Thursday, 14 September 2017

ARE YOU AS FINANCIALLY LITERATE AS YOU THINK?

Published by Chukwu Emmanuel on Thursday, 14 September 2017  | No comments


You are a professional working in a Nigerian Bank. Of course you’re financially literate. Right?
The quiz below is designed for under graduates that have just finished university and are about to be unleashed into the working world.

Use ten minutes and no calculator to see how you match up. If you get more than two questions wrong, it is time to have a refresher on your personal finances.
Answers will be right after the questions:

1. How much of your income should you spend on rent / mortgage payments?
A. 50 percent
B. 43 percent
C. 31 percent

2. How big should your emergency fund be? 
A. N 1,000,000
B. Two months of rent or mortgage payments
C. Six months of living expenses

3. Which of these individuals needs life insurance the most?
A. Single mother with two young children
B. A two-income married couple without children
C. An elderly widow

4. Which of the following individuals will pay the most in interest on their Loan over time? 
A. Mukasa, who makes the minimum payment on his loan every month.
B. Nassali, who pays the balance on her loan in full every month.
C. Joyce, who sometimes pays the minimum, sometimes pays less than the minimum, and missed one payment on her loan.

5. Which of these retirement savings plans will result in the largest sum by the time the individual is 65? 
A. David saves 1,000,000 per year from age 25 to 35 in an account earning 8 percent interest and then stops saving.
B. Jane saves 1,000,000 per year from age 35 to 65 in an account earning 8 percent interest.
C. Both the same

6. For long-term goals, which investment has historically had the highest growth over extended periods of time?
A. Treasury bonds
B. Money market account
C. Stocks
D. Residential real estate

7. Bob is unemployed, single, childless, in good health and drives a very old car. Which insurance could he most likely do without? 
A. Life insurance
B. Health insurance
C. Vehicle insurance
D. Workman’s compensation

8. Does it make sense to save money while incurring consumer debt?
A. Yes
 B. No
 C. Depends on the reason for saving

 9. Where can you save money on daily spending activities?
A. Groceries
B. Luxuries
C. Monthly fees

10. How can you incorporate savings into your monthly budget? 
A. Set up a standing order
B. Commit a certain percentage of leftover funds to savings
C. Treat the savings account like an invoice

 ANSWERS: 

1)C: Whether you rent or pay a mortgage, it's best to keep your housing costs at a maximum of 31 percent

2) C: While the amount varies according to your living costs, your other assets, and whether you are a one- or two-income household, a good starting place for emergency savings is having enough to cover six months of living expenses.

3)A: Life insurance is essential for someone who is the sole income provider for a family. So, while the others may want life insurance to provide for family members, the single mother needs the most protection for her children in the case of her death.

4)C: Skipping a payment -- or paying less than the minimum amount due -- is likely to cause your credit card company to raise your interest rate. Paying only the minimum will also result in paying large amounts of interest over time.

5) A: Surprise! Even though Tom invested only N 10,000,000 and Jane saved N 30,000,000. Tom comes out ahead in this savings scenario with N 169,000,000 in his account compared to Jane’s N 125,000,000. That's because Tom's money had a longer time to grow. That's the miracle of compound interest in action.

6) C: Stocks as an investment vehicle have historically had the highest growth over extended periods of time say 30 years.

7) A: As there is no dependant, Bob would rather save or invest that income in another financial product.

8) B: No, it does not make sense to put money into a savings account if you do not have enough left to prevent the accumulation of more consumer debt. Saving while raking up debt in particular is a classic example of being penny-wise and pound-foolish. Deal first with the budget that has you incurring more debt; eliminate the indebtedness and then save.

9) C: The easiest way to save money on a daily basis is by eradicating activities that incur monthly fees. Do you spend N 20,000 or more per month simply to have a current account? What does it cost you to withdraw money from the ATM? How about the fee you pay for DSTv? Eliminate these

10) C: Treat your savings account like a regular monthly bill. Budget for it and pay it every single month without fail.

Although standing orders can help you make the monthly payments, if you are in a pinch or miscalculate, you incur fees. Have a set amount you allocate to savings; do not just give leftovers to your future financial security. Are you surprised that some long-held beliefs are actually costing you money?

Did it cause you a bit of consternation to learn just how much one late loan payment really costs?
The goal of financial literacy is to help you meet your everyday needs and successfully plan for the milestones of life. When it comes to personal finances, you need to know what you have today and plan for what you want and need in the future.

You know the old Chinese proverb? “If you give a man a fish you feed him for a day, if you teach him how to fish he can feed himself for a lifetime.”Educating people in financial management helps them to plan and save for a lifetime. The truth is, managing your money is a lifelong journey, not a destination. It’s a journey that includes many important financial decisions and life choices.

Source: Allversity.org
Photo Credit: Cashrange

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