Weekly Perspective

January 25, 2021

How important is financial literacy?

At the end of 2020, the FINRA Investor Education Foundation published a report that found, “…financial literacy has significant predictive power for future financial outcomes, even after controlling for baseline financial characteristics and a wide set of demographic and individual characteristics that influence financial decision making.”

 

In fact, financial literacy may be more important today than it has ever been. That’s because the responsibility for saving, investing, and generating income for retirement has shifted from companies (that managed defined benefit plan assets) to individuals (who manage 401(k), 403(b), and other defined contribution plan assets).

 

The researchers administered a quiz at the beginning and end of the research period (six years). The quiz included questions that were a lot like these, which are derived from questions asked by the National Financial Capability Study:

 

  1. Suppose you have $100 in a savings account and it is earning 2 percent a year. After five years, how much money will be in the account?

    1. More than $102

    2. Exactly $102

    3. Less than $102

    4. I don’t know

  2. Now, suppose the interest rate on your savings account is 1 percent a year and inflation is 2 percent a year. After one year, will the money in the account buy more than it does today, exactly the same as it does today, or less than it does today?

    1. More

    2. Same

    3. Less

    4. I don’t know

  3. When interest rates increase, what typically happens to bond prices? Do they rise, fall, or stay the same? Or is there no relationship between interest rates and bond prices?

    1. Rise

    2. Fall

    3. Stay the same

    4. No relationship

    5. I don’t know

  4. Suppose you owe $1,000 on a loan and the interest rate you are paying is 20 percent per year, compounded annually. If you don't pay anything on the loan, how many years will it take for the amount you owe to double?

    1. Less than two years

    2. Two to four years

    3. Five to nine years

    4. Ten or more years

    5. I don’t know

 

If these answers generate questions for you, please give us a call.

 

Answers:

  1. A – More than $102.

  2. C – Less.

  3. B – Fall.

  4. B – Two to four years.

Securities offered through LPL Financial. Member FINRA/SIPC.

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* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

* Past performance does not guarantee future results. Investing involves risk, including loss of principal.

* The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee it is accurate or complete.

* There is no guarantee a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

* Asset allocation does not ensure a profit or protect against a loss.

* Consult your financial professional before making any investment decision.

* These views are those of Carson Coaching, and not the presenting Representative, the Representative’s Broker/Dealer, or Registered Investment Advisor, and should not be construed as investment advice.

* This newsletter was prepared by Carson Coaching. Carson Coaching is not affiliated with the named firm.

Sources:

https://www.barrons.com/articles/big-tech-stocks-are-back-whats-behind-the-nasdaqs-4-rally-51611364722?refsec=the-trader (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2021/01-25-21_Barrons-Big_Tech_Stocks_are_Back-Whats_Behind_the_Nasdaqs_4_Percent_Rally-Footnote_1.pdf)

https://www.axios.com/market-bubble-investor-fears-78494156-a5ec-4506-93b8-1ca895f6544c.html

https://www.bloomberg.com/graphics/covid-vaccine-tracker-global-distribution/ (Numbers change daily) (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2021/01-25-21_Bloomberg-More_Than_60.3_Million_Shots_Given-COVID-19_Vaccine_Tracker-Footnote_3.pdf)

https://www.cnbc.com/2021/01/19/bitcoin-us-tech-stocks-are-biggest-bubbles-deutsche-bank-survey-says.html

https://www.cnbc.com/video/2021/01/22/deutsche-bank-investors-will-be-surprised-by-how-quickly-normality-will-return.html (0 to 1:11 seconds)

https://insight.factset.com/sp-500-earnings-season-update-january-22-2021

https://www.finrafoundation.org/sites/finrafoundation/files/stability-and-predictive-power-financial-literacy-evidence-longitudinal-data.pdf

https://www.usfinancialcapability.org/submit_quiz.php

https://www.goodreads.com/quotes/tag/knowledge

Legal 

No strategy assures success or protects against loss. Diversification does not protect against market risk. Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss.

 

All content is developed from sources that are believed to provide accurate information. The information provided in these materials is not intended to be tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and the materials provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

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Parks Wealth Management

 

Office: (201) 689-2020

Fax:(201) 689-6850

 

148 Prospect Street
Second Floor 
Ridgewood, NJ 07450

info@parkswm.com

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