Are you a money matters genius?

by Scott Pape |February 8th 2007

It’s enough to give Baby John Burgess a severe dose of green room envy – this year’s television line-up seems to be all about game shows.

With millions of dollars on the line, both in advertising revenue and potential payouts, the networks have done their research – so thankfully Hot Dogs will remain hosting the graveyard shift, and Tony Barber will continue hosting celebrity cruises.

Television network chiefs have a knack for knowing what the great-unwashed want, and this year it’s all about applying your knowledge for the opportunity to make big bucks – which coincidentally is right up Barefoot’s alley.

So let’s jump on the bandwagon and introduce the Barefoot Quiz, a collection of questions that test your financial knowledge – the dirty dozen if you will.

Sure, at the end of it Eddie won’t sign you a cheque, but get enough of these right and you’ll (eventually) be signing your own cheques.

Question 1:

No matter how hard you try you just can’t seem to tame your credit card. Making the minimum repayment on your $1000 balance, how long will it take to repay the debt – and how much interest will you eventually pay?

(A) Five years & $545 in interest
(B) Seven years & $745 in interest
(C) Eleven years & $860 in interest

Question 2:

You operate a small business as a talent manager for ex-reality television stars. The kickbacks from Sarah Marie’s autobiography aren’t enough to stem the losses and consequently your company faces bankruptcy. Can your creditors make a claim on your personal superannuation?

(A) Yes
(B) No

Question 3:

You invite your financial planner to dinner and he pulls up in a Ferrari. After dinner you get out your files and see that the share fund that you currently have $100,000 invested in on his recommendation is charging you 2 per cent per annum. After five minutes surfing the web you realise you can cut out the middleman and buy the same fund from a discount broker for 1 per cent. Over 20 years how much can this save you?

(A) $85,231
(B) $90,364
(C) $120,364

Question 4:

You are 60 years old and set to receive the gold watch in September. What rate of exit tax is levied when you start drawing down on your superannuation?

(A) Zero
(B) 10 per cent
(C) 15 per cent

Case study: I’m too sexy…

The gang from Britband Right Said Fred come to you in 1991, the year after their single I’m too Sexy smashed the charts all over the world. They plan to use their profits ($100,000) to make another album. Listening to their music you realise this would be a big mistake and instead suggest investing the $100,000.

Question 5:

How much would the $100,000 be worth today (15 years later) if it had been invested in cash?

(A) $105,381
(B) $178,543
(C) $234,112

Question 6:

How much would the $100,000 be worth today (15 years later) if you had have bought a Melbourne property? (source REIV)

(A) $253,586
(B) $684,345
(C) $984,032

Question 7:

How much would the $100,000 be worth today (15 years later) if it had been invested in Australian shares?

(A) $384,500
(B) $545,000
(C) $616,252

Question 8:

In the lead-up to the new millennium you fell for the Y2K bug hook line and sinker. You withdrew your life savings ($10,000) and placed it under your bed for safekeeping. What is the present day purchasing power of that money?

(A) $6,546
(B) $7,962
(C) $10,000

Question 9:

A 30-year-old bloke picks up a book called The Barefoot Investor and decides to start saving $50 each week. He invests his savings in a share fund that averages a 10 per cent return. At age 60 he will have built up a nest egg of $415,000. Yet how much would he have if he had started the plan at age 21 when he first got his job?

(A) $600,000
(B) $723,000
(C) $1,014,000

Question 10:

You’ve decided to start saving for a home. Based on an average price of $380,000 (which should get you a nice two-bedroom brick veneer – in Bendigo). Assuming you don’t fall for the ‘no money down’ financing tricks, how much will you need to save to purchase your property?

(A) $38,000
(B) $45,892
(C) $66,234

Question 11:

You’ve kissed a lot of frogs to get to your prince. Unfortunately your latest boyfriend has a credit card debt of $15,000 – which you knew nothing about until he croaked last month. Who is legally bound to pay off his credit card debt?

(A) You
(B) His estate, and, if there is no money – no one.
(C) His parents

Question 12:

Who am I? I was born in Omaha, Nebraska on January 1 1924, where I still live today. I am a self-made billionaire investor who is a director of a very successful investment company. I tend to stay out of the spotlight, letting my partner take all the accolades. Still, many people believe that the $US100,000 salary I am paid for my investment advisory services has generated billions of dollars in returns for my shareholders over the years.

I am:
(A) Donald Trump
(B) Warren Buffett
(C) Charlie Munger

This quick quiz highlights many of the cornerstones of wealth – the dramatic wealth-building effects of compound interest, responsible debt management and the importance of choosing your investments wisely. Even those people who struggle with Bert’s Family Feud can become wealthy, by mastering these simple subjects, and importantly applying them to their situation.