Financial literacy scores in Australia have proven to be very low.
This needs to change – Are you ready to improve your financial skills?
Map Your Finances
Map Your Finances was authored by Glenis Phillips who is also the designer of Financial Mappers and Advice Online. This book will help you improve your financial literacy skills. These are excerpts from her book:
About 50% of men couldn’t answer a simple set of five questions asked by a Melbourne University researcher for the HILDA Report. More disappointing was that only 35% of women answered all questions correctly.
It was found that after age 65, financial knowledge decreases to about 40% of seniors being able to answer the questions. This is very worrying because people are living much longer and need to manage their money efficiently. If they don’t, they are likely to be reduced to relying on social security. Lower incomes will impact on the quality of their life.
The lack of financial literacy can lead to owing large amounts of debt and making poor financial decisions. For example, the advantages or disadvantages of fixed and variable interest rates are concepts that are easier to understand and make informed decisions about if you possess good financial literacy skills.
Financial education is important in today’s world. Any improvement in financial education will have a profound impact on your ability to generate abundant wealth and create a sustainable future. It is never too early or too late to improve your financial education.
Money and financial issues can be significant sources of stress for people. A person’s problems with money may produce such overwhelming negative feelings and self-criticism that his or her mental and physical health can be adversely affected.
Compound Interest
The first and one of the most important concepts to understand is Compound Interest.
Compound interest includes interest on the initial amount, but interest paid on future interest. Thus if your interest is paid at the end of the year, the interest would be less than if the interest were paid quarterly or monthly.
In the table below, $100,000 is invested for one year at an interest rate of 10%.
You can see the interest received rises from $10,000, where the interest is paid once to $10,471 where the interest is paid monthly (12 times)
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This brings us to the concept of Effective Rate of Return. In each of the above examples, the nominal rate of return is 10%, but the Effective Rate of Return increases with the number of times the interest is paid.
When comparing investments, you need to establish which investment has the highest rate of return. Where the interest rate is the same, the greater the number of times the interest is paid within the year, the greater the investment return.
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Over the coming weeks, I will be presenting a series of articles to help build your financial skills. Please register on the Financial Mappers Blog Page to receive notification when new articles are uploaded.
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Finally, watch this 2 minute video, Compound Interest that explains the importance of saving regularly over the long term, rather than having to play ‘catch up’, which means you will need to save much more to have the same final balance when you retire.
Glenis Phillips SF Fin – Designer of Financial Mappers and Advice Online
Disclaimer: Financial Mappers does not have an Australian Services License, does not offer financial planning advice, and does not recommend financial products.
