This week I had the privilege of giving a one-hour presentation to undergraduate students of QUT on how to become wealthy. I started with a quiz to test their level of knowledge – it’s below, so please have a go for yourself.
Question one. What are the two major financial challenges facing the world right now?
Question two. You take out a loan of $15,000 to buy a car. What factor will have the most impact on the interest and charges you will pay. Is it the interest rate, the term of the loan, or the fees?
Question three. You are left $100,000 worth of blue-chip shares, which you intend to keep long-term. You’re earning $30,000 a year in a casual job while you are studying. You receive franked dividends of $3000 from those shares this year. How much tax will you have to pay on that investment at the end of the financial year?
Question four. What is the greatest financial asset everybody in the room has?
Here are the answers:
Question one. Rising life expectancies and the fact that most governments in the world are heavily in debt and don’t have the resources to take care of an ageing population.
Question two. If you understand compound interest you will know that the interest rate is of little consequence if the term is relatively short. The key answer is the length of time of the loan.
Question three. The answer is zero tax. In your tax bracket, franked dividends are tax-free, and no capital gains tax is payable until you dispose of the shares, which is not your intention.
Question four. The answer is time for compound interest to work its magic. As I said to the students, mostly aged around 20, they may well have 100 years of investing ahead of them. Wow!