Global Financial Literacy 101Submitted by DeDora Capital on December 4th, 2015
by Will Becker, AWMA/AIF
Pop quiz: “Suppose you have some money. Is it safer to put your money into one business or investment, or to put your money into multiple businesses or investments?” This question is from the S&P Global FinLit survey on financial literacy, and if you answered “Multiple businesses or investments”, then you are on the right track. Please click here to view the rest of the questions & take the short survey.
Here is a shocking statistic: 3.5 billion adults worldwide failed the survey… they lack an understanding of basic financial concepts such as risk diversification, inflation, interest, and compound interest. The U.S. tied Switzerland with 57% of respondents passing the quiz. That sounds great. Tied with the country known for trains that run like clockwork and amazing chocolate. But we are behind Denmark (71%), Norway (71%), Sweden (71%), Canada (68%), Israel (68%), Germany (66%), Netherlands (66%), United Kingdom (67%), Australia (65%), Finland (63%), New Zealand (61%), and Singapore (59%). I’m going to do something about that, and it starts today!
If you are going to take the survey, please do so now because there are spoilers below the chart.
We want our folks to lead the pack. So here’s a few quick tips to bring everyone to the head of the Financial Literacy class. Getting these four right puts you ahead of even Denmark.
- Risk Diversification: It is safer to put your money into multiple investments.
- Inflation: if the price of things you buy goes up as much as your income, you can only buy the same amount you could before.
- Interest: $100 + 3% interest is less than $105.
- Compound Interest: If you put $100 in a savings account that pays 10% [I know that’s a crazy interest rate, but please suspend disbelief for me], after five years you have more than $150. That’s the beauty of compound interest!
Congratulations, that is financial literacy according to the S&P Global FinLit Survey. If a financial question comes up, just remember that we’re in your corner. We have two Certified Financial Planners for a reason!
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