using money - methods of paying and purchasing, Pomoce naukowe, studia, jezyk angielski

1.     Using money – methods of paying and purchasing

The most frequent of paying in everyday life is paying in cash, used for shopping in smaller shops or by people who haven’t their own current account. In Poland still the majority of such transactions are financed in this way. Of course it is easy way of paying, however, in case of buying more expensive goods, rather unreasonable. There is a risk of being robbed or loosing a lot of money. That is why  current accounts became so popular. Having current account, on which our incomes are paid in, enables to buy goods without using money. Instead of cash we use cheques and debit or credit cards.

-          If  we use debit cards we can spend up to the amount of money currently in the account.

-          Charge cards gives possibility of temporary overdraft to the limit defined by the bank for a short period of time. If this isn’t repaid together with interests, the account will be blocked.

-          Credit card enables people to borrow money from a bank for a longer period of time. If it isn’t repaid in time it changes in a short term credit with high interest rate. Using credit card is a quite comfortable method of payment and it is developing fast in Poland. There are more and more current accounts, more and more shops which accepts credit cards and automatic cash machines where money in cash can be withdrawn. There is also a risk of being robbed when using credit card and it is taken away from us when there are no portable facilities to operate it. There is also a threat that a magnetic code will be copied and we loose money. People using credit cards don’t see how fast their money is disappearing so they are more willing to spend more, what can even result in bankruptcy.

Direct debit – having current account we can give a creditor the right to ask our bank for payment directly from our account when the payment is to be done. It is useful in case of repeating payments like rents, telephone bills, electricity bills. We don’t have to remember to pay in time, however we must ensure that appropriate sum of money will be kept all the time.

Cheques are given while opening the account to individuals and companies. There are three kinds of cheques:

­            bearer cheque – the payer obliges to pay a given amount of money from his/her account to the payee who is the bearer of cheque (present the cheque in a bank). Everybody who have this cheque can realise it in bank as the name of a bearer [bere:r] is not defined on cheque.

­            open cheque – the payee endorses the cheque (signs at the back) if the payment is to be transferred to another person.

­            crossed cheque (a/c payee only – account payee only)- only one person, defined on cheque is illegible to get the money

Companies use cheques as well, however they use also other methods:

2.     Inflation – general and personal consequences

Inflation – a rise in prices and wages caused by an increase in the money supply and demand for goods, as a result there is a fall in the value of money.

It is an increase in general level of prices and costs. It doesn’t refer only to the growth of prices but also the growth of salaries is connected with it. The undoubted influence of inflation on the economy in general and on individuals depends on its scale.

That is why we can indicate three kinds of inflation:

­                   moderate – up to 10% a year, which is the usual situation in most of the developed countries. even in Poland inflation currently stands at about 6%. The consequences of such inflation are slight, it is harmless.

­                   galloping – more than 10 up to 1000% in some countries of Latin America, sometimes it appears also in developed countries. It deteriorates economy however there are possibilities to overcome this.

­                   hyperinflation – counted in thousands percents (in Poland in 1923 before the reforms of Władysław Grabski there was hyperinflation of more than 10 000 %). It is dangerous for the economy and finishes soon either by currency reform or by complete collapse.

Inflation is measured by different indices and the Consumer Price Index is the best known. It is the index of hundreds of consumer goods and services which current price is compared with their initial price in the basic period.

There are two others divisions of inflation:

-                anticipated and not anticipated – people are able to foresee it and adjust to it or not

-                balanced and not balanced – price relations remain stable or not

There are two main general consequences of inflation:

a.            Redistribution of income among different classes of the society.

If inflation is anticipated such phenomenon doesn’t exist. People are aware of a certain inflation level and if it a stable level for years they are able to adjust their nominal interest rate to it. If it isn’t anticipated inflation people who were debtor benefit from the growth of inflation (if their debts are long-term with a fixed interest rate). They will pay back the same amount of money , while prices and their salaries will go up – really they pay less. The creditors who borrow money issuing fixed interest rate will make loss getting back less money in real terms than they lent.

Though it can be observed that there is a correlation between inflation increase and increase of national product, there is no inevitable (certain to happen, impossible to avoid) connection between them in long term. In short term it may happen that either inflation is connected with higher production level (moving demand curve to the right) or with lower production (moving supply curve up). On the level of microeconomic high inflation decreases efficiency because companies have to prepare and introduce plans how to deal with cash, which real value drops fast.

On the other hand when prices of goods rise producers and manufacturers are more willing to employ workers because they want to increase the production and sale as much as possible. As a result the level of unemployment decrease (higher prices means higher production and smaller unemployment).

There are also personal consequences of inflation:

a.                         The main consequence is that people avoid keeping money at home because its real value decreases. Especially old people don’t understand it and loose a lot because of inflation. If there is a galloping or hyperinflation it usually make no sense to keep the money on banks accounts if interest rate is lower than inflation – such situation in Poland in 1980s. The only sensible solution in such situation is to buy different products immediately after getting money because its real value drops very fast. 

b.                         In case of progressive tax system if there were no adjustments in the values obliging to pay high taxes, inflation would cause instant increase in taxes paid by some people. On the other hand these values are usually changed according to inflation, so it doesn’t have much importance.

c.                         The consequences of inflation aren’t important if it is balanced one – if the prices grow in the same proportion as earnings. The only things that happen is that nominal prices and earnings change. In spite of this, people often tend to criticise inflation and seem not to see the increase in their salaries. But it isn’t the case in Poland as social groups as retired people, teachers or nurses are given lower increase in salaries in comparison to inflation.

3.     Money and the traveller – taking money abroad

A person who is going to travel abroad should take into consideration the exchange rates – it is the value of the money of a given country compared to the money of another country. The value of money in one country is usually different in another country. It depends on different factors such as economic growth, wealth of society, political situation, terms of trade.

To buy something abroad a traveller has to pay for it in foreign currency. There are two possibilities of getting it:

-          change money in the country and take abroad a foreign currency;

-          take domestic currency abroad and there change it at a bank or currency exchange office

The traveller arriving to Poland can change money either at a bank or at the currency exchange office labelled “Kantor”. You can find them at the airports and most hotels however they don’t offer advantageous interest rates. It would be advisable to find an independent exchange office, which usually fix better rates. It shouldn’t be difficult as many of them operate in every town.

              Another well-known among tourists method of payment is the traveller’s cheque. It can be bought in domestic or foreign currency and is signed for when received and again when paid. As the cheques need a passport to confirm the ownership when it is used and their numbers are listed they are a comparatively safe way of  caring money and making transactions. However it is useful only in case of small amounts.

              Similarly to traveller’s cheques, a bank draft can be bought in domestic or foreign currency and used at home or abroad. Its advantage is that it can be made out for any amount and there is no doubt that the cheque is safe as it is covered by the bank from which it was bought.

              Very popular method of paying abroad are credit cards. It is very comfortable to have such a card which almost eliminate the use of banknotes and coins. More and more shops and petrol stations accept the credit cards especially in East Europe, America, however we have to be prepared that sometimes it can be impossible to pay in this way. It requires a special electronic equipment and the majority of small shops isn’t equipped with it. However this method is developing fast in the world. There are more and more shops and other sellers of services accepting them.

In Poland Visa, American Express, Diner’s Club and Master Card are accepted in most hotels, restaurants and shops.

              The money can also be transferred from one bank to overseas banks. When the transfer form is received the home bank will contact a bank where a client has an account in the overseas bank and ask them to transfer the credit to his bank.

Arriving to Poland foreign traveller must fill a currency declaration form and have it stamped by currency officer if the traveller bring in cash and cash equivalents of an amount exceeding EUR 2000.

Exchange rate – the value of the money of one country compared to the money of another country.

Bank draft –  a cheque for one bank to another, especially a foreign bank, to pay a certain amount of money to a person or organisation.

Traveller’s cheque – a special cheque that can be changed for the money of a foreign country.

Make out a cheque/bill – to write a cheque /bill

4.     Banking – personal – different kinds for different needs

The two main services used by banks’ client are accumulating money on different kinds of accounts (saving) and borrowing money from banks (different kinds of credits). Nowadays peoples needs connecting with banking become bigger and bigger. To meet these requirements banks offer new service and innovations in the area of individual service. Banks introduced foreign currency transactions (though it isn’t used very often by individuals it is very useful for exporters and importers), issued credit cards, began to offer insurances and opened banking houses.

q              taking deposits – this is a basic service offered to people who have more money than their consumption needs at a given time. It is reasonable to pay them in to a bank in order to save them for a particular aim or just to compensate the inflation by getting the interests. Banks offer current account deposits and savings account deposits, however the first ones are rather projected for dealing with cash payments and different cash flows than for saving money.

Among savings deposits we can point such of fixed and floating rates and different length of saving. Usually withdrawing money from saving account before the end of given period results in loss of interests. It is impossible in case of keeping money on current account, however here the interest rates are  smaller.

Taking into consideration the currency we can also divide all deposit accounts on those in the domestic and foreign currency.

q              giving credits – many people cannot afford buying some products without taking credits. The credit activity is the source of bank’s income so they give them willingly, however apply detailed control of credit abilities of all clients. They may take:

·         short-term consumer credit usually for the purchase of households goods or before Christmas, Easter or holidays. People in Poland don’t earn enough money to satisfy all the needs so very often they use credits.

·         there are also credits offered for the purchase of more valuable goods like cars and houses. In case of cars there are even banks organised by motor companies and specialising in giving credit for the purchase of cars of this company. Credits for the purchase of houses are usually mortgages and are also offered by specialised banks.

q credit cards – it is a service offered by the majority of banks to people who have permanent source of income. Credit, debit or charge cards associated with current account ensure the security and simplicity of dealing with different payments. It is also less probable that our money will be stolen if we don’t have it on us. Credit cards give also the possibility of immediate credit to buy some extra product without the necessity of any formalities.

q banks widen the range of their services trying to attract more clients, they introduce such services, which previously have been sold by other institutions – like insurances or brokerage houses. It is more comfortable for customers to deal with all financial matters with help of one bank, it saves time.

              Though the general description of banking services is as above there are differences in their special conditions among different kinds of banks.

-                For example commercials banks (it the form of public limited company ) offer their deposit services especially to well-to-do people with high income or to institutions and give credits to the companies, so that the risk of saving there is bigger but the interest is higher.

-                Savings banks (in Poland National Saving Bank PKO BP) concentrate on serving people with lower income, offering them both credit and deposit facilities. The net of branches is very dense so it is easier to get to such bank especially for people in smaller towns, older or without cars. Consumer credits are safer, so the risk of deposit is lower (the interest rate is small too) so such a bank is a good choice for cautions people, paying attention to the security of their money.

-                There are also co-operative banks in the local communities, which service local farmers or small companies. They know well local people, their needs and their businesses, so that they can prepare the services suiting their clients best.

-                Finally there are also credit unions in the companies, offering their services to the employees of a given company, also quite competitive because of low overhead and administrative costs.

-                The need of buying own flat or house is dealt with some specialised banks like building societies or mortgage banks. Building societies are part of existing banks. People who save money in them at least 3 years can get a credit secured by the ownership of bought house, which is in fact mortgage. Typical mortgage is a long-term credit which is to be paid off by instalments during the period of 20-30 years.

5.     Savings – savings facilities in candidate’s country

              Polish people aren’t very keen on saving money. In my opinion it is due to low salaries and high level of unemployment. Majority of people cannot even fulfil the basis needs or spend everything on current shopping. So the reason for low level of savings is that income in Poland is generally low, so that people spend most on current needs having little or nothing to save. On the other hand there are people who earn quite a lot, however they prefer spending this money and additionally borrow something from a bank than to save. There are a lots of consumer credits given by banks.

Those who can afford saving money have several possibilities to chose from: 

o       current account  - it is the most basic form of clients’ contacts with bank, but it’s difficult to say that this is a way in which money is saved, because the main aim of current account is to make clients’ payments easier by the use of credit/debit cards or cheques. The interest rate on such a account is the lowest so it isn’t effective way of saving.

o       saving account (a bank account that pays interest on the money you have in it) – different banks offer different kinds of savings accounts. General procedure is similar, clients pays in a particular amount of money for a specific period of time, after which he/she can withdraw money with added interests. There is a possibility to leave the money for next period without any formalities. Detailed conditions and interest rates are settled by each bank  individually so they usually differ. As far as interest rates are concerned, banks more or less follow the changes of National Bank of Poland

Current and savings account are offered by different kinds of banks, which exists in Poland.

­      Firstly commercials banks have them on offer;

­            Next there is one savings bank (National Savings Bank – PKO BP) which offers lower interests but higher security of money than commercial banks

­            There are also credit unions (SKOK) organised in bigger companies or in non-profit organisations serving only its members from a company where credit unions operates. These institutions have been introduced in Poland recently by solidarity trade unions and have been developing. They are competitive to commercial banks because of lower administrative costs and their non-profit character.

­            There are also a few organisations which are a kind of building societies (Polish Guardian Bank – PKO SA; Bank of Industry and Commerce - BPH). Savings money in them at least three years gives a possibility of getting a cheaper credit up to 150% of accumulated money.

o       shares – Those who are not afraid of risk can invest their money on Warsaw Stock Exchange. It gives a chance for great profits but also loses. WSE was set up in 1991 and has been developing since then to become the leader in Central-Eastern Europe. Despite this development Polish people are not very interested in it as there is only 1 million investments accounts from which 200 thousands is active in a country of about 38 millions inhabitants. It proves that there is only few investors. There was a great interest in Polish Stock Exchange in years 1993-1994, when shares were going up but it finished with a deep collapse and now many people consider investments in shares to be very risky.

o       bonds – there are some kinds of bonds issued by Polish ministry of Finance, which are quite popular way of investing, because of their high security and high interest. There are such bonds as:

­            2-year and 4-year fixed rate saving bonds;

­            3-year changing rate bonds and few more , but these three are most popular.

o       commercial papers – securities offered by companies, qu...