August 11

Will You Pass this 1 minute Financial Literacy Test?

Will You Pass this 1 minute Financial Literacy Test?

August 11, 2017

Nowadays, financial literacy is really important. We talk about money every day. From the salary we receive, the bills we need to pay, our accounts with the bank, the stock market. Everything we do involves money. But come to think of it, do we really know the simplest money principles?

Below are three questions that will test your financial literacy in just 1 minute or less. I hope you will answer it honestly. No cheating, please!

Here are the questions:

 

Question Number 1

Suppose you have P100,000 pesos in your savings account and the interest rate is 2% per year. After 5 years, how much money will you have if you left your money to grow?

a. More than P102,000

b. Less than P102,000

c. Exactly the same

d. I do not know

 

Question Number 2

Imagine that the interest rate on your savings account is just 1% year and the inflation rate is at 2.8% (as of June 2017, our inflation rate straight from Bangko Sentral ng Pilipinas website is at 2.8%). After one year, how much will you be able to buy with the money in this account?

a. More than today

b. Exactly the same as today

c. Less than today

d. I do not know

 

Question Number 3

Is the following statement true or false?

“Buying a single company stock usually provides a safer return than a stock mutual fund.”

a. True

b. False

c. I do not know

 

Answers:

 

The answer to number 1:

For the first question, the correct answer is A. This question talks about compound interest which is the 8th wonder of the world as the famous Albert Einstein would say. But more than that the first question is more about assessing a person’s numeracy when it comes to money.

See details below on how it was computed. At 2% per year, your P100,000 would be P102,000 for the second year. Then for the second year, the interest rate would then be applied to the new total amount and so forth.

Year Principal Amount Rate Interest Per Year Total Amount
1 100,000 2% 2000 102,000
2 102,000 2% 2040 104,040
3 104040 2% 2081 106,121
4 106121 2% 2122.42 108,243
5 108,243 2% 2164.8684 110,408

 

The answer to number 2:

The answer would be less than today. Letter C. We all know that inflation means the general increase in the level of prices of goods and services. So that means that if the inflation rate is 2.8% and the interest rate of your money in the bank is just 1%, you are not beating the inflation or the increase in the costs of goods that you are buying. In short, less than today, lesser goods that could be bought or lesser purchasing power for your money.

 

The answer to number 3:

This question talks about risk diversification. And the answer is guessed what? True or False? Of course the answer is FALSE.

Investing in a single company is riskier than allocating your money in a basket of stocks. As what they always say, do not put all your eggs in one basket.

P.S. These survey questions were patterned to the 2004 Health and Retirement Study.

 

That’s it! So how was your score? Did you get all three answers correct? If yes then great!

I want to apologize if the questions are very basic but mind you, these questions are hardly answered correctly by many people around the world.

Aside from that, according to an article published last August 17, 2016 by Manila Times:

“THE 2015 Ratings Services survey of Standard & Poor showed that only 25 percent of Filipinos are financially literate. That means about 75 million Filipinos have no idea about inflation, risk diversification, insurance, compound interest and, maybe, even about keeping a savings account in a bank.”

Imagine that! A whopping 75 million Filipinos have no idea yet about the basic principles about money. If you answered all those three questions correct, hopefully you are part of that 25 percent. If otherwise, do not worry. We could still be one if we will continue to educate ourselves and to help others too. We all need to start from somewhere right?

That’s it! Hope you find this article helpful. If you think this article will help other people in their quest for financial literacy, SHARE this away because sharing is caring.

Leave a comment below and share your thoughts.

I would love to hear from YOU.  =)

Also, if you haven’t done so already, be sure to sign-up for our free newsletter to receive new articles like this in your inbox each week.

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