Financial questions often strike the minds of a seafarer, why am I here, risking my life staying away from my family and friends on a floating vessel, should I switch to a shore 9 to 5 job? The reason we all know, is money, good money, that too tax-free. Most of us have experienced situations where the money that we bring back home is wiped off in a matter of months and the craving starts to join back soon.
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Table of Contents
Where do we stand?
This post is not a lecture to stop spending unnecessarily rather it is about evaluating yourself if you can call yourself financially literate.
India ranks the lowest among all the BRICS nations, as per a survey conducted by National Center for Financial Education in 2019. Similarly, according to a recent survey undertaken by the Securities and Exchange Board of India, only 27% of India’s population is financially literate.
Definition of Finacial Literacy
According to the RBI publication report, Financial Literacy is defined as a combination of financial awareness, knowledge, skills, attitude, and behavior necessary to make sound financial decisions and ultimately achieve individual financial well-being.
As the awareness and knowledge being talked about above is a vast topic in itself, how does the government or any organization for the matter of fact come up with a report?
S&P simplified this survey to the core. According to S&P (The Standards & Poor) Global FinLit Survey, the literacy questions that measure the four fundamental concepts for financial decision-making—basic numeracy, interest compounding, inflation, and risk diversification. So, if you know about these four terms then you pass the basic criterion. Let’s answer the following and confirm yourselves.
1. RISK DIVERSIFICATION
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?
- one business or investment
- multiple businesses or investments
- don’t know
- refused to answer
2. INFLATION
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?
- less
- the same
- more
- don’t know
- refused to answer
3. NUMERACY (INTEREST)
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?
- 105 US dollars
- 100 US dollars plus 3%
- don’t know
- refused to answer
4. COMPOUND INTEREST
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?
- more
- the same
- don’t know
- refused to answer
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
- less than 150 dollars
- don’t know
- refused to answer
RESULTS OF THE SURVEY
A person is defined as financially literate when he or she correctly answers at least three out of the four financial concepts described above. If you have answered them correctly then you are among 33% of the world’s population having an understanding of basic financial concepts. This survey was conducted about seven years ago, but the fundamentals remain the same. Read the entire report “here“.
This test is just the beginning of a lifelong journey of learning money. Even if you pass the survey, that doesn’t mean to stop learning. In the past couple of years when the entire world economy suffered due to the pandemic, all the financial planning was put to the real test, some survived, and some are still reviving. It surely called for the need and understanding of money, earning it, saving it, or investing it.
Conclusion
We are very well aware of the lack of financial topics at an early stage of schooling, do not wait for the government policies to implement this to the education system, make sure that your experiences are passed along to the coming generations with an urge to learn and act accordingly, because the more you learn about money the more you earn.
