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US Financial Literacy Survey

stoney

stoney

Part of the unwashed, middle-American horde
Jul 26, 2006
21,659
7,331
Colorado
Survey: http://www.usfinancialcapability.org/quiz.php
6 questions for the absolute base level of understanding.

National Level Results: http://www.usfinancialcapability.org/results.php?region=US
State Level Results: http://www.usfinancialcapability.org/

Over 2/3 of survey participants failed the test.
Articles: http://www.financemagnates.com/forex/regulation/finra-releases-national-financial-capability-study-of-27000-us-adults/

This is disturbing. It also explains so much of my job.

Can you pass?

6 of 6 (as expected) here.
 
stoney

stoney

Part of the unwashed, middle-American horde
Jul 26, 2006
21,659
7,331
Colorado
stoney

stoney

Part of the unwashed, middle-American horde
Jul 26, 2006
21,659
7,331
Colorado
jonKranked said:
this all sounded like math, and math is for soshulist book larnin' commie pinkos.


5/6. I am not well versed in bonds.
Click to expand...
Think of interest rates vs/ bonds as a teeter totter:

Say you have a $1000 bond that pays you a fixed 5%. The 5% doesn't change based on the prevailing interest rates. No matter, at the end of the year, you are $50 richer.

If interest rates go up to 10%, a $1000 bond will provide a fixed $100 to the owner. That means that if you want to sell your 5% bond, you will need to drop the price so that the $50 annual receipt is a 10% annual yield, which can be acquired on the open market.

$50 is 10% of $500, so the price of your bond will drop to $500 to put the yield (interest rate) on par with the current rates. It's about creating the ability to compare bond of different maturies and yields to one another.

Price Up = Rate Down
Rate Down = Price Up
 
jonKranked

jonKranked

Detective Dookie
Nov 10, 2005
86,083
24,611
media blackout
stoney said:
Think of interest rates vs/ bonds as a teeter totter:

Say you have a $1000 bond that pays you a fixed 5%. The 5% doesn't change based on the prevailing interest rates. No matter, at the end of the year, you are $50 richer.

If interest rates go up to 10%, a $1000 bond will provide a fixed $100 to the owner. That means that if you want to sell your 5% bond, you will need to drop the price so that the $50 annual receipt is a 10% annual yield, which can be acquired on the open market.

$50 is 10% of $500, so the price of your bond will drop to $500 to put the yield (interest rate) on par with the current rates. It's about creating the ability to compare bond of different maturies and yields to one another.

Price Up = Rate Down
Rate Down = Price Up
Click to expand...
I made a statement, not a question.


But thanks.
 
slyfink

slyfink

Turbo Monkey
Sep 16, 2008
9,351
5,100
Ottawa, Canada
SkaredShtles said:
@stoney explained it very simply above. If that doesn't make sense... :confused:
Click to expand...
yeah... I read it, but didn't really dwell on it. Still, it leads to more questions than answers for me: are bonds necessarily pegged to interest rates? (in the US those are set by the Fed, correct?). Also, why would anyone want to sell a bond, if they are forced to sell at a loss? To raise cash to buy a higher yield bond? To raise cash caus' they're retired?
 
SkaredShtles

SkaredShtles

Michael Bolton
Sep 21, 2003
65,847
12,837
In a van.... down by the river
slyfink said:
yeah... I read it, but didn't really dwell on it. Still, it leads to more questions than answers for me: are bonds necessarily pegged to interest rates? (in the US those are set by the Fed, correct?). Also, why would anyone want to sell a bond, if they are forced to sell at a loss? To raise cash to buy a higher yield bond? To raise cash caus' they're retired?
Click to expand...
You're thinking about Treasury Bonds specifically... but yeah. Lots of reasons you might want to sell a bond. It's a marketable asset like any other.
 
stoney

stoney

Part of the unwashed, middle-American horde
Jul 26, 2006
21,659
7,331
Colorado
slyfink said:
yeah... I read it, but didn't really dwell on it. Still, it leads to more questions than answers for me: are bonds necessarily pegged to interest rates? (in the US those are set by the Fed, correct?)
Click to expand...
Yes and yes.

Individual bond yields are determined by the 'value of the risk'. US Treasuries are considered the safest and hence hold the lowest yields for equivalent durations (length of bond in days/years). A company like GE will issue bonds, but at a higher risk level than the US govt, so they pay a premium to no risk in the form of a higher yield/coupon/interest rate (all same). Then you have something like a small company issuing debt/bonds, which will in turn be more risky than the GE bonds; they pay a higher yield.

There needs to be a benchmark for risk and it's the US Treasury bonds. That is determined by the Fed Funds rate (in large part, there are other things too, but to keep it simple).

. Also, why would anyone want to sell a bond, if they are forced to sell at a loss? To raise cash to buy a higher yield bond?
Click to expand...
Sometimes the risk becomes too great for the return, so you might sell at a loss. If you think rates are moving quickly away from you (up), you might sell at a loss to buy a new issuance with a higher yield. There are lots of reasons why, but generally good business is to buy when trading at a discount (<$1000 per bond) and sell at premium (>$1000 per bond). [/quote]

To raise cash caus' they're retired?
Click to expand...
Not necessarily. You should look at bonds as income tools, not for growth tools. Buying a large portfolio of bonds, especially over a long duration (1yr-30yr), should allow you to create a steady income stream for life (rolling short term to long term as they mature). You generally want to try an avoid selling bonds when yields go up though. Bond mutual funds are handled a bit differently though, as they are already a full portfolio vs individual issues.
 
stoney

stoney

Part of the unwashed, middle-American horde
Jul 26, 2006
21,659
7,331
Colorado
Serial Midget said:
Visa, Mastercard, American Express? I ain't got nothing against no cedit card but cash is the best.

Did I pass?
Click to expand...
Using CC as cash is the best way to do it. I pay ~$100/y to have a Southwest Airlines VISA from Chase, but the amount of money I 'earn' from points for flights makes that pale in comparison. I think I ended up getting ~$1000 in free flights, just for buying things I would buy every day. I'm really looking forward to Costco being on VISA now, becuase that's all of my gas and a huge amount of food/personal care/misc expenses too.

Pay in full every month and it's effectively no different than cash.
 
CBJ

CBJ

year old fart
Mar 19, 2002
12,881
4,226
Copenhagen, Denmark
Same here and Fidelity just went all Visa too on their free cash back card which then goes into an IRA investment account and the money grows even more!

Since they do support Amex anymore I am leaning towards a cash back card directly from Amex one has up to 6% on the first 6000 purchased at super markets.
 
stoney

stoney

Part of the unwashed, middle-American horde
Jul 26, 2006
21,659
7,331
Colorado
CBJ said:
Same here and Fidelity just went all Visa too on their free cash back card which then goes into an IRA investment account and the money grows even more!

Since they do support Amex anymore I am leaning towards a cash back card directly from Amex one has up to 6% on the first 6000 purchased at super markets.
Click to expand...
Our travelling back to CA makes the points totally worth it at this point. I am a huge fan of the cashback cards though. Free money is the best money.

Also, how much food do you buy?
 
Serial Midget

Serial Midget

Al Bundy
Jun 25, 2002
13,053
1,896
Fort of Rio Grande
To take full advantage of the cash economy it is best not to leave a paper trail... that said I have a Discover cash back card that maybe earns 30 or 40 bucks ayear. Not really worth the effort plus I tend to spend more when I use plastic other than the debit card. I'm pretty sure I spend far less money than those with mortgages, car payments, children and such. I once heard that children need to be fed, often.
 
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