BFF3111 Chapter Notes - Chapter An Introduction to Financial Planning: General Insurance, Consumer Protection, Life Insurance
26 Jul 2018
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Document Summary
Personal financial planning is said to be derived from the life cycle" theory of consumption and saving. This theory examines an individual"s income and expenditure patterns over their lifetime. It recognises that during different periods of a person"s lifecycle, their income is likely to fluctuate markedly, however expenditure (consumption) patterns remain relatively constant. The principal differences in income patterns arise from the source of such income (family members, salary, and investment). There are two main reasons why it is necessary for a financial adviser to have an understanding of the economic environment. The first concerns the behaviour of key economic variables, such as interest rates, unemployment rates and inflation, because monitoring such variables makes it possible to obtain an insight into trends over time. This is a valuable tool for predicting possible future movements. The second reason is that any change in the economic environment affects both industries and firms with respect to consumption investment patterns.
