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1. Answer d) A stakeholder Cash ISA will offer tax free interest and clear, easy-to-understand terms which will include low costs and access to your money at any time without notice or penalty.
2. Answer c) This response makes no sense at all. You’re already paying overdraft interest on an account that’s supposed to be there to help you meet unexpected needs without incurring high borrowing costs!
3. Answer c) Education costs are to a large degree predictable and should be planned for in advance. Answers a, b, and d are precisely the sorts of unexpected events that your emergency fund is there for.
4. Answer d) It’s sensible to have insurance cover for events like redundancy or long term sickness, so well done to Aneil (answer a.) and Joseph (answer d.) However, this type of cover often involves “qualification periods” which means the policy doesn’t pay out for say 13 weeks or even six months. Also, the cover seldom if ever provides for full replacement of the potential income lost. Therefore, Joseph is the smartest cookie in the jar because it’s a good idea to complement insurance with a suitable emergency fund.
5. Answer c) Bridget and Tom don’t have any insurance against losing their job or suffering long-term sickness or disability, so it’s a black mark to both of them. Bridget has at least realised that she’ll get something from the State if she falls ill and from her employer in the event of redundancy. What she’s ignoring is that neither benefit will be adequate in itself. State Incapacity benefit is basically a “safety net” payment to ensure that someone who is unable to work for medical reasons has some income coming in; one month’s redundancy payment will help for, well, one month. What happens after that if she hasn’t been able to find a suitable new job?
Not only does Tom not have any insurance, but he’s relying on drawing from his pension to see them through any problems. He’s ignoring two basic issues: first, pension savings aren’t accessible at all until age 50 (55 from April 2010); and second, even if it were possible to get your hands on the pension money, bear in mind that pension is designed to help you achieve financial security and a good standard of living throughout your retirement years, and definitely not to meet short term emergencies. Therefore, Tom is the biggest dummy in the pram!
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