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CHAPTER 6 the life cycle and financial intermediation.docx

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FIN 502
Steve Joyce

FIN502 Personal Financial Planning CHAPTER 6 the life cycle and financial intermediationTHE FINANCIAL LIFE CYCLEFinancial life cycle stages of lifetime patternsRecall the basic equation which provides a model of a financial goalnnt WW 1kEC1kn0ttIn the early stages of the life cycle consumption is greater than earnings but as you proceed earnings is greater than consuming EC0 tt The essence of personal planning is arranging to meet the differences in earnings and consumption through borrowing and saving as appropriateTHE FAMILY LIFE CYCLEGroup families into different categories in the family life cycle considering age and other factors 1 Younger single 2 Younger couple no children 3 Couple dependent children 4 Single dependent children 5 Older couple children independent or nearly so 6 Older single 7 Couple retired 8 Single retiredFINANCIAL INTERMEDIATIONFinancial intermediation process of transferring money from surplus economic units to economic units that have a productive use for the money o Takes place between sectors and over time o Surplus units in one period may need more money for productive investments in another period o Surplus
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