## Ready for a quick quiz?

Two-thirds of the world can’t pass this financial literacy test.  Can you?  You don’t need a calculator, just 3-5 minutes of time.

Risk Diversification: Suppose you have some money to invest.  Is it safer to put your money into one business, piece of real estate or investment or to put your money into multiple businesses or investments?

a)One business, piece of real estate or investment

b)Multiple businesses, pieces of real estate or investments

Inflation:  Suppose over the next 10 years, the cost of things you buy including housing, food, taxes and health care and all others 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?

a)Less

b)The same

c)More

Mathematics: Suppose you need to borrow \$100 for one year.  Which is the lower amount to pay back: \$105 or \$100 plus 3% interest?

a)\$105

b)\$100 plus 3% interest

Compound Interest:  Suppose you put money into a bank and the bank agreed to pay 3% interest per year to your account.  Will the bank add more money to your account in the second year than the first year, or will it add the same amount of money for both years?

a)The same

b)More

Compound Interest II:  Now suppose you have \$100 to invest in a (very aggressive) bank who will pay you 5% interest per year.  How much money will you have in your account in 5 years if you do not remove any of the principal or earned interest from the account?

a)Exactly \$125

b)More than \$125

c)Less than \$125

Pretty simple, right.  The answer is b for all.  We’re sure our regular DWM blog readers got them all right.

Across the world, however, the 150,000 people who took the test didn’t do so well.  Two-thirds of them answered at least 2 of the 5 questions incorrectly.  The survey pointed out some key findings.  Norway has the greatest share of financially literate people worldwide.  Canada, the UK, the Netherlands and Germany also finished in the top 10. The U.S. didn’t.

In the Emerging Market countries, like China, India, Brazil and Russia, the young people, ages 15 to 35 were the most financially literate.  Apparently the kids in Shanghai “knocked the cover off the ball” (just like George Springer of the Astros).

So, what’s the takeaway? Financial literacy for Americans could use improvement.  In addition, as we pointed out in our blog two weeks ago highlighting Nobel Prize winner Richard Thaler, people, even if they are financially literate, can make systematically irrational decisions.  This means you may need a financial coach and advocate.  That’s what we are for our DWM clients.  Whether it’s professional investment management, financial decisions and planning, income tax planning, insurance and estate planning matters, we provide our financial literacy, rational analysis and proactive solutions and suggestions.  It’s our expertise and our passion.  At DWM, this is how we hit home runs!

## A Christmas Carol: Oil-Style

I was awakened the other night by the Ghost of Christmas Past. He brought me back to times when a gallon of gas was over \$4 and it cost me around \$75 to fill up my car. He reminded me how back then we didn’t yet have today’s fracking methods of obtaining what was hard-to-extract oil from our American land. He also reminded me that the demand for oil was much stronger then, thanks largely to China’s growing needs. He showed me how it wasn’t so bad in that a new alternative energy industry was born with innovative companies working on hybrids, electric cars, and other things.

Then – poof – he was gone.

I regained my composure and wondered if what had happened was really true or just a dream. But before long another Ghost appeared: The Ghost of Christmas Present (“TGOCP”). TGOCP took me to the nearest gas station where I saw people with big grins on their faces filling up their cars for an average of \$2.51/gallon (according to AAA). He urged me to fill up my car, that same car, that used to cost \$75 to fill in years past. Low and behold, it only cost me about \$40. Wow! That’s \$35 I can spend on something else, TGOCP told me, stuff like clothes, smartphone gadgets, to use at the movies, or to eat out. If you’re like me and fill up at least once per week, this extra dough really can make a difference. TGOCP told me that basically this drastic reduction in oil prices is essentially a bump in salary for most Americans as it leads to more fun ways to spend our discretionary incomes. He flew me over to the nearest Wal-Mart and I saw delighted shoppers spending this extra money on all kinds of things! Wow, I thought to myself, stocks of retailers like Wal-Mart and Target must be really benefitting from this…

I told him how great this was and asked him to show me more, which he did by taking me to Norway. Not so many happy faces there. He said that this crash in oil prices isn’t a win for everyone. He told me that the big losers in all of this are oil exporters like Norway for whom commodity exports are some 20% of GDP. And that the currencies of oil producing nations, like Russia and Nigeria, get whacked in times like these which leads to drastic measures like Russia raising its key interest rate to 17% from 10.5% after the ruble’s sharpest daily drop against the dollar in more than a decade. Then he flew me to Wall Street where he showed me how this destabilization makes traders very nervous with the thought that it could lead to political unrest. He reminded me that there is always the fear that weakness overseas can wind up hurting the US since we are now such a global economy. While at the NYSE, he pointed out the share prices for energy companies and how many of them had fallen big time. He also pointed out the drop in high-yield bond prices as many of the companies in that space are linked to energy.

Yikes, stocks and bonds falling?!? Wake me up from this nightmare! Then – poof – he was gone.

I got a grip and assured myself that all of this was a silly dream, only for the Ghost of Christmas Future to come walking through my bedroom door. He said something about Marley this or Jacob that, and then grabbed me and brought me to Washington D.C. where some future Federal Open Market Committee (“FOMC”) meeting was taking place. Not sure how far off in the future this was, but Janet Yellen was talking about raising interest rates yet again. She was saying how these low oil prices were helping the American consumer appetite and keeping our economy heated to the point that they could continue to raise rates. Ghost of Christmas Future chimed in saying that he and his buddy Marley had been traders before and they don’t like talk of Fed interest rate increases…

I awoke. This time for real. It was the morning of December 17, 2014 and the Fed was going to conclude its FOMC meeting that afternoon. I pondered if these revelations were anything to hold a candle to and I awaited this afternoon’s FOMC remarks….

Editor’s Note: Oil is definitely a hot topic now and will probably be for a long while. We’ll keep our clients informed where necessary. In the meantime, have an excellent Holiday season and try to get out and see the real Christmas Carol, a Detterbeck family tradition for many, many years.