Rank these activities from the most risky (top) to the least risky (bottom). Drag items to reorder them.
Drag and drop to reorder. Position 1 = most risky, position 7 = least risky.
Most risky to least risky (suggested):
There is no single “right” answer – the important thing is to be able to justify your reasoning!
Every financial decision involves some element of risk. Understanding risk helps you make better choices.
In order to gain financial rewards, there is often some element of risk involved – the outcome of a financial decision may not be certain or guaranteed.
There could be the possibility of a significant financial gain, but there could also be the risk of no gain or even a loss, leaving you worse off than when you started.
For most people, their most valuable asset is their ability to earn an income, but there are risks that could affect this: you may become ill, injured or disabled and unable to work, or you may lose your job and become unemployed.
You could be spending more than you are earning. It might be because you’re not earning enough to meet basic needs, or because you want to buy things that give you the lifestyle you aspire to but cannot afford.
If something you own is stolen or damaged it may need to be replaced. The more expensive the item, the greater the financial risk to you if it is damaged or stolen.
There is no guarantee that what you have invested in will increase in value – in some cases it could even decrease in value, meaning you could lose money.
Read the scenario below carefully, then answer the questions.
Simone has met her friend Mei for a coffee. She is happy to order and get a table if Mei doesn’t mind going to the cash machine for her to get some cash out. She gives Mei her debit card along with her PIN, which Mei puts into her phone notes so that she can remember it.
Over coffee, Mei tells Simone that she is planning to go on holiday soon and has seen a really great deal on an online travel agency. She has never heard of the agency, but the holiday is much cheaper than anywhere else she has seen it. While she has no savings at the moment, Mei is planning on getting herself a credit card to book the holiday.
Simone gives Mei the news that she has recently passed her driving test and is about to get a loan from the bank to buy a second hand car from a friend of a friend.
Here is a detailed analysis of the risks from the scenario. Match each risk to its level, then reveal the full analysis.
Sort each risk into the correct risk level category.
| Risk | Level | Implications | How to Minimise |
|---|---|---|---|
| Giving your debit card to a friend | Medium to High | They could use your card without your knowledge to take money out or make payments. | Never give your card or your details to anyone. Always get money out of cash machines yourself. |
| Putting a friend’s PIN into phone notes | High | They may use it without your knowledge. If the same PIN is used for multiple cards/accounts, it could leave you vulnerable to misuse. | Never give your PIN details to anyone. Never keep records or written notes about your PIN. |
| Using an unknown holiday company | High | It may be a scam. The company may not be protected so you would lose your money if they failed. | Use online review sites. Check if they are ATOL protected. See what other customers think of their service. |
| Getting a credit card | Low | Tempting to use and build up debts. Could affect your credit rating if payments are missed. | Keep the credit limit low. Only use for large purchases. Pay off the balance every month. |
| Buying a car from a friend of a friend | Medium | The car may have hidden mechanical problems. Limited consumer protection compared to a dealer. | Get an independent mechanic to inspect it. Check the car’s history (HPI check). Get a written receipt. |
All investments have the potential to grow in value, but they can also decrease in value, meaning you begin to lose money. This is different to a savings account, where your money is protected.
For each investment type, use the slider to rate how risky you think it is (1 = very safe, 10 = very risky).
General risk levels:
Key principle: Generally, the higher the potential reward, the higher the risk.
Gambling is an activity that results in either a win or a loss. It is also known as betting, gaming or taking part in a lottery.
All gambling is high risk – the chances of losing money are far greater than winning it. This is how organisations in the gambling industry make their money.
Think about all the places where young people might encounter gambling. Write your ideas below.
Read Max’s story and discuss the questions below.
Max has received £50 birthday money and wants to spend it on in-game purchases for his favourite computer football game.
He plans to buy one of the named top players for £10 but then sees an offer to buy a mystery bundle containing three random players for the same price.
He decides to buy the bundle as he thinks there is a chance he might get three top players for the price of one but is disappointed when he doesn’t.
Max decides to spend the rest of his birthday money on four more mystery bundles, as he thinks they will have to contain more of the top players, but is even more disappointed when, for £50, he only gets one of the players he wanted.
To make it worse, his friend got three top players in just one bundle.
Max’s mum was annoyed that he had wasted his birthday money and told him that he shouldn’t be gambling on mystery bundles.
There are several strategies you can use to protect yourself against financial risk.
Insurance – Insurance is a way to protect yourself against the financial loss of something going wrong, for example, losing your income because you have fallen ill, breaking your mobile phone or having an accident in your car. We can’t stop events like these occurring, but insurance is a way to protect yourself from financial losses if they do occur.
Are you the sort of person who likes to take a risk and would not worry if things started to go wrong? Or, are you the type of person who would worry and be stressed about losing money, so may want to take lower risk options?
Having a budget allows you to see all of your day-to-day finances in one place, so you can make more informed choices around saving and investing depending upon your financial circumstances.
When deciding whether to make an investment you can reduce some of the risk by making sure you have talked to experts, such as a financial advisor or your bank.
If possible, have your money invested in a range of assets, so that if something goes wrong with one of them you still have the others to fall back on.
Click a scenario on the left, then click the best protection strategy on the right.
Think about the possible risks attached to owning a house, a car, and going on holiday. Type your ideas for each, then reveal the answers.
| Item | Possible Risks |
|---|---|
| House | Fire/flood damage, broken into, broken windows, paint spilt on carpet, subsidence, storm damage |
| Car | Breaks down, gets stolen, involved in accident, vandalism, weather damage |
| Holiday | Flight cancelled or delayed, money/camera stolen, personal injury or accident, lost luggage, illness abroad |
Test your knowledge with these 15 questions. When you’re done, click Submit Quiz to see your results.