Financials – To know or not to know

To find out the level of financial literacy worldwide, Standard & Poor’s, Gallup, the World Bank and the George Washington University conducted a survey:
More than 150’000 adults in 140 countries were quizzed on their understanding of financial concepts:

Here’s the quiz:

1. Risk Diversification:
Question: 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?

2. Inflation:
Question: 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?

3. Numeracy and Comparison (Debt):
Question: Suppose you need to borrow $100. Which is the lower amount to pay back: $105 or $100 plus three percent?

4. Interest Compounding (Saving):
Question: 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?

5. Interest Compounding (Saving and Numeracy):
Question: Suppose you had $100 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?

Did you make 5 out of 5?

If not, your in good company. Worldwide, only 33% passed the test and are considered financially literate.

A little better is the result within the European Union, where the financial literacy rate is 52%.

With regard to single countries, the result looks like a map of Europe. Countries of the upper part (Denmark, Germany, Holland or Sweden) have the highest rates, at least 65% of their adults are financially literate.
South of the alps, the knowledge about basic financial concepts is considerably lower. In Spain, Portugal, Italy or Greece, less than half of the adult population passed the test. But it gets worse. In Bulgaria and Cyprus, only 35% of adults are financially literate.

And Romania?

With 22%, Romania has the lowest rate, almost 4 out of 5 romanians couldn’t answer the questions on very basic financial concepts.

‘We have no money anyway, why should we care about financial concepts?’ This could be a typical romanian answer to this last place in the ranking within the EU.

Ok, for those of you who care more about Romanias ranking in the European Song Contest, I have just one question:

Could it be that you have no money, exactly BECAUSE you don’t understand basic financial concepts?

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But it’s never too late to learn something new: That’s why we will explore and explain these basic financial concepts in the next sub-chapters.
We start with question 1 (Diversification) http://www.theleader.ro/diversification/

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