Keith is a care worker living in Exeter, earning £16,000 a year after deductions for tax, National Insurance and pension contributions. He is about to move into a flat with Nicola and her two young children. Nicola is a paramedic and earns £24,500 a year after tax and national insurance. She also receives £1,820 a year in child benefit. No-one described above has any other source of income.
2.1a Using the Household income equivalence calculator (please see the diagram below),, calculate the annual equivalised net income of Keith and Nicola’s new household together.
2.1b With the aid of the same calculator, comment on how their individual household living standards have changed compared to when they were living separately.
2.2 Draw up a monthly cash flow statement using the expenditure information in Table 2 for Keith and Nicola in their new shared flat.
Table 2 Expenses in new flat
Expense item Amount (£) Period
Rent 1400 month
Food 160 week
Council tax 240 quarter
Leisure 150 week
Phone 80 month
Transport 350 month
Credit card repayments 160 month
Utility bills 350 quarter
Clothes 60 month
Other 145 month
2.3 Keith and Nicola want to save up for a family holiday in Wales, and they estimate they will need £1500. Comment on their current financial situation and consider potential adjustments they might make to their cash flow in order to save the £1500.
Household income equivalence calculator (this is the diagram)
Question 3
3.1 Greta is putting her money where her mouth is and decided to retrofit her house to make it entirely reliant on renewable energy. The total cost of the equipment is £5,000. However, she doesn’t actually have the money to pay the full amount upfront so is looking at two different financing options.
Option A is the credit deal offered by the retailer. Greta can pay a fixed sum each month, spreading the cost over 24 months at an APR of 18%.
Option B is to buy it partly on her credit card which has an APR of 24.6%. Greta has no outstanding credit on the card at present, but she’ll have to use up her whole credit limit. Even then, she will need to find £2,200 from elsewhere, which she can just about scrape together, but it will wipe out her savings. She would then aim to pay off the credit card by paying £80 per month.
3.1 Briefly explain what APR is and what someone shopping around for credit might use it for.
3.2 Fill in Table 3 using the Borrowing and saving calculator to calculate the missing figures and show your workings.
Table 3 Total interest options
Monthly payment Repayment period Total interest
Option A
Option B
3.3 Describe one advantage and two disadvantages of Option B over Option A.
Word limit for Part A: 800 words
