Financial Literacy: How Savvy are You?

Since April is financial literacy month, I thought it would be a good time to discuss the sobering results of the Standard and Poor’s Ratings Services Global Financial Literacy Survey.  The S&P survey is the world’s largest, most comprehensive global measurement of financial literacy.  The results are based on interviews with more than 150,000 people from over 140 different countries, aged 15 and older. Unfortunately, the outcome revealed that worldwide only 1-in-3 (~33%) adults (15 and older) are financially literate.  Sadly, this leaves about 3.5 billion people ignorant of basic financial concepts.

To determine financial literacy, questions were asked that measured knowledge in four basic financial concepts: risk diversification, inflation, numeracy (interest), and compounding interest. A person was considered financially literate if they understood (at least) three of the four concepts.

Here are the questions. Multiple choice answers are in brackets.

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]

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]

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 three percent; don’t know; refused to answer]

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].

Here are the answers:

Risk Diversification: Multiple businesses or investments

Inflation: The same

Numeracy (interest): 100 US dollars plus three percent

Compound Interest: More, More than 150 dollars

How did you do?

Worldwide, risk diversification was the least understood concept.  I was surprised by this. I guess a lot of people have never heard of the old adage, “Don’t put all of your eggs in one basket.” Kind of spells it out for you, doesn’t it?

Overall, men fared better than women. Worldwide, 35% of men and 30% of women were financially literate.  People from Northern European countries had the highest scores: 71% of adults in Denmark, Norway, and Sweden understood the concepts. People from South Asian countries had some of the lowest scores, where, at best, 25% are financially literate. Here in the United States 57% of the people passed and in Canada 68% did well. The Republic of Yemen had the lowest score with a financial literacy rate of only 13%.

One of the things I found interesting about the results was that worldwide financial literacy was lowest among adults 65 and older. But as poorly as scores generally were, I found it encouraging that globally and in countries with emerging economies people in the 15-35 age group did the best. This tells me that perhaps there’s been an increase in education for people in these younger age groups.  Hopefully this will translate into higher scores for everyone in the future.

A. Alliance Collection Agency, Inc. is a full service, licensed accounts receivable management and debt collection agency providing highly effective, customized one on one management and recovery solutions for our business partners.  Founded in northern Illinois in 2005, we have been proudly improving the bottom-line on behalf of our business partners in and around Chicagoland for over 14 years.

Catch Phrases: What’s Yours?

We all have them.  We all use them. In fact, we seem to be surrounded by them.

Catch phrases.  Those little bits of verbiage that just seem to unconsciously (or consciously) slip into our speech and writing.

Some that I hear most commonly these days are:

  • At the end of the day…
  • Having said that…
  • The narrative (as in “they did not like the outcome of the poll, so they want to change the narrative”)
  • Optics (as in “the event did not look very good, so they worked hard to change the optics”)
  • Whatever (as in, well, whatever…)
  • Look (as in “Look: the only thing right about what you said is that it is wrong.”)
  • Let’s be honest (as if we usually are not!)
  • How are you?

And the list can go on and on.

Admittedly I have my own that slip right into my conversations and writing.  One of my favorites seems to be: “At all events.”  I suspect you will find me use that in this blog before you finish reading it.

The last one on the list seems to be a fall back for us all: “How are you?” or “How are you doing?”  More often than not it is an ice breaker or a conversation starter, but let’s be honest about it (!) we really don’t intend to get a straight answer from the person to whom we ask it, do we?  And usually the person we ask it to simply says ‘good’ or ‘fine’ and we move on.  Or not.  What comes next can be awkward at times.  The conversation can immediately become stagnant or cease to exist at all. 

Of course, if we just move on, we miss an opportunity to really connect with someone.   

Gary Burnison, CEO of Korn Ferry, and a contributor to CNBC, points out in a blog that successful people take this opportunity to turn catch phrases or ‘small talk’ into something more meaningful (“Stop asking ‘how are you?’ Harvard researchers say this is what successful people do when making small talk” CNBC.com March 7, 2019.  Read it here). 

Burnison writes: “…the key to making the most out of small talk, according to Harvard researchers, is to simply ask the other person follow-up questions. In a series of experiments, researchers analyzed more than 300 online conversations and found that those who were asked more meaningful follow-up questions (a.k.a. questions that aren’t “how are you?” or “what do you do?”), found the other person much more likable.”

Burnison suggests seven ideas on how to move deeper into a conversation with someone by avoiding the routine.

  1. “Use the A.C.T. trick to start a connection.”  Rather than ask “How are you” ask a question which meets Burnison’s ACT criteria:
    1. A-There is authenticity  
    1. C-There is a connection
    1. T-There is a topic that will give them a taste of who you are

Some examples he gives are “What’s your current state of mind?” or “What are you looking forward to this week?”

  • “Move beyond the ‘hourly update.’”  How often do we go from “How are you?” to a discussion about the weather or sports.  One of my favorites is “What time does your flight leave?” (how is that for a hint?).  Burnison suggests trying to focus instead on topics that are “more important and personal to you.”
  • “Be in the moment and observe your surroundings.”  Try focusing on something in the surroundings that is interesting “…like the piece of art on the wall, a quirky gadget or family picture on their desk, a race car helmet, scattered coins from various countries and so on.”  This approach can certainly take the conversation in a more personal direction and make a more direct connection.
  • “Share some news (that actually happened).”  Be authentic and personal.  “If you have ‘news,’ share it: ‘I adopted a pet over the weekend’ or ‘My 6-year-old rode a bike for the first time yesterday!’ Believe it or not, most people actually do want to know more about others, especially if they both work at the same company.”
  • “Talk early.”  This one threw me at first, but he makes a good point. By initiating a conversation, we can set the subject and break the ice without having to be glib about it.  Sometimes it is easy to just get ‘walked on’ in a meeting or conference call and this can help set the tone.
  • “It’s not just what you say.”  Here body language comes into play. Eye contact, smiling, and openness in general will make the other person feel more comfortable and help others connect with you.
  • “Make the pivot.”  This takes practice as at some point the conversation needs to turn to the subject at hand.  Asking “How are you?” and getting “fine” often makes the transition to the meat of the conversation awkward at best.  Take the clues you get from the other person, or let them make the first move, but pivot into the subject and don’t revert back to some subject not relevant.

I would also add to his list that it is very easy to fall into using catch phrases unconsciously if for no other reason than we have had them ingrained into us to sound more intelligent, or simply to buy time to come up with what we are going to say next.  At all events (see I told you so!), I know how hard that is to do, but fresh speech with infrequent use of ‘um,’ or frequent use of catch phrases, keep the listener engaged.  Sometimes just taking a pause before we speak instead of falling into a catch phrase helps craft a more conversational message.  This takes work and self-awareness but at the end of the day (!), who does not appreciate a more productive and substantive conversation?

A. Alliance Collection Agency, Inc. is a full service, licensed accounts receivable management and debt collection agency providing highly effective, customized one on one management and recovery solutions for our business partners.  Founded innorthern Illinois in 2005, we have been proudly improving the bottom-line on behalf of our business partners in and around Chicagoland for over 14 years.

Can Money Actually Buy Happiness? More Cash on Hand Just Might!

If you are like me, you are keeping a close eye on your investments these days.  With stock prices at record highs, and bond yields still very low, it is not easy to find places to park our hard earned money that provide a low risk of loss paired with good returns. 

Trying to figure out what’s next can practically make you nuts.  Check out these headlines from CNBC:

  • “Bill Gross says all financial markets are ‘increasingly at risk.’”
  • “Bob Doll: Tech sell-off may not be over but it will breathe new life into the market.”
  • “Billionaire Ron Baron says the stock market and economy will double in 13 years.”
  • “The tech wreck is a sign there could be a summer swoon.”
  • “A record number of investors believe the stock market is overvalued, survey shows.”
  • “RBC raises stock market outlook into the tech wreck, sees 7% S&P 500 rebound into the end of the year.”
  • “Analyst Mark Mahaney on why tech stocks are not in a bubble.”

And these were just from the last two days!  No wonder most of us don’t sleep very well at night.  I can’t recall a time when so much has been riding on the economic performance of our country which translates directly into the growth of our investments—particularly those in our retirement accounts.  In the face of shrinking pensions and the instability of pension funds, combined with the potential of further modifications to Social Security, there are not just a few of us biting our fingernails.

So when our youngest daughter came to me the other day and asked if she should put some of her hard earned college savings into an investment that would earn her a higher rate of return I just sort of locked up.  I think I just blinked blankly for a moment or two before saying “Don’t do anything.  Leave it right where it is in the bank if you want to sleep at night.”  Those were the best words of investment wisdom I could come up with.

Ah, for the days of recommending she buy, ala Forrest Gump, as many shares as she could in a “little fruit company.”  True, banks in general hardly pay anything for the use of our money, but by and large they are safe and may, in fact, provide an even more valuable return: “Life Satisfaction.”

The American Psychological Association published a study done by Peter M. Ruberton (University of California, Riverside), Joe Gladstone (University of Cambridge) and Sonja Lyubomirsky (University of California, Riverside) entitled “How Your Bank Balance Buys Happiness: The Importance of ‘Cash on Hand’ to Life Satisfaction.”  (American Psychological Association, 2016).

Their study looked at the relationship between types of wealth and our feelings of well-being.  They pointed out that there have been a number of studies done that show a “…small, but discernible, relationship between income and well-being…”  They note that “Superficially, it appears that wealthier individuals—or at least, those who have sufficient wealth to meet, or marginally exceed, their basic needs (Kahneman & Deaton, 2010)—are also happier.”

Yet their study found that wealth alone provided an “…incomplete portrait of the link between wealth and well-being.” For example, someone who is wealthy but overspends their income, or is in significant debt, may be less satisfied with their life than someone who is more frugal and smarter in how they save and invest. 

To look deeper into “Life Satisfaction” their study was done using a large, but random, sample of customers of a large national bank in the United Kingdom. 

Their conclusion?  “Our results suggest that having a buffer of money available in checking and savings accounts confers a sense of financial security, which in turn is associated with greater life satisfaction…This finding suggests that people with low liquid account balances may feel more economically distressed—and thus less satisfied with their lives—than their peers with higher balances, even if their incomes and spending, considered separately from their account balances, would predict high financial security.”

So, if “Life Satisfaction” is your goal, nothing quite seems to beat cash on hand.  Take it to the bank.

A. Alliance Collection Agency, Inc. is a full service, licensed accounts receivable management and debt collection agency providing highly effective, customized one on one management and recovery solutions for our business partners.  Founded innorthern Illinois in 2005, we have been proudly improving the bottom-line on behalf of our business partners in and around Chicagoland for over 14 years.