UQ Business School experts Dr Darren Lee and Dr Karen Alpert have developed a short quiz to test the financial literacy of UQ staff and students.
The super-quick quiz includes very simple questions about what happens to your bond investments when the Reserve Bank lowers interest rates, how much income tax you generally pay if your income falls within the 30% marginal tax rate, and how much you have to pay if your credit card is stolen by someone who then goes on a spending spree.
Dr Lee said anyone scoring lower than eight out of 12 on the test should seriously consider ways to improve their financial literacy.
"In this economic environment you really have to understand what is happening to your money and if you're not managing it yourself you need to know if others are doing so in your best interests," he said.
Dr Lee said the questions that caught most people out were the ones about relative interest rates and the time value of money.
"A good example of making a financially illiterate choice occurs when some people choose to put aside their savings for a holiday whilst only paying the minimum balance outstanding on their credit card – not realising that, in this situation, paying off the credit card first and then using it to pay for the holiday is a far more efficient use of their money."
"You have to understand your own financial situation and get a grip on the fundamental principles – there has never been a worse time to rely on the maxims our parents' generation passed on."
"Many of them simply don't apply in our far more complex financial world."
"You can take the test online."
Dr Lee has been teaching at UQ Business School since 2005. He began his career in industry working in the areas of treasury, financial planning, and funds management.
Dr Karen Alpert has been teaching at UQ Business School since 2001. She worked as a tax accountant prior to earning her PhD in finance.
*** end ***
Are you financially literate? Take the test and find out
1) When the Reserve Bank of Australia lowers interest rates your bond investments will typically:
a) Decrease in value due to the lower interest payments paid
b) Increase in value due to the lower interest rate required
c) Not change in value.
2) Matt is 25 years old. The best investment choice for his super would usually be to invest the majority of his funds in:
a) Bonds
b) Equity
c) Balanced fund
d) Property.
3) You graduate from university and begin work with an impressive annual taxable income of $65,000; which places you in the 30% marginal tax bracket. You will be expected to pay 30 cents tax for every dollar earned, for a total tax liability of 30% x $65,000 = $19,500.
True / false.
4) What is most likely to be the highest performing asset class over a 15-year plus period?
a) Bonds
b) Property / collectables / gold?
c) Cash
d) Shares.
5) Which of the following credit card users is likely to pay the GREATEST dollar amount in finance charges (due to the interest rate charged) per year? Assume no other fees.
a) Vera, who has a credit card charging 17% compounded annually
b) Jessica, who has a credit card charging 17% compounded monthly
c) Megan, who has a credit card charging 17% compounded weekly
d) They all pay the same stated rate of 17%, so there is no difference in charges.
6) The default investment option for many super funds today is the balanced option. If the average employee age is 40 years or under; is this the best default option?
Yes / No / doesn't matter.
7) You have $5,000 owing on your credit card. However, you are committed to going on a pre-booked holiday in twelve months time. You expect to be able to save approximately $6,000 over the year. Should you:
a) Regularly pay-off your credit card instead and then use your credit card to fund your holiday
b) Maintain the minimum interest payments on your credit card and regularly invest your monthly savings in an ING style cash account – thereby by funding your holiday with savings.
8) Lindsay has saved $12,000 for her upfront college expenses. Her plan is to start college in the next 6 months and she needs all the money she's saved. Which of the following is the most logical home for her college money?
a) High yield corporate bonds
b) An ING style cash savings account
c) Hidden safely under her bed at home
d) Treasury bonds.
9) Can you competently do your own tax return?
Yes / No.
10) Your credit card is stolen by a thief and she runs up a total debt of $1,000. If you notified the issuer of the card as soon as you discovered it missing, what is the maximum amount that you can legally be forced to pay?
a) Nothing
b) $50
c) $500
d) $1,000.
11) Which one of the following asset combinations is the least risky?
a) Cash / bonds
b) Bonds / property
c) Cash / shares
d) Shares / property.
12) As a rule of thumb, what is the lowest number of companies you would need to invest in to create a well-diversified portfolio?
a) Six randomly selected stocks
b) One hundred randomly selected stocks
c) Thirty randomly selected stocks
d) All of the stocks available in the stock market.
Your score:
9-12 Congratulations – you have a good grasp of financial principles
6-8 You have about a 50/50 chance of getting it right. You could use some additional help understanding financial fundamentals
0-5 Do not open your wallet again or make BIG financial decisions until you've taken a financial literacy course (eg FINM1401).
