Are You Financially Literate?
If you’ve ever paid attention to any report on financial literacy from around the world, you’ll likely know that the results aren’t exactly awe-inspiring.
For example, according to one global survey, only about 33% of adults are financially literate.
Americans tend to fare better on average, but not as much as you might imagine. In fact, as we showed in our infographic on the Financial Literacy Problem, one ongoing survey actually sees average U.S. performance slowly dropping over time.
It raises the question: what do people actually know about money, investing, and wealth?
A recent poll by Lexington Law aimed to get a sense of U.S. financial literacy, with a focus on basic investment knowledge on stocks, bonds, and building a safe portfolio.
Specifically, it asked 4,000 Americans four different multiple choice questions:
- What is the safest investment type?
- What happens to bond prices when interest rates rise?
- What is a bull market?
- What happens to your stock if a company goes bankrupt?
If you think you know the answers to even two of these questions, you are off to a good start!
The survey ultimately found that the average score on this test was 48.8% – meaning that Americans get slightly fewer than two questions correct on average.
Question #1: Safest Investment
Based on the options provided on the multiple choice, the correct answer was Treasury Bonds. Roughly 53% of Americans would get this right, if asked.
Question #2: Bond Prices
Only 25% of respondents said that bond prices would decrease if interest rates rise, which is the correct answer. To be fair, this relationship is somewhat counterintuitive.
Question #3: Bull Market
With the current bull market becoming the longest in history this month, this terminology has been all over the news. That said, just 53% of respondents understood a bull market to be a period in which stock prices are expected to rise.
Question #4: Bankruptcy
If you own a stock and the company goes bankrupt, what happens? Interestingly, people fared best on this question, with 64% realizing that the stock becomes “virtually worthless”. It’s worth noting, however, that a 64% success rate is still the grading equivalent of a “D”.
How did you do on this test – are you financially literate about investments? Where did you go wrong?
If you need to brush up on investing knowledge, don’t forget to visit our Wealth 101 project that features easy-to-use infographics about personal finance topics.
Which Countries Are the Biggest Boost or Drag on the EU Budget?
As Brexit looms, the EU budget is under the microscope. Learn which countries contribute the most—and least—to the bottom line in this chart.
Which Countries Are the Biggest Boost or Drag on the EU Budget?
With 28 countries and over €15.8 trillion in 2018 GDP (PPP) to its name, there’s no doubt the European Union (EU) is highly influential in economics and politics. The “superpower” tackles a wide range of issues from climate change and health to external relations, justice, and migration.
Of course, the money required to address these concerns must come from somewhere—and that’s where the EU’s budget comes in. Each member state contributes revenue, but it’s been argued that not everyone is pulling their weight.
Today’s chart is based on budget data from the European Commission, and ranks the member states who contributed the most, and least, to the 2018 EU budget. Specifically, we’ve charted the net contributions—measured as the country’s total contribution less expenditures—on an absolute and per capita basis. We also break down the EU’s main revenue sources and areas of expenditure for the year.
An Unequal Share
Perhaps not surprisingly, Germany and the UK are the top 2 net contributors in absolute terms. Combined, these two powerhouses had a GDP (PPP) of over €5 trillion in 2018.
At the other end of the scale, Poland tops the list of net beneficiaries with a deficit of -€11,632 million—more than double that of second-place Hungary. In the wake of the European sovereign debt crisis, Greece and Portugal slide into fourth and fifth place respectively.
When population is taken into account, these rankings shift dramatically. Per capita, the Netherlands tops the list with €284 contributed per resident, whereas Luxembourg lands in last place with a deficit of -€2,710. The small country is home to many EU institutions, resulting in high administrative spending: in 2018, administration amounted to 80% of total expenditures.
Here’s a full ranking of the 28 member states, in both absolute (€M) and per capita (€ per resident) terms:
|Rank||Member State||Absolute net contribution (€M)||Member State||Per capita net
contribution (€ per resident)
|#1||🇩🇪 Germany||€17,213M||🇳🇱 Netherlands||€284|
|#2||🇬🇧 United Kingdom||€9,770M||🇩🇰 Denmark||€254|
|#3||🇫🇷 France||€7,442M||🇬🇧 Germany||€208|
|#4||🇮🇹 Italy||€6,695M||🇸🇪 Sweden||€196|
|#5||🇳🇱 Netherlands||€4,877M||🇦🇹 Austria||€174|
|#6||🇸🇪 Sweden||€1,983M||🇬🇧 United Kingdom||€147|
|#7||🇦🇹 Austria||€1,534M||🇫🇮 Finland||€123|
|#8||🇩🇰 Denmark||€1,468M||🇮🇪 Ireland||€112|
|#9||🇫🇮 Finland||€679M||🇫🇷 France||€111|
|#10||🇮🇪 Ireland||€542M||🇮🇹 Italy||€111|
|#11||🇲🇹 Malta||-€41M||🇪🇸 Spain||-€9|
|#12||🇨🇾 Cyprus||-€61M||🇨🇾 Cyprus||-€70|
|#13||🇪🇸 Spain||-€42M8||🇲🇹 Malta||-€85|
|#14||🇸🇮 Slovenia||-€471M||🇭🇷 Croatia||-€154|
|#15||🇪🇪 Estonia||-€516M||🇷🇴 Romania||-€155|
|#16||🇭🇷 Croatia||-€633M||🇨🇿 Czech Republic||-€201|
|#17||🇱🇻 Latvia||-€93M5||🇧🇬 Bulgaria||-€225|
|#18||🇧🇬 Bulgaria||-€1,585M||🇧🇪 Belgium||-€227|
|#19||🇸🇰 Slovakia||-€1,600M||🇸🇮 Slovenia||-€228|
|#20||🇱🇹 Lithuania||-€1,624M||🇸🇰 Slovakia||-€294|
|#21||🇱🇺 Luxembourg||-€1,631M||🇬🇷 Greece||-€298|
|#22||🇨🇿 Czech Republic||-€2,136M||🇵🇹 Portugal||-€305|
|#23||🇧🇪 Belgium||-€2,590M||🇵🇱 Poland||-€306|
|#24||🇷🇴 Romania||-€3,035M||🇪🇪 Estonia||-€391|
|#25||🇵🇹 Portugal||-€3,136M||🇱🇻 Latvia||-€483|
|#26||🇬🇷 Greece||-€3,202M||🇭🇺 Hungary||-€514|
|#27||🇭🇺 Hungary||-€5,029M||🇱🇹 Lithuania||-€578|
|#28||🇵🇱 Poland||-€11,632M||🇱🇺 Luxembourg||-€2,710|
It’s easy to see what the net beneficiaries might gain from the EU—but what about the top net contributors? Beyond straight budgetary allocations, member states have access to a single open market, and benefit from the political clout of 28 united countries, among other perks.
Following the Money
So, how does the EU collect its revenue, and what does it spend its money on? Revenue is broken down into four main categories:
- Value Added Tax (VAT)-Based Own Resource (2018 total: €17,600M)
Member states pay based on how much they receive in VAT. The VAT “base” is capped at 50% of a country’s Gross National Income (GNI), and a standard levy of 0.3% applies. Germany, the Netherlands and Sweden benefit from a reduced rate of 0.15% in an effort to re-balance their excessive contributions.
- Gross National Income (GNI)-Based Own Resource (2018 total: €105,800M)
Calculated as the difference between total expenditure and the sum of all other revenue, this revenue stream is the amount needed to balance the EU budget. The EU applies a standard percentage across member states, with Denmark, the Netherlands, and Sweden receiving a lump sum reduction in 2018.
- Traditional Own Resources (2018 total: €20,200M)
Member states collect customs duties and sugar levies, which goes directly towards the EU budget after the country deducts a 20% collection cost.
- Other Revenue (2018 total: €15,700M)
This consists of various items including taxes on EU workers’ salaries, interest on late payments and fines, and contributions from non-EU countries to research programs.
Revenue might also include a budget surplus from the previous year, or net adjustments made to previous years’ financials. On the other side of the budget, the EU has a wide variety of expenditures, broken down into six main categories:
- Smart and Inclusive Growth (2018 total: €75,900M)
This category focuses on boosting growth, creating jobs, and fostering economic and social cohesion through training, education, research, and social policy.
- Sustainable Growth: Natural Resources (2018 total: €58,000M)
The EU allocates funding for the sustainable growth of agriculture, rural development, and fisheries. It also finances programs dedicated to climate action.
- Security and Citizenship (2018 total: €3,100M)
Focused on the safety and rights of its citizens, this budget line item encompasses everything from migration and border protection to food safety and consumer protection.
- Global Europe (2018 total: €9,500M)
This covers all foreign policy, including international development and humanitarian aid.
- Administration (2018 total: €9,900M)
The expenditures of all EU institutions are captured under this heading, including staff salaries, building rent, information technology and training.
- Special Instruments (2018 total: €200M)
This area enables the EU to mobilize funds for unforeseen events, such as natural disasters and major world trade patterns that displace workers.
The 2018 budget resulted in a surplus of two billion Euros, but will it be balanced in future years?
The 2020 Budget and Beyond
The EU’s current budgetary framework ends in 2020. A proposal for the 2021–2027 budget has already been set forth, and council meetings are ongoing.
With Brexit’s twice-postponed deadline looming, the UK’s departure will leave a “sizable gap” in the EU budget. This could leave member states scrambling to find additional revenue sources and ways to reduce expenditures.
Visualizing the Life Cycle of a Mineral Discovery
Building a mine takes time that poses risks at every stage. This graphic maps a mineral deposit from discovery to mining, showing where value is created.
Visualizing the Life Cycle of a Mineral Discovery
Mining legend Pierre Lassonde knows a little bit about mineral exploration, discovery, and development. Drawing from decades of his experience, he created the chart above that has become a staple in the mining industry—the Lassonde Curve.
Today’s chart of the Lassonde Curve outlines the life of mining companies from exploration to production, and highlights the work and market value associated with each stage. This helps speculative investors understand the mining process, and time their investments properly.
Making Cents of Miners: The Stages of a Mineral Discovery
In the life cycle of a mineral deposit, there are seven stages that each offer specific risks and rewards. As a company proves there is a mineable deposit in the ground, more value is created for shareholders along the way.
This stage carries the most risk which accounts for its low value. In the beginning, there is little knowledge of what actually lies beneath the Earth’s surface.
At this stage, geologists are putting to the test a theory about where metal deposits are. They will survey the land using geochemical and sampling techniques to improve the confidence of this theory. Once this is complete, they can move onto more extensive exploration.
There is still plenty of risk, but this is where speculation hype begins. As the drill bit meets the ground, mineral exploration geologists develop their knowledge of what lies beneath the Earth’s crust to assess mineral potential.
Mineral exploration involves retrieving a cross-section (drill core) of the crust, and then analyzing it for mineral content. A drill core containing sufficient amounts of metals can encourage further exploration, which may lead to the discovery of a mineable deposit.
Discovery is the reward stage for early speculators. Exploration has revealed that there is a significant amount of material to be mined, and it warrants further study to prove that mining would be feasible. Most speculators exit here, as the next stage creates a new set of risks, such as profitability, construction, and financing.
This is an important milestone for a mineral discovery. Studies conducted during this stage may demonstrate the deposit’s potential to become a profitable mine.
Institutional and strategic investors can then use these studies to evaluate whether they want to advance this project. Speculators often invest during this time, known as the “Orphan Period”, while uncertainty about the project lingers.
Development is a rare moment, and most mineral deposits never make it to this stage. At this point, the company puts together a production plan for the mine.
First, they must secure funding and build an operational team. If a company can secure funding for development, investors can see the potential of revenue from mining. However, risks still persist in the form of construction, budget, and timelines.
Investors who have held their investment until this point can pat themselves on the back—this is a rare moment for a mineral discovery. The company is now processing ore and generating revenue.
Investment analysts will re-rate this deposit, to help it attract more attention from institutional investors and the general public. Meanwhile, existing investors can choose to exit here or wait for potential increases in revenues and dividends.
Nothing lasts forever, especially scarce mineral resources. Unless, there are more deposits nearby, most mines are eventually depleted. With it, so does the value of the company. Investors should be looking for an exit as operations wind down.
Case Study: The Oyu Tolgoi Copper-Gold Discovery, Mongolia
So now that you know the theoretical value cycle of a mineral discovery, how does it pan out in reality? The Oyu Tolgoi copper deposit is one recent discovery that has gone through this value cycle. It exemplifies some of these events and their effects on the share price of a company.
- Concept: 15+ Years
Prospectors conducted early exploration work in the 1980s near where Oyu Tolgoi would be discovered. It was not until 1996 that Australian miner BHP conducted further exploration.
But after 21 drill holes, the company lost interest and optioned the property to mining entrepreneur Robert Friedland and his company Ivanhoe Mines. At this point in 1999, shares in Ivanhoe were a gamble.
- Pre-Discovery/Discovery: ~3 years
Ivanhoe Mines and BHP entered into an earn-in agreement, in which Ivanhoe gained ownership by completing work to explore Oyu Tolgoi. A year later, the first drill results came out of drill hole 150 with a headline result of 508 meters of 1.1 g/t Au and 0.8%. To get a sense of how large this is, imagine the height a 45-story building, of which a third of story is copper. This was just one intersection of an area that could stretch for miles.
Wild speculation began at this stage, as steadily improving drill results proved a massive copper-gold deposit in Mongolia and drove up the share price of Ivanhoe.
- Feasibility/Orphan Period: ~2 years
In 2004, the drilling results contributed to the development of the first scoping study. This study offered a preliminary understanding of the project’s economics.
Using this study, the company needed to secure enough money to build a mine to extract the valuable ore. It was not until two years later, when Ivanhoe Mines entered into an agreement with major mining company Rio Tinto, that a production decision was finalized.
- Development: 7 years
By 2006, the Oyu Tolgoi mineral deposit was in the development phase with the first shaft headframe, hoisting frame, and associated infrastructure completed. It took another two years for the shaft to reach a depth of 1,385 feet.
Further development work delineated a resource of 1.2 billion pounds of copper, 650,000 ounces of gold, and 3 million ounces of silver. This first stage of development for Oyu Tolgoi made Mongolia the world’s fastest growing economy from 2009 to 2011.
- Startup/Production: Ongoing
On January 31, 2013, the company announced it had produced the first copper-gold concentrate from Oyu Tolgoi. Six months later, the company stated that it was processing up to 70,000 tonnes of ore daily.
- Depletion: Into the Future
The Oyu Tolgoi deposit will last generations, so we have yet to see how this will affect the value of the mine from an investment perspective.
It’s also worth noting there are still other risks ahead. These risks can include labor disruptions, mining method problems, or commodity price movement. Investors will have to consider these additional conditions as they pan out.
The More You Know
Mining is one of the riskiest investments with many risks to consider at every stage.
While most mineral discoveries do not match it perfectly, the Lassonde Curve guides an investor through what to expect at each stage, and empowers them to time their investments right.
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