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Decided to make adjustments on the way I blog & share due to time constraints and other commitments. In the coming weeks you should see them. Short updates but more frequent & concise.

Monday, June 15, 2015

Can U Answer Three Simple Finance Questions?

Roughly half of the world can’t answer these three questions correctly:

1.  Suppose you had $100 in a savings account and the interest rate was 2 percent per year. After five years, how much do you think you would have in the account if you left the money to grow?
A) more than $102
B) exactly $102
C) less than $102

2.  Imagine that the interest rate on your savings account is 1 percent per year and inflation is 2 percent per year. After one year, would you be able to buy
A) more than
B) exactly the same as
C) less than today with the money in this account?

3.  Do you think that the following statement is true or false? “Buying a single company stock usually provides a safer return than a stock mutual fund.”
A) true
B) false

Even worse – 70% of Americans & 73% of Japanese can’t answer all three questions correctly. What about Malaysians? I did a short poll today (60% of folks couldn't get all correct answers so the findings are not far off) asking friends from different working backgrounds and various age profile (21 to 60). I asked 20 people.

These findings were recently published by two economists, Annamaria Lusardi and Olivia Mitchell, and the results reveal startling levels of financial illiteracy across the world. Their works can be found @ Most People in the World Have No Idea How to Manage Their Money. (the answer is in this link)

This is why most people that we know have so many persistent financial problems. We don’t even come close to understanding the construct of money or how it should be used. It is really unfortunate that most schools don't even teach basic finance but emphasize math and even additional maths! The fact is people need to become better educated on the topic of money, finance and economics. It is no rocket science, reading articles or asking folks who are familiar can be a good start. Although it seems to be a long road ahead for most of us it’s never too late to get started.

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