Personal Finance, Consumer and Business Decision-Making, and Ethics
Personal financial planning
Candidates must apply the planning process: set goals, gather data, analyse, recommend and review. Understand budgeting, emergency funds, the time value of money, compound interest, risk tolerance, diversification, insurance and superannuation including concessional contributions and the effect of fees over time. Know how to compare loan options using effective annual rates, not headline rates, and how to evaluate needs versus wants.
Consumer and business decisions
Apply marginal analysis, opportunity cost, sunk cost and behavioural biases such as anchoring, overconfidence and loss aversion. Understand the agency problem between owners and managers, and how incentives and monitoring reduce it. Recognise the role of internal controls and ethical culture in preventing fraud.
Ethics
Know the difference between legality and ethics, and apply a decision framework: identify stakeholders, the facts, the options, the consequences and the principles. Understand conflicts of interest, confidentiality, insider trading, whistleblowing and corporate social responsibility.
Traps to watch
Do not treat a sunk cost as relevant; do not compare nominal rates across different compounding frequencies; do not assume higher risk guarantees higher return; and do not confuse an ethical duty with a legal minimum.
Worked example
A loan advertises 6% per annum compounding monthly. The effective annual rate is (1 + 0.06/12)^12 − 1, approximately 6.17%, which is the correct figure for comparison. Rule of thumb: convert every rate to an effective annual basis before choosing between products.