1. Life Impact | The University of Adelaide University of Papua New Guinea Professional Skills An introduction to financial literacy

2. University of Papua New Guinea Slide 1 Professional Skills Session: An introduction to financial literacy Michael Cornish Overview What is financial literacy? A quick example: buying a car Creating a budget Saving versus investing Investing –Reading the stock market pages –Understanding exchange rates

3. University of Papua New Guinea Slide 2 Professional Skills Session: An introduction to financial literacy Michael Cornish What is financial literacy? Financial literacy: The ability to understand how money works in the world Includes subjects like: –Buying and selling (cleverly!) –Budgeting –Saving –Investing

4. University of Papua New Guinea Slide 3 Professional Skills Session: An introduction to financial literacy Michael Cornish A quick example: buying a car What are the financial issues you would need to consider when buying a car?

5. University of Papua New Guinea Slide 4 Professional Skills Session: An introduction to financial literacy Michael Cornish A quick example: buying a car Did you think of all of these? –Researching the market –Finding a good seller –Negotiating a price –How will you finance your purchase? –What insurance should you have? –Can you afford a car? (maintenance, registration, repairs, fuel, insurance, loan interest, etc…!) Decisions about money can be complex!!

6. University of Papua New Guinea Slide 5 Professional Skills Session: An introduction to financial literacy Michael Cornish Creating a budget The first thing you need to know is – what are your goals? You may have many! E.g.: –Buying a car? –Buying a house? –Doing more study? –Saving for your children’s education? –Saving for retirement?

7. University of Papua New Guinea Slide 6 Professional Skills Session: An introduction to financial literacy Michael Cornish Creating a budget A budget can help you plan and strategise to reach your goals At its simplest, a budget is just a list of: –All your income over a particular time period –All your expenses over the same time period Just like in economics! π = TR – TC! »Let’s do a budget together…

8. University of Papua New Guinea Slide 7 Professional Skills Session: An introduction to financial literacy Michael Cornish Creating a budget Of course, there’s no point in creating a budget unless you stick to it! –Obviously there will occasionally be unexpected expenses, but you should – as much as possible – try to include these in your budget –E.g. ‘Family responsibilities’ But make ACTIVE choices!

9. University of Papua New Guinea Slide 8 Professional Skills Session: An introduction to financial literacy Michael Cornish Creating a budget Essentially, being good with your money is about self-control »Do you want to be in control of your personal finances, or do you want your personal finances to be in control of you?

10. University of Papua New Guinea Slide 9 Professional Skills Session: An introduction to financial literacy Michael Cornish Creating a budget If you are impulsive with your spending decisions, you should – if you can – try to constrain your spending choices in advance –E.g. Get money taken out of your pay that goes into a savings or investment account –E.g. Only take money to the shops that you can afford to spend

11. University of Papua New Guinea Slide 10 Professional Skills Session: An introduction to financial literacy Michael Cornish Saving versus investing Saving is the passive accumulation of money –E.g., just putting money into a bank account Investing is the active accumulation of money –E.g. putting money into something for which you expect to receive growth in your capital, a return on your money, or both

12. University of Papua New Guinea Slide 11 Professional Skills Session: An introduction to financial literacy Michael Cornish Saving versus investing One basic secret to both saving AND investing: »COMPOUND INTEREST!

13. University of Papua New Guinea Slide 12 Professional Skills Session: An introduction to financial literacy Michael Cornish Investing Basic rule: risk versus reward –Generally, the higher the potential reward, the higher the risk I.e., if someone wants money for a small business start-up, they will need to be able to offer a higher return than a more stable investment

14. University of Papua New Guinea Slide 13 Professional Skills Session: An introduction to financial literacy Michael Cornish Investing Some basic ‘asset classes’ [from lower risk to higher risk]: –Cash: Savings accounts, term deposits –Bonds: Government bonds, corporate bonds –Property: You know this one!

15. University of Papua New Guinea Slide 14 Professional Skills Session: An introduction to financial literacy Michael Cornish Investing Some basic ‘asset classes’ (cont.): –Shares: Domestic, international, index funds –Commodity exchanges: Gold, oil, etc. –Business: Loans, equity partner, owner-operator –Financial derivatives: Options, warrants, futures

16. University of Papua New Guinea Slide 15 Professional Skills Session: An introduction to financial literacy Michael Cornish Investing Reading the stock market pages »Let’s look at the newspaper! Understanding exchange rates »Let’s look at the newspaper!