Syllabus Topic
Core 1: The Nature of Commerce
Financial management
investigate the consequences of poor financial management, including:
- excessive debt
- impact on wellbeing of the individual and families
Excessive debt refers to a situation where an individual, business, or entity owes more money than they can realistically afford to repay. It often results from poor financial management, overspending, or unforeseen financial hardships. Excessive debt can lead to financial stress, limited financial options, and difficulties meeting other financial obligations. Poor financial management refers to the mismanagement or mishandling of financial resources, often leading to detrimental outcomes such as excessive debt and negative impacts on the wellbeing of individuals and families.
Excessive Debt
Excessive debt is a common consequence of poor financial management. It occurs when individuals or businesses borrow more money than they can afford to repay. This can lead to a cycle of debt where high-interest payments consume a significant portion of income or revenue, making it difficult to meet other financial obligations. One notable example of excessive debt due to poor financial management is the case of the retail giant Toys "R" Us. The company struggled with declining sales and increased competition, leading to a significant debt burden. In 2017, Toys "R" Us filed for bankruptcy, citing $7.9 billion in debt.
The Impact of Financial Stress on Mental and Physical Health, and Social Withdrawal
Financial stress resulting from poor financial management can significantly impact mental health, leading to conditions such as anxiety and depression. The constant worry about money and the inability to meet basic needs can take a toll on one's mental wellbeing. The stress caused by poor financial management can also manifest in physical health issues. High levels of financial stress have been linked to high blood pressure, heart disease, and insomnia, among other health problems. Financial difficulties can also lead to social withdrawal and isolation. Individuals may feel ashamed or embarrassed about their financial situation, leading them to avoid social interactions.
Impact on Relationships
Financial problems can strain relationships within families. Arguments about money are a common source of conflict, leading to increased tension and breakdowns in communication. A notable example of the impact of poor financial management is the case of Enron. The company's fraudulent accounting practices and subsequent bankruptcy in 2001 led to the loss of thousands of jobs and billions of dollars in shareholder value, highlighting the far-reaching consequences of financial mismanagement.
Poor financial management can have serious consequences, including excessive debt and negative impacts on wellbeing. By promoting financial literacy and providing support services, we can help individuals and businesses avoid these pitfalls and achieve greater financial stability.
Sources
Cambridge Dictionary: Detrimental
Collins Dictionary: High-Interest
The Washington Post: Toys "R" Us
Heart research Australia: High Blood Pressure
Her heart: Heart Disease
Health direct: Insomnia
Cambridge Dictionary: Withdrawal
Investopedia: Enron
