generations. Examples might be?

Health

People who suffer from long-term poor health or disabilities may have a shorter life expectancy than others. They may need on going medical treatment and specialist equipment and may be unable to work. In the UK, there is free or low-cost health care available from the National Health Service, and people with medical conditions may get an income and other financial assistance from the government through various benefits. This support means that people with health issues can have the best possible life expectancy and can participate in many of the same life events as others.

Status As a person moves through their life cycle, their social status changes, not just because of their age but also because of the life events that they experience. Examples might be?

Unforeseen circumstances :Examples might be?

Take a look at the following article which focuses on the causes of the London riots of 2011: http://www.economywatch.com/economy-business-and-finance-news/anarchy-in-the-uk-the-socio-economic-factors-behind-the-london-riots.19-08.html?page=full Debate / reflect on what you would do if you were in charge. How would you deal with the socio-economic issues that are affecting today’s population? You can focus on just one aspect of the population, such as young people, or you could look at each of the life cycle stages.

Attitudes to risk and financial choices Attitudes to risk vary from person to person and can change over the stages of the life cycle. Some people avoid taking risks in all aspects of their life. This is termed being risk averse. Other people are willing to take more risk and this is termed being risk tolerant.

There are four categories of risk.

Physical risks

Emotional risks

Risk to reputation

Financial risk

How attitudes to 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. In the Martin family case study, John Martin is concerned with the risk to his family if he dies. So he is spending money now on a life assurance policy to protect them from having to repay the mortgage themselves in the future.

External influences and socio-economic trends

The length of the various stages in the life cycle, and what happens during them, is affected by external influences and socio-economic trends. An example of a key external influence for personal financial planning is the interest rate set by the Bank of England

Social trends include demographic changes, that is, changes to population size and structure through births, deaths and migration (the movement of people to live in a different country). Social trends also include changing attitudes and habits, such as attitudes to work, marriage and debt.

Economic trends include periods when a country is producing and selling increasing amounts of goods and services. This is often termed an economic boom. It leads to a greater number of jobs being available and so to lower unemployment and a higher income per person in the country

Retirement life stage Trends in life expectancy and the age structure of the country influence when people retire and how long their retirement stage lasts. The typical life cycle is getting longer because each generation tends to live to an older age than the one before. This is due to factors such as better living conditions, better nutrition and medical advances.

A longer life expectancy means that people retiring now are likely to be retired for more years than in previous generations.

By 2050, it is estimated that 19 million people in the UK will be aged over 65, with 8 million aged over 80. This means that by 2050 one in four people in the UK will be aged 65 or over (www.parliament.uk, no date). As a result, there will not be sufficient contributions from working people to pay state pensions to all the people who qualify, using the current age limits of 61 for a woman and 65 for a man. The government is therefore increasing the state pension age to 66 for both men and women by 2020 and 67 by 2028.

Migration and employment opportunities

Migration refers to the movement of people between countries. Those leaving a country are called ‘emigrants’ by the country that they have left and ‘immigrants’ by the country in which they settle.

European Union (EU), people can move to live and work in any of the member states. Since the EU has increased to 27 member countries, there are many more people who can move to any particular country within the EU.

Lifelong learning and changes in employment patterns

Access to higher levels of education and training gives people opportunities to get better jobs and have greater career mobility. Career mobility refers to the ability to move between jobs and also to move from one type of job to another – for example, to begin working life as a sales adviser for an estate agent and switch to become a nurse. Better education and training means that people are more flexible, and can take on different roles as the jobs that are available change. More young adults have access to higher education now than in previous generations, as Figure 2.2 shows page 33

Changes to the family unit

In the past, it was not unusual for several generations of one family to live in one family home. Nowadays, members of one family generally live in several different homes, sometimes in the same part of the country, sometimes in different parts of the country; some family members may live abroad. This change has come about because people are more likely to move away from home to work, more children are able to afford to live independently from their parents, more marriages end in divorce and more people migrate abroad, either to find work or to retire. These changes mean that there are more ‘single-parent’ and ‘single-person’ households where one person is responsible for meeting household costs such as rent, groceries and power. The Office for National Statistics Statistical Bulletin on Families and Households (ONS, 2012b) states that 29.0 per cent of households are one-person households and this has risen from 17 per cent in 1971.

The family unit is also changing with the introduction of civil partnerships and opportunities for people to have children using surrogate mothers and donated eggs and sperm. Groups of friends may also act as ‘family’ in the sense that they live together and share child care.

End of Topic test/factsheets

Using A3 sheets you will need to create a set of factsheets that include details of the following: Do not use the internet use the textbook • Stages in a typical life cycle, including how their financial circumstances might change

throughout • Throughout the life cycle needs, wants and aspirations change explain these • Identify how the different life events and the financial requirements change during

the life cycle. • Identify a range of personal circumstances that impact the life cycle. • Identify using examples the 4 categories and attitudes to risk. • Identify the different socio-economic trends that might impact on the life cycle.

These can be mind maps-make use images and highlighted text to help you To be completed for next week

Past exam questions A Correct.

B Most people have paid off their mortgage at this stage. C Most people have paid off their mortgage at this stage. D Teenagers are unlikely to have a mortgage.

This stage of the personal life cycle is unlikely to involve such significant financial responsibilities, because such people are too young to understasnd such concepts and are dependent on adults. B This stage of the personal life cycle is less likely to involve such significant financial responsibilities, because although teenagers may have an understanding of finannical issues, they are very likely to be still living at home. C This stage of the personal life cycle is less likely to involve such significant financial responsibilities, becauseyoung adults are likely to have fewer financial responsibilities than people in the maturity stage of the life cycle. D Correct. This stage of the personal life cycle is most likely to involve such significant financial responsibilities because mature adults are more likely to have family and

property responsibilities.

In this stage of the personal life cycle, expenditure and income are both likely to be rising. B In this stage of the personal life cycle, expenditure and income are both likely to be rising. C In this stage of the personal life cycle, expenditure and income are both likely to be rising. D Correct. In this stage of the personal life cycle, expenditure may still be rising but it is likely that there will be a fall in

income as people retire.