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Simply answer five questions on these four topics to find out if you’re considered financially literate. (Remember to note your answers down.)
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?
Suppose over the next 10 years the prices of the things you buy double. If your income also doubles, will you be able to buy less than you can buy today, the same as you can buy today, or more than you can buy today?
Suppose you need to borrow 100 US dollars. Which is the lower amount to pay back: 105 US dollars or 100 US dollars plus three percent?
Suppose you put money in the bank for two years and the bank agrees to add 15 percent per year to your account. Will the bank add more money to your account the second year than it did the first year, or will it add the same amount of money both years?
Suppose you had 100 US dollars in a savings account and the bank adds 10 percent per year to the account. How much money would you have in the account after five years if you did not remove any money from the account? More than 150 dollars, exactly 150 dollars or less than 150 dollars?
Have you noted down your responses? If so, here are the answers:
A person is defined as financially literate if he or she correctly answers at least three out of the four financial concepts above. So did you?
if you’re regular a reader of this site, then I’d probably expect you to get all of the questions correct as understanding these concepts is the foundation for investing. If you didn’t answer at least three out of the four concepts correctly, then you might want to brush up on your financial literacy (…or lack of. Sorry!).
This quiz is actually the S&P Global Financial Literacy Survey conducted by S&P Ratings Services and its parent company McGraw Hill Financial Inc. Over 150,000 adults from 148 countries participated for this survey and is considered one of the most extensive studies on global financial literacy so far.
So how do you compare with the rest of the world?
As you can see, people from richer and more advanced economies are more financially literate than the rest of the world. Australia, Canada, Denmark, Finland, Germany, Israel, the Netherlands, Norway, Sweden, and the United Kingdom had the highest scores where over 65% of adults are financially literate. Denmark, Norway and Sweden topped the charts with over 71% of adults financially literate.
And what about Singapore? We scored 59%. So it seems we still have some way to go when four out of ten people here don’t understand the basic concepts of financial literacy. If you’re interested to find out more, you can download the full findings of the S&P Ratings Global Financial Literacy Survey here.
Financial literacy is important. Without an understanding of basic financial concepts, people are unable to make informed decisions about money, saving, borrowing, and investing for themselves – which is why we do our best to raise the level of financial literacy and spread practical investment knowledge through everything we do here at The Fifth Person.
And if you’ve been a loyal reader of ours for some time, we thank you for allowing us to do this for you. We hope we’ve played a positive role (however large or small) in helping you achieve your financial and investment goals!