#95: The financial literacy test

If you secretly hate us but haven't been able to find a different source of financial information, I have some great news! I found a Freakonomics Radio episode that summed up exactly the principles we champion on this show.

In this episode, Simon and I take the financial literacy survey. It's only three questions, but understanding their answers will enable you to make great financial decisions. If this sounds vaguely familiar, you might be thinking of this podcast we did last year.

Here are the questions:

1. Suppose you have R100 in a savings account and the interest rate was 2% per year. After 5 years, how much do you think you would have in the account if you left the money to grow?
   1. More than R102
   2. Exactly R102
   3. Less than R102
2. Imagine that the interest rate on your savings account was 5% per year and inflation was 6% per year. After one year, how much would you be able to buy with the money in this account?
   1. More than today.
   2. Exactly the same as today.
   3. Less than today.
3. Do you think the following statement is true or false: buying a single company stock usually provides a safer return than a collective investment scheme like an ETF or unit trust.

Win of the week: Rob has been coming to our events for ages. He has some ETF investments, but he's been wanting to trade since the day I met him. This week, he sent this email:

Yes I have done my first trade and  bought my first bunch of shares (7 shares in total - some bits and bobs) (as oppose to ETFs)

I am not sure how I am supposed to feel!

Its bit like sex for the first time - did not know what to expect!

Frederick

My world has been turned upside down! I started listening to your podcast a week or so ago, and fok... my google is broken!! From googling sport all day I now spend endless nights and have sleepless nights on where to put my money and avoid tax as much as possible!

I use to think money is money and my RA is perfect and that life is sorted! I was wrong!

I have an RA (diversified wealth builder) with Sanlam. Any thoughts here please? My FEES (to my knowledge) is 0.65%.

It says "management fee at benchmark %".

I put some money in monthly with a 10% annual increase. By retirement I should be paid out R11,5m.

Let's say you live another lifetime after your working life, how much will you need? It's possible to retire at 60 and live to 100.

https://justonelap.com/podcast-much-money-need/

Frank is trading Simon's Lazy system and wants to know if he can park his money somewhere while he waits for entries. He's not earning interest on the money that he's allocated for this trade.

Shamona wants to know if timeshare is worth it.

What are the pros and cons? What should I look out for when buying?

Entries to win Manage Your Money Like a Fucking Grownup. We want you to share the financial fact that blew your mind. We'll be running this competition for one more week.

I asked author Sam Beckbessinger hers and she said on R10k per month, you'll earn R19m in your  working life. Mine is that a low cost of living is basically the answer to all your problems.

Lesigisha wrote back after we sent him a shout-out last week.

Thank you so much for the great affirmation I received from the submission of my email, it really really went a long way in validating what I'm doing.

It's hard to start on this journey, but after doing it for a while one does sometimes get despondent and wonder if this is worth it. Your affirmation has helped reinvigorate me and I go back to it every time someone says they're waiting until they have a bigger shoe size before they can start making "real money decisions".

Khuliso's mind-blowing fact is that you don't need huge amounts of money to invest. As a result of his mail I spent a lot of time thinking about kotas this morning.

The most mind-blowing fact was finding out that if I can afford to buy a kota (R23.00) or street wise 2 I can afford to invest in the JSE and create wealth.

Even though it's little money, over the long term it makes a difference. In my case the problem was lack of information rather than a lack of money to invest.

I am now very conscious about my spending habits. Whenever I buy takeaways in the back of my mind I keep on thinking of ETFs that I could be buying. When I look back, I see missed opportunities where I could have invested and build wealth.