Basic Financial Concepts Research Articles

Application of Generalized Binomial Distribution Model for Option pricing

In this work, the Generalized Binomial Distribution (GBD) combined with some basic financial concepts is applied to generate a model for determining the prices of a European call and put options. To demonstrate the behavior of the option prices (call and put) with respect to variables, some numerical examples and graphical illustration have been given in a concrete setting to illustrate the application of the obtained result of the study. It was observed that when there is an increase in strike prices, it leads to decrease in calls option price C(0) and increase in puts option price P(0). Decrease in interest rate leads to decrease in calls option price P(0), and increase in puts option price P(0), and decrease in expiration date leads to decrease in calls option price C(0) and decrease in puts option price P(0). It was also found that the problem of option price can be approached using Generalized Binomial Distribution (GBD) associated with finance terms.

The Good Investment.

The authors reflect on the article in this issue entitled "Borrow or Serve? An Economic Analysis of Options for Financing a Medical School Education" by Marcu and colleagues, which makes a compelling case that a medical school education is a good investment, no matter what financing option students use, from federal service programs to federal loans. The lead author of this Commentary shares lessons learned from his own medical school education, which was funded by an Armed Forces Health Professions Scholarship, and from his current position interacting with medical students across the United States.Regardless of the financing path they choose, all students should understand basic financial concepts and the details of the various pathways that are available to pay for their medical school education, as well as how each could potentially impact their own future and that of their families. One underappreciated aspect of financing a medical school education is that federal repayment scenarios can link loan payments to income, rather than debt levels, which means that all physicians are able to afford their loan payments no matter what specialty they practice, what they are paid, or where they live.Medical education, while expensive, remains the good investment. An MD degree can lead to a lifetime of personal fulfillment and societal contributions. Everyone, with rare exceptions, accepted to a U.S. medical school will be able to finance their medical education via a path that aligns with their personal values and priorities.

Segmentation of Georgian Population According to Financial Capabilities and Money Management Style

The purpose of the article is based on the latest literary sources and rich factual materials, based on the peculiarities of the financial behavior of the Georgian population, implementation of its segmentation according to the financial capabilities and money management style. As a result of the survey, 6 segments of the Georgian population are presented according to their financial capabilities, which are united under the following 3 relevant socio-economic statuses: Financially adapted socio-economic status (28.3% of the population); financially more or less adapted socio-economic status (35.9%); financially poor economic status (32.4%). During the study process, 23 regulations related to money management were used, which made it possible in depth study of the money management ways spread in the population. Based on the analysis of the answers received on the above mentioned 23 provisions, it is separated 6 segments according to money management style in Georgia: Financially Responsible (34% of the population), Having financial Fears (22%), Having business thinking (12%), Loaded with debt (16%), Spender 11%), and Shopaholic (5%). The important aspects of financial behavior are discussed in the article, such as the knowledge of basic financial concepts and the ability to use in real life, personal and management of household finances, set financial goals and make concrete steps to achieve them, saving and budgeting, preparedness for financial surprise and pension age, borrow and debt management, awareness and use of financial products.

Financial literacy among Mexican high school teenagers

Financial literacy has become an increasingly important ability in today’s complex world. Young people are among the least financially literate demographic groups. In this paper we present the results of a financial literacy survey conducted among high school students in Mexico City, the first effort to measure financial literacy among teenagers in Mexico. The survey is based upon the instruments developed by OECD and Lusardi and Mitchell’s approach. Our results show low levels of financial literacy: 60% of the students surveyed understood the concept of inflation, 34.1% correctly answered the question about risk diversification, and only 31.7% correctly answered the question about compound interest. The OECD questions showed that less than 1 in 5 students understands basic financial concepts, around 57% get high scores on financial behavior, and about 70% have positive financial attitudes. We did not find generalized gender differences, though women score a bit higher on the OECD measure mostly due to a better financial behavior. We also did not find differences between private and public schools, or by household income.

Improved Financial Capability Can Reduce Material Hardship among Mothers.

This study draws on the theoretical framework of financial capability in investigating whether financial access (that is, availability of financial products and services) and financial knowledge (that is, understanding of basic financial concepts) can influence the risk of material hardship. Authors examine the possibility of direct associations as well as of indirect ones in which financial management (that is, individual financial behaviors) serves as a mediator. The probability sample of mothers with young children born in Oklahoma during 2007 (N = 2,529) was selected from Oklahoma birth certificates. Results from structural equation modeling analyses show that financial access is positively associated with financial management (p < 0.001) but that financial knowledge is not; both financial access (p < 0.001) and financial management (p < 0.001) are negatively correlated with material hardship. Similar results are obtained from analyses with a subsample of low-income mothers. Findings suggest that financial capability, particularly the financial access component, is critical for improving financial management and reducing the risk of material hardship among mothers with young children, including low-income mothers. Efforts to promote financial capability offer social workers an important strategy for improving their clients’ economic well-being.

How Financially Literate Are Women? An Overview and New Insights

We document strikingly similar gender differences in financial literacy across countries. When asked to answer questions that measure knowledge of basic financial concepts, women are less likely than men to answer correctly and more likely to indicate that they do not know the answer. Both young and old women show low levels of financial literacy. Moreover, women for whom financial knowledge is likely to be very important—for example widows or single women—also know little about concepts relevant for day‐to‐day financial decisions. The gender differences are present for very basic as well as more advanced measures of financial literacy. This is important because financial literacy has been linked to economic behavior, including retirement planning and wealth accumulation. Women live longer than men and are likely to spend time in widowhood. Thus, improving women's financial literacy is key to helping them prepare for retirement and promoting their financial security.

FINANCIAL MANAGEMENT SKILLS AMONG KINDERGARTEN TEACHERS IN SELANGOR

Although financial management is one of the most important skills in life, its importance is still not being recognized by society due to lack of exposure. Few studies address this issue. This study aims at identifying financial management skills among kindergarten teachers in Selangor. This study involved 60 teachers from selected kindergartens in Selangor. It is conducted to determine the level of financial literacy and financial management skills among kindergarten teachers. The research used quantitative methodology and data were analyzed using descriptive methods. The results of this study showed that kindergarten teachers have a high level of financial literacy and financial management skills especially in basic financial concepts involving expenses and savings. The findings also showed that there were differences between the level of financial management skills of urban and rural kindergarten teachers especially in the aspect of credit management.

Making the Case for Customer Prototyping for Financial Planners to Increase Savings Behavior

Evidence has shown that personal savings behaviors are at low levels for individuals within the United States, with the problem only being enhanced by low levels of financial literacy among the general population. Failure to properly plan for retirement, unemployment, poor borrowing strategies, and debt are all attributed to ignorance of basic financial concepts. While steps have been taken to analyze effectiveness and promote financial education and literacy, it solves only one facet of improving savings behavior. Thus, privatesector financial planning firms need to implement customer prototyping on the microeconomic level to improve savings behavior of individuals of varying market segments.

Onward: Propelling hospital pharmacy technician roles forward

Medication histories One important area in which pharmacy technicians can expand their roles is in taking patients’ medication histories. Adequate training is necessary, of course. In addition to directly interviewing a patient, the history-taking technician can call the community pharmacy or the pharmacy the patient uses and reconcile the results of the history with the refill and filling patterns. Technicians can effectively perform the bulk of the investigative work while the pharmacists can interpret and evaluate the history during the initial monitoring session.

Financial literacy: Do people know the ABCs of finance?

Increasingly, individuals are in charge of their own financial security and are confronted with ever more complex financial instruments. However, there is evidence that many individuals are not well-equipped to make sound saving decisions. This article looks at financial literacy, which is defined as the ability to process economic information and make informed decisions about financial planning, wealth accumulation, debt, and pensions. Failure to plan for retirement, lack of participation in the stock market, and poor borrowing behavior can all be linked to ignorance of basic financial concepts. Financial literacy impacts financial decision making, with implications that apply to individuals, communities, countries, and society as a whole. Given the lack of financial literacy among the population, it may be important to remedy it by adding financial literacy to the school curriculum.

Financial Literacy and High-Cost Borrowing in the United States

In this paper, we examine high-cost methods of borrowing in the United States, such as payday loans, pawn shops, auto title loans, refund anticipation loans, and rent-to-own shops, and offer a portrait of borrowers who use these methods. Considering a representative sample of more than 26,000 respondents, we find that about one in four Americans has used one of these methods in the past five years. Moreover, many young adults engage in high-cost borrowing: 34 percent of young respondents (aged 18-34) and 43 percent of young respondents with a high school degree have used one of these methods. Using well-tested questions to measure financial literacy, we document that most high-cost borrowers display very low levels of financial literacy, i.e., they lack numeracy and do not possess knowledge of basic financial concepts. Most importantly, we find that those who are more financially literate are much less likely to have engaged in high-cost borrowing. Our empirical work shows that it is not only the shocks inflicted by the financial crisis or the structure of the financial system but that the level of financial literacy also plays a role in explaining why so many individuals have made use of high-cost borrowing methods.

THE RELATION BETWEEN FINANCIAL KNOWLEDGE AND ECONOMIC DECISIONS

Nowadays policymakers, government agencies and educators in Poland and in many European countries emphasize the role of individual possibilities to take independent decisions regarding one’s financial resources. Consequently, the increased interest in financial education programs is observed. Moreover, the complexity of financial products further demonstrates the need for a financial knowledge when making decisions in this sphere. However, simultaneously, the common observation of numerous examples of irrelevant decision-making, consequently leading to financial (e.g. abundant debt) or professional (e.g. loss of work) problems as well as results of studies on the level of financial knowledge show that in many cases our society, most probably, does not have the indispensable level of analyzed knowledge. The article presents results of 2 studies on the relation between financial knowledge and economic decisions made by Polish young adults. The study 1 focuses on the correlation between financial knowledge and saving decisions while the study 2 financial knowledge and respondents debts. In both studies the level of financial knowledge was measured by the test relating to the current economic situation of Poland, knowledge of basic economic and financial concepts and understanding of basic market mechanisms. Specially designed questionnaires analyzed respondents’ savings (study 1) and debts (study 2) decisions. The results of those studies show that examined a group of Polish young adults has an average level of financial knowledge. Moreover, the first study found positive correlation (on the level of statistical trend) between financial knowledge and savings decisions. The results of study 2 showed the higher financial knowledge among people who took credits or loans from bank in comparison with people who take credit and loans outside the banking system. Results obtained in the studies reinforce the idea of the important role of financial education in preparing young people to make their own economic decisions. Key words: debt, financial education, financial knowledge, saving, young people.

How Financially Literate Are Women? An Overview and New Insights

We document strikingly similar gender differences in financial literacy across countries. When asked to answer questions that measure knowledge of basic financial concepts, women are less likely than men to answer correctly and more likely to indicate that they do not know the answer. In addition, women give themselves lower scores on financial literacy self-assessments than men. Both young and old women show low levels of financial literacy. Moreover, women for whom financial knowledge is likely to be very important — for example widows or single women — know little about concepts relevant for day-to-day financial decisions. Even women in favorable economic conditions are less financially knowledgeable than men. This is important because financial literacy has been linked to economic behavior, including retirement planning and wealth accumulation. Women live longer than men and are likely to spend time in widowhood. As a result, improving women’s financial literacy is key to helping them prepare for retirement and promoting their financial security.

Financial Literacy: Do People Know the ABCs of Finance?

Increasingly, individuals are in charge of their own financial security and are confronted with ever more complex financial instruments. However, there is evidence that many individuals are not well-equipped to make sound saving decisions. This paper looks at financial literacy, which is defined as the ability to process economic information and make informed decisions about financial planning, wealth accumulation, debt, and pensions. Failure to plan for retirement, lack of participation in the stock market, and poor borrowing behavior can all be linked to ignorance of basic financial concepts. Financial literacy impacts financial decision-making, with implications that apply to individuals, communities, countries, and society as a whole. Given the lack of financial literacy among the population, it may be important to remedy it by adding financial literacy to the school curriculum.

An Evaluation of Financial Literacy in Elementary Schools towards Financial Education Enhancement: A Case Study of Baltimore Public Schools

Financial literacy education has traditionally never been a major subject area in most public schools in Maryland. With the unanticipated struggling of the United States of America (USA) Economy, Maryland (one of the richest states in the USA and its residents, especially of its major urban city, Baltimore, is facing severe family and personal financial crisis. This unanticipated financial crisis characterized by declining family and personal savings, mortgage defaults and foreclosures, and tenant evictions due to rent defaults is motivating educators, business entities, and politicians to develop education strategies to educate children from future financial crisis. Although there is an overwhelming consensus for providing financial education as a major curriculum to our schoolchildren, the practicability of most curriculums is obscure. To develop a practical approach to teaching financial literacy in elementary schools, an assessment using a Grid Familiarity Rating Chart (Very Familiar – Not Familiar) of basic financial and economics concepts was assigned to 210 students (4th – 5th graders) in four inner city schools. Students received information to place a check mark by each concept if they are very familiar or familiar with the concept. Results revealed that 97% of the students were very familiar or familiar with the basic financial concepts as compared to 49% of the students who were very familiar or familiar with basic economic concepts. Even when students were encouraged to explain their very familiar or familiar concepts, 80% provided explanations that were accurate or almost accurate for basic financial concepts as compared to 20% accuracy for explanations with basic economic concepts. Conclusively, the most basic economic concepts (scarcity, choice, and opportunity cost), which are essential decision making tools for most financial decisions should be simplified and included in financial education lesson plans.

Impaired financial abilities in Parkinson's disease patients with mild cognitive impairment and dementia

PurposeFinancial capacity (FC) is an instrumental activity of daily living (IADL) critical to independent functioning and sensitive to cognitive impairment in dementia. Little is known about FC in cognitively impaired patients with Parkinson's disease (PD). The present study investigated FC in PD patients with prodromal and clinical dementia. MethodsParticipants were 20 older controls and 35 PD patients who met consensus criteria for either mild cognitive impairment (PD-MCI, n = 18) or PD dementia (PDD, n = 17). FC was assessed using a standardized performance based measure consisting of 9 domain and two global scores (Financial Capacity Instrument; FCI) (1). FCI domain and global performance scores were compared across groups. Capacity impairment ratings (no impairment, mild/moderate impairment, severe impairment) were calculated for each PD patient's domain and global scores. ResultsRelative to controls, PD-MCI patients were impaired on both FCI global scores and domains of basic monetary skills, financial concepts, and investment decision-making. Relative to both controls and PD-MCI patients, PDD patients were impaired on virtually all FCI variables. With respect to impairment ratings, greater than 50% of PD-MCI patients and greater than 90% of PDD patients were classified as either mild/moderate or severely impaired on the two FCI global scores. ConclusionsImpairment of financial capacity is already present in PD-MCI and is advanced in PDD. Complex cognitively-mediated IADLs such as financial capacity appear to be impaired early in the course of PD dementia.

Financial Literacy and Retirement Planning in Switzerland

We use a representative survey covering 1,500 households to document the level of financial literacy in Switzerland and to examine how financial literacy is related to retirement planning. We measure financial literacy with standardized questions that capture knowledge about three basic financial concepts: Compound interest, inflation, and risk diversification. We measure retirement planning by the incidence of a voluntary retirement savings account. Our results show that financial literacy in Switzerland is high by international standards--a result which is compatible with the high ranking of Switzerland on the PISA mathematical scales. Financial literacy is lower among low-income, less-educated, and immigrant, non-native-speaking households as well as among women. We find that financial literacy is strongly correlated with voluntary retirement saving. Our results also show that financial literacy is correlated with financial market participation and mortgage borrowing.

AFP Innova: competing in a tender for new affiliates

Subject area The concepts of customer lifetime value (CLV) and customer equity (CE). Study level/applicability BA, MBA, MSc courses: customer equity, marketing metrics, marketing plan, marketing research. Because students are asked to complete a customer lifetime value analysis based on a range of financial and non-financial data, students will need at least a modest level of proficiency in dealing with a few basic financial accounting concepts. Case overview In Chile, a law passed in 2008 introduced a bidding process to be held every 24 months in the pension industry. The tender mechanism was introduced as part of a reform aimed at reducing the commissions charged by pension fund administrators and at making it easier for new players to enter the market. In early 2009, Daniel Ugarte wondered if it was finally the right time for his firm to enter the pension industry. Ugarte was asked by the board to help chart a direction for the firm. The winning criterion was the lowest management fee (commission) paid by the affiliates. The main focus of the case is a quantitative assignment that asks students to calculate how customer lifetime value (CLV) and customer equity (CE) would be affected by the commission offered. Expected learning outcomes These include: understanding the concepts of customer lifetime value (CLV) and customer equity (CE) and the importance of maximizing a customer's lifetime value for the firm by calculating the CLV and the CE based on a combination of financial and non-financial data. Supplementary materials Teaching notes are available. Consult the librarian for access.

Financial literacy among the educated: An exploratory study of selected university students in South Africa

AbstractThe challenges associated with financial illiteracy are increasingly becoming a topical issue. Consequently, there is a growing body of literature explaining the antecedents and consequents of financial illiteracy. While most of these studies report on the experience from the developed world, very little is known on the subject matter in emerging economies. This study attempts to address this paucity in the body of knowledge by investigating the nature and extent of financial literacy in South Africa. Given that the literature acknowledges that financial illiteracy is a problem faced across the entire spectrum of society, including the uneducated and the educated, this study investigates financial illiteracy among university students, a section of the South African population that could be classified as being educated. A self‐administered financial literacy scale was administered to a sample of 214 students from a large South African metropolitan university. Overall, results indicate moderate levels of financial illiteracy; suggesting that even among the educated, there is a need to reinforce basic financial concepts. Some implications for financial service providers in interacting with literate consumers who may be financially illiterate are provided. © 2012 Wiley Periodicals, Inc.

Financial Literacy and Retirement Savings in Germany

The German pension reforms in 2001 and 2004 increased the importance of private supplemental savings for retirement. Calculating the appropriate retirement income needed and choosing the right product postulates some degree of financial knowledge, also referred to as financial literacy. This paper investigates the relationship between financial literacy and private retirement savings. Germans seem to have a good grasp of basic financial concepts. However, individuals with low education face some problems and at the same time seldom possess a private retirement account. This is different for women, who are less literate than men, but not less likely to save for retirement.