Vincent’s blog: ABC of Finance – Join the Secret Millionaires Club

Share this Post

Another week has passed by and you’ve worked hard. It is time to relax and shift your focus, maybe by buying something nice. But something is nagging in the back of your mind: credit card bills, mortgage payments, car expenses and all other daily living expenses are eating up all of your cash. Are you being scammed? Why is everything getting more expensive?

We know; your government knows; your friends think they know; you probably don’t know and your children need to know. Yes, I hear you: you want to have fun but help me out before you click away and try to answer the following two questions:

1) Suppose you had $100 in a savings account and the interest rate was 2% per year. After 5 years, how much do you think you’d have in the account if you’d left it to grow: [More than $102; Exactly $102; Less than $102; Do not know]

2) Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After 1 year, would you be able to buy: [More than today; Exactly the same as today; Less than today; Do not know]

Thank you, that was not hard or…… was it? Answers: 1) more than $102: 2) less than today. Will you believe me when I say that these questions were asked in the USA , France, the Netherlands, Germany, Sweden, Italy and other parts of the world and that a surprising small amount of the people could answer them correctly (see: “The Economic Importance of Financial Literacy and Evidence”. Annamaria Lusardi and Olivia S. Mitchell. April 2, 2013). This is worrying, to say the least, because so many decisions we take, have financial consequences whether we like it or not. If we cannot answer these simple questions, how can we be informed consumers while so many financial products are on offer?

“No worries”, you think. “Academics are on it and they will solve all our collective problems as well as advise us”. I don’t have to tell you that few models know finance but finance knows many. And that is precisely the problem. We at i-Cthru wish for you and all runway models to know more about finance. One of the academic formulas used in studies about financial knowledge is R( ft+1)+= R r(+f t+1) σεεt+ 1. At i-Cthru we have people who understand these formulas but these are not the answer to the problem. The answer lies with financial education and making it a basic requirement as ABC in our schools.

We have an idea for you this weekend: it is free, funny and relaxing. Visit the Secret Millionaires Club. The Secret Millionaires Club is a program, featuring Warren Buffet as a mentor to a group of entrepreneurial kids. Enjoy this fantastic animated series, which teaches the basic of good financial decision-making. Subscribe to i-Cthru’s blog and Millionaires Club for free at The Millionaires Club. Start today and maybe that nagging feeling will go away.