Two thirds of adults worldwide are financially illiterate<\/strong><\/span><\/h4>\nThe Global Financial Literacy Excellence Center<\/a> (GFLEC) works hard to improve financial literacy and bases its measurement of financial literacy on four basic financial concepts: risk diversification, inflation, numeracy, and interest compounding. A presentation given by the GFLEC\u2019s Professor Annamaria Lusardi in November 2020 on The importance of financial literacy: Evidence and recommendations<\/a> is damning, coming to the general conclusion that \u2018the level of financial and risk literacy is very low\u2019 \u00a0with only 1 in 3 adults worldwide possessing basic financial literacy. Are you one of them? Does it matter?<\/p>\nDoes it matter if I\u2019m financially literate? <\/strong><\/span><\/h4>\nThe GFLEC states that \u2018On average, people with a good grasp of financial and risk concepts are twice as likely as those without to make better financial decisions\u2019 so yes, if you want to go through life making sound financial decisions that will protect you and your family, build your wealth and bag you a comfortable retirement, financial literacy is important.<\/p>\n
Financial literacy is also described as a shield against shocks so when unexpected events come along \u2013 whether that be a pandemic which obliterates your source of income or an illness which means that you need to take time out from working \u2013 you won\u2019t have to compromise on standard of living.<\/p>\n
Are you financially literate?<\/strong><\/span><\/h4>\nTest your financial literacy by answering these four teasers on some of the basic financial concepts that everyone should understand.<\/p>\n
1. How compounding affects savings<\/strong><\/h5>\nQuestion:<\/span> If you saved one cent and it doubled in value every day over the course of a month, how much money would you have at the end of the month? <\/em><\/span><\/p>\na) $10,000 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 b) $100,000\u00a0\u00a0\u00a0\u00a0 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 c) over $10million<\/em><\/span><\/p>\nDescribed by Albert Einstein as the \u2018eighth wonder of the world\u2019 compounding is perhaps the single most effective tool a saver or investor has in their toolkit but it is frequently under-appreciated! Compounding is basically the interest paid on interest. This question is a much-used example which powerfully demonstrates just how effective compounding can be. The astounding answer is $10.7million! If you don\u2019t believe it, here\u2019s how it works:![\"\"](\"https:\/\/www.infinitysolutions.com\/wp-content\/uploads\/Picture1-1.png\")
<\/p>\n
Of course, in reality no investment earns 100% interest every day, but the compounding effect is what turns modest monthly savings over a long period into sizeable nest eggs for canny savers the world over to retire on.<\/p>\n
2. How compounding affects debt<\/strong><\/h5>\nQuestion:<\/span> If you splashed out on a $500 designer bag using a credit card which charged 18% interest per annum but you only made minimum payments of 2.5% each month, how long would it take to pay off the debt? <\/em><\/span><\/p>\na)\u00a0 1-2 years\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 b) 5 years\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0c) more than 10 years<\/em><\/span><\/p>\nThe answer is more that 10 years, which for me, as a financial adviser, is obvious but clearly isn\u2019t to the many people who regularly use credit cards. To my mind, buying things on a credit card with 18% p.a. interest is lunacy. In fact, I question the need to have a credit card at all.<\/p>\n
March 2021 stats<\/a> from The Money Charity in the UK calculate average credit card debt in the UK at \u00a31,057 per adult. The charity estimates that \u2018a credit card on the average interest would take 24 years and 7 months to repay, making only the required minimum repayments each month.\u2019 Think twice before flexing that plastic.<\/p>\n3. Inflation<\/strong><\/h5>\nQuestion:<\/span> You have $1000 in the bank which earns 1% interest per year. Inflation is 2% per year. After one year, will your savings be able to buy:<\/em><\/span><\/p>\na) more than today\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 b) the same as today\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 c) less than today<\/em><\/span><\/p>\nIf the rate of inflation is higher than the rate of interest you are earning on savings, your buying power\/wealth is diminishing so the answer is less than today. This is why it is risky to keep all your savings in the bank where interest rates are currently so low that they are not even keeping pace with inflation, even though it is also on the low side for now.<\/p>\n
4. Investment returns<\/strong><\/h5>\nQuestion: <\/span>Which asset class has produced the best returns over the past 10-20 years?<\/em><\/span><\/p>\na) the stock market\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0b) bonds\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 c) property<\/em><\/span><\/p>\nAccording to Investopedia \u2018The U.S.\u00a0stock market<\/a>\u00a0has long been considered the source of the greatest historical returns for investors, outperforming all other types of financial securities and the housing market over the past century or so.\u2019\u00a0Nevertheless, the general perception of the stock market is that it is risky, a fact which puts many potential investors off.<\/p>\nThat is not surprising given that the GFLEC notes that \u2018Risk-related concepts are the most difficult to grasp and the least understood.\u2019 however, financial investment puts your cash to work immediately. I\u2019d argue that if you invest mindfully this is lower risk than putting money in the bank where it will earn next to nothing. No investments are risk-free but the risk can be mitigated by diversifying. A financial adviser can help you with choosing investments which will build your wealth while keeping risk to a level you are comfortable with.<\/p>\n
So does our short quiz leave you feeling financially literate or do you think you have a lot to learn? If you are lacking the basic knowledge to make sound personal finance decisions you\u2019ll find a wealth of resources on the GFLEC website<\/a> to improve your literacy.<\/p>\n
Does it matter if I\u2019m financially literate? <\/strong><\/span><\/h4>\nThe GFLEC states that \u2018On average, people with a good grasp of financial and risk concepts are twice as likely as those without to make better financial decisions\u2019 so yes, if you want to go through life making sound financial decisions that will protect you and your family, build your wealth and bag you a comfortable retirement, financial literacy is important.<\/p>\n
Financial literacy is also described as a shield against shocks so when unexpected events come along \u2013 whether that be a pandemic which obliterates your source of income or an illness which means that you need to take time out from working \u2013 you won\u2019t have to compromise on standard of living.<\/p>\n
Are you financially literate?<\/strong><\/span><\/h4>\nTest your financial literacy by answering these four teasers on some of the basic financial concepts that everyone should understand.<\/p>\n
1. How compounding affects savings<\/strong><\/h5>\nQuestion:<\/span> If you saved one cent and it doubled in value every day over the course of a month, how much money would you have at the end of the month? <\/em><\/span><\/p>\na) $10,000 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 b) $100,000\u00a0\u00a0\u00a0\u00a0 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 c) over $10million<\/em><\/span><\/p>\nDescribed by Albert Einstein as the \u2018eighth wonder of the world\u2019 compounding is perhaps the single most effective tool a saver or investor has in their toolkit but it is frequently under-appreciated! Compounding is basically the interest paid on interest. This question is a much-used example which powerfully demonstrates just how effective compounding can be. The astounding answer is $10.7million! If you don\u2019t believe it, here\u2019s how it works:<\/p>\n
Of course, in reality no investment earns 100% interest every day, but the compounding effect is what turns modest monthly savings over a long period into sizeable nest eggs for canny savers the world over to retire on.<\/p>\n
2. How compounding affects debt<\/strong><\/h5>\nQuestion:<\/span> If you splashed out on a $500 designer bag using a credit card which charged 18% interest per annum but you only made minimum payments of 2.5% each month, how long would it take to pay off the debt? <\/em><\/span><\/p>\na)\u00a0 1-2 years\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 b) 5 years\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0c) more than 10 years<\/em><\/span><\/p>\nThe answer is more that 10 years, which for me, as a financial adviser, is obvious but clearly isn\u2019t to the many people who regularly use credit cards. To my mind, buying things on a credit card with 18% p.a. interest is lunacy. In fact, I question the need to have a credit card at all.<\/p>\n
March 2021 stats<\/a> from The Money Charity in the UK calculate average credit card debt in the UK at \u00a31,057 per adult. The charity estimates that \u2018a credit card on the average interest would take 24 years and 7 months to repay, making only the required minimum repayments each month.\u2019 Think twice before flexing that plastic.<\/p>\n3. Inflation<\/strong><\/h5>\nQuestion:<\/span> You have $1000 in the bank which earns 1% interest per year. Inflation is 2% per year. After one year, will your savings be able to buy:<\/em><\/span><\/p>\na) more than today\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 b) the same as today\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 c) less than today<\/em><\/span><\/p>\nIf the rate of inflation is higher than the rate of interest you are earning on savings, your buying power\/wealth is diminishing so the answer is less than today. This is why it is risky to keep all your savings in the bank where interest rates are currently so low that they are not even keeping pace with inflation, even though it is also on the low side for now.<\/p>\n
4. Investment returns<\/strong><\/h5>\nQuestion: <\/span>Which asset class has produced the best returns over the past 10-20 years?<\/em><\/span><\/p>\na) the stock market\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0b) bonds\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 c) property<\/em><\/span><\/p>\nAccording to Investopedia \u2018The U.S.\u00a0stock market<\/a>\u00a0has long been considered the source of the greatest historical returns for investors, outperforming all other types of financial securities and the housing market over the past century or so.\u2019\u00a0Nevertheless, the general perception of the stock market is that it is risky, a fact which puts many potential investors off.<\/p>\nThat is not surprising given that the GFLEC notes that \u2018Risk-related concepts are the most difficult to grasp and the least understood.\u2019 however, financial investment puts your cash to work immediately. I\u2019d argue that if you invest mindfully this is lower risk than putting money in the bank where it will earn next to nothing. No investments are risk-free but the risk can be mitigated by diversifying. A financial adviser can help you with choosing investments which will build your wealth while keeping risk to a level you are comfortable with.<\/p>\n
So does our short quiz leave you feeling financially literate or do you think you have a lot to learn? If you are lacking the basic knowledge to make sound personal finance decisions you\u2019ll find a wealth of resources on the GFLEC website<\/a> to improve your literacy.<\/p>\n
Test your financial literacy by answering these four teasers on some of the basic financial concepts that everyone should understand.<\/p>\n
1. How compounding affects savings<\/strong><\/h5>\nQuestion:<\/span> If you saved one cent and it doubled in value every day over the course of a month, how much money would you have at the end of the month? <\/em><\/span><\/p>\na) $10,000 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 b) $100,000\u00a0\u00a0\u00a0\u00a0 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 c) over $10million<\/em><\/span><\/p>\nDescribed by Albert Einstein as the \u2018eighth wonder of the world\u2019 compounding is perhaps the single most effective tool a saver or investor has in their toolkit but it is frequently under-appreciated! Compounding is basically the interest paid on interest. This question is a much-used example which powerfully demonstrates just how effective compounding can be. The astounding answer is $10.7million! If you don\u2019t believe it, here\u2019s how it works:<\/p>\n
Of course, in reality no investment earns 100% interest every day, but the compounding effect is what turns modest monthly savings over a long period into sizeable nest eggs for canny savers the world over to retire on.<\/p>\n
2. How compounding affects debt<\/strong><\/h5>\nQuestion:<\/span> If you splashed out on a $500 designer bag using a credit card which charged 18% interest per annum but you only made minimum payments of 2.5% each month, how long would it take to pay off the debt? <\/em><\/span><\/p>\na)\u00a0 1-2 years\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 b) 5 years\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0c) more than 10 years<\/em><\/span><\/p>\nThe answer is more that 10 years, which for me, as a financial adviser, is obvious but clearly isn\u2019t to the many people who regularly use credit cards. To my mind, buying things on a credit card with 18% p.a. interest is lunacy. In fact, I question the need to have a credit card at all.<\/p>\n
March 2021 stats<\/a> from The Money Charity in the UK calculate average credit card debt in the UK at \u00a31,057 per adult. The charity estimates that \u2018a credit card on the average interest would take 24 years and 7 months to repay, making only the required minimum repayments each month.\u2019 Think twice before flexing that plastic.<\/p>\n3. Inflation<\/strong><\/h5>\nQuestion:<\/span> You have $1000 in the bank which earns 1% interest per year. Inflation is 2% per year. After one year, will your savings be able to buy:<\/em><\/span><\/p>\na) more than today\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 b) the same as today\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 c) less than today<\/em><\/span><\/p>\nIf the rate of inflation is higher than the rate of interest you are earning on savings, your buying power\/wealth is diminishing so the answer is less than today. This is why it is risky to keep all your savings in the bank where interest rates are currently so low that they are not even keeping pace with inflation, even though it is also on the low side for now.<\/p>\n
4. Investment returns<\/strong><\/h5>\nQuestion: <\/span>Which asset class has produced the best returns over the past 10-20 years?<\/em><\/span><\/p>\na) the stock market\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0b) bonds\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 c) property<\/em><\/span><\/p>\nAccording to Investopedia \u2018The U.S.\u00a0stock market<\/a>\u00a0has long been considered the source of the greatest historical returns for investors, outperforming all other types of financial securities and the housing market over the past century or so.\u2019\u00a0Nevertheless, the general perception of the stock market is that it is risky, a fact which puts many potential investors off.<\/p>\nThat is not surprising given that the GFLEC notes that \u2018Risk-related concepts are the most difficult to grasp and the least understood.\u2019 however, financial investment puts your cash to work immediately. I\u2019d argue that if you invest mindfully this is lower risk than putting money in the bank where it will earn next to nothing. No investments are risk-free but the risk can be mitigated by diversifying. A financial adviser can help you with choosing investments which will build your wealth while keeping risk to a level you are comfortable with.<\/p>\n
So does our short quiz leave you feeling financially literate or do you think you have a lot to learn? If you are lacking the basic knowledge to make sound personal finance decisions you\u2019ll find a wealth of resources on the GFLEC website<\/a> to improve your literacy.<\/p>\n
a) $10,000 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 b) $100,000\u00a0\u00a0\u00a0\u00a0 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 c) over $10million<\/em><\/span><\/p>\n Described by Albert Einstein as the \u2018eighth wonder of the world\u2019 compounding is perhaps the single most effective tool a saver or investor has in their toolkit but it is frequently under-appreciated! Compounding is basically the interest paid on interest. This question is a much-used example which powerfully demonstrates just how effective compounding can be. The astounding answer is $10.7million! If you don\u2019t believe it, here\u2019s how it works: Of course, in reality no investment earns 100% interest every day, but the compounding effect is what turns modest monthly savings over a long period into sizeable nest eggs for canny savers the world over to retire on.<\/p>\n Question:<\/span> If you splashed out on a $500 designer bag using a credit card which charged 18% interest per annum but you only made minimum payments of 2.5% each month, how long would it take to pay off the debt? <\/em><\/span><\/p>\n a)\u00a0 1-2 years\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 b) 5 years\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0c) more than 10 years<\/em><\/span><\/p>\n The answer is more that 10 years, which for me, as a financial adviser, is obvious but clearly isn\u2019t to the many people who regularly use credit cards. To my mind, buying things on a credit card with 18% p.a. interest is lunacy. In fact, I question the need to have a credit card at all.<\/p>\n March 2021 stats<\/a> from The Money Charity in the UK calculate average credit card debt in the UK at \u00a31,057 per adult. The charity estimates that \u2018a credit card on the average interest would take 24 years and 7 months to repay, making only the required minimum repayments each month.\u2019 Think twice before flexing that plastic.<\/p>\n Question:<\/span> You have $1000 in the bank which earns 1% interest per year. Inflation is 2% per year. After one year, will your savings be able to buy:<\/em><\/span><\/p>\n a) more than today\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 b) the same as today\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 c) less than today<\/em><\/span><\/p>\n If the rate of inflation is higher than the rate of interest you are earning on savings, your buying power\/wealth is diminishing so the answer is less than today. This is why it is risky to keep all your savings in the bank where interest rates are currently so low that they are not even keeping pace with inflation, even though it is also on the low side for now.<\/p>\n Question: <\/span>Which asset class has produced the best returns over the past 10-20 years?<\/em><\/span><\/p>\n a) the stock market\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0b) bonds\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 c) property<\/em><\/span><\/p>\n According to Investopedia \u2018The U.S.\u00a0stock market<\/a>\u00a0has long been considered the source of the greatest historical returns for investors, outperforming all other types of financial securities and the housing market over the past century or so.\u2019\u00a0Nevertheless, the general perception of the stock market is that it is risky, a fact which puts many potential investors off.<\/p>\n That is not surprising given that the GFLEC notes that \u2018Risk-related concepts are the most difficult to grasp and the least understood.\u2019 however, financial investment puts your cash to work immediately. I\u2019d argue that if you invest mindfully this is lower risk than putting money in the bank where it will earn next to nothing. No investments are risk-free but the risk can be mitigated by diversifying. A financial adviser can help you with choosing investments which will build your wealth while keeping risk to a level you are comfortable with.<\/p>\n So does our short quiz leave you feeling financially literate or do you think you have a lot to learn? If you are lacking the basic knowledge to make sound personal finance decisions you\u2019ll find a wealth of resources on the GFLEC website<\/a> to improve your literacy.<\/p>\n<\/p>\n2. How compounding affects debt<\/strong><\/h5>\n
3. Inflation<\/strong><\/h5>\n
4. Investment returns<\/strong><\/h5>\n