The Finatical
Week of January 18th, 2021 - Financial Tech, Chinese Economic Downturn, Possible Fed Rate Hikes
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For all our new subscribers, The Finatical is Finatic’s weekly newsletter in which we break down a large financial concept, provide overviews of recent financial trends, highlight upcoming events, and include numerous resources and featured publications.
The Finatical is part of Finatic, a youth-led 501(c)(3) nonprofit organization hoping to demystify finance for youth around the world. Check out our work at finatic.org!
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FinaticTips - Learn about Financial Technology
Finances, in general, have become increasingly rooted in technology, from mobile banking to transferring money online, and yet while uptake of these technological initiatives has grown massively, literacy has struggled to keep pace.
Thankfully, resources online are plentiful, whether it’s online courses, videos, blogs, applications—whatever learning style works best for an individual, exists. Previously, with financial information being less accessible, it would often be the case that individuals would rely on either advice from friends or family or personal experience. Of course, today, with the increased availability of information pertaining to financial literacy, virtually anything can be learned from financial resources online.
These are some specific ways through which technology can be used for financial advancement:
Incorporating Financial Technology in Businesses
Business finances are becoming more reliant on technology as well. Transactions are faster and more secure, and all the information is available in an instant with easy adoption into a business model.
Many businesses are integrating their financial and accounting software and programs into their traditional enterprise resource planning (ERP) systems, which allows them to create models and predictive trends using their personal financial data. One thing that makes this possible is the increased ability to gather financial data. With a large portion of businesses of all sizes primarily operating digitally, this information can be collected and aggregated easily and effectively.
There are many ways that businesses can harness the power of this data in order to better understand their current state and where they are headed in the future.
Profit Tracking: Through understanding how your business earns its profits and the breakdown of its sources, it can help you better understand where the majority of your profits come from and your return on investment.
Accounts Payable: Integrating your purchasing data with your accounts payable data can help you better monitor your cash flow and help you process invoices and make payments on time.
Risk Management: Being able to use this collected data to predict, analyze, and better approach your financial future can greatly cut down on the risks that your business faces, and allow you to plan your timeline more effectively and in greater detail.
Budgeting Applications
Budgeting apps help you understand your income and spending, so you have maximum control over your money. Budgeting apps may connect to your bank account and credit cards to automatically download transactions and categorize your spending to match the budget you choose. The best budgeting apps come at an affordable price point, are easy to use and integrate with your accounts, and have features that match your budgeting style.
Here are some budgeting app recommendations:
Best Free Budgeting App: Mint
Best for Cash Flow: Simplifi by Quicken
Best for Overspenders: PocketGuard
Best for Building Wealth: Personal Capital
Robo Advising
Robo-advisors are digital platforms that provide automated, algorithm-driven financial planning services with little to no human supervision. A typical robo-advisor collects information from clients about their financial situation and future goals through an online survey and then uses the data to offer advice and automatically invest client assets.
Companies providing these services ask consumers specific questions and develop a customized investment strategy using specialized algorithms. Also, it is one of the simplest ways of planning an investment or future banking plan. There are a variety of robo-advisers to select from and there are some who require a larger initial commitment than others. Many will let you create an account with a lesser deposit and will handle the rest for you. It doesn’t necessitate a lot of effort on your part. There is a plan created for you that depends on your preferred timetable and risk tolerance. An algorithm can be used to manage and plan.
FinaticTrends - Financial Trends
Chinese Economic Downturn
Due to the recent surge of coronavirus outbreaks, China is forced to enforce a lockdown in its major cities which is a cause of concern because of the upcoming disruptions that will occur in the global industries. Financial analysts are already warning countries like Vietnam and Thailand to impose anti-disease measures to their manufacturing chains in case of delayed deliveries. The Chinese economy was already showing signs of declining from efforts to force real estate developers and other companies to reduce their debt leading to China’s exponential growth in its GDP (gross-domestic-product).
The biggest city in China’s latest lockdown is Xi’an with a population of 13 million people in the west. Xi’an accounts for 42% of NAND production and 15% of its global supply, reported by Shelly Jang of Fitch Ratings. Jang also reported that the lockdown will also have a negative impact on NAND flash supply, if the lockdown is to continue. Chinese authorities have also cut off access to parts of Ningbo, south of Shanghai, one of the world’s busiest ports. This led to the process of freight handling drastically slowing down and it also has the potential to increase the cost of already high shipping costs. The projections that forecasters have regarding China’s economic growth in the final quarter in the final of 2021 as low as 3%, which is down compared to last quarter which was at 4.9%.
Possible Federal Reserve Interest Rate Hikes
On Monday, the global financial markets tumbled due to the growing investing concerns regarding the US Federal Reserve, which has potential to increase interest rates as a response to the surge in inflation. The prices of shares dropped on both sides of the Atlantic ocean with the FTSE 100 dropping by 0.5% in London and the stocks on Wall Street dropped by a significant margin, as traders bet on the American central bank to take action with an inflation rate of 6.8%. Despite there being weaker UK’s economic growth in recent months amid supply chain disruption and rising COVID-19 cases, the Bank of England is projected to steadily increase their interest rates from 0.25% to 1%, as the central bank is seeking to quell inflation.
The chances for the Federal Reserve to implement four quarter-point interest-rate hikes are increasing and with the rate that markets have been changing, there is a possibility that traders may look to protect themselves instead of taking even more federal funds.. It was already reported that three to four spikes for 2022 are priced in on average, and some traders in the market are betting on a decline in federal funds rate while some are betting on an increase. As the average rate of federal funds predicted by marketplaces are getting closer to a full percentage, it suggests that traders could be tending towards hedging against the risk. The issue regarding the bulk of the derivative-market has potential to grow, especially if inflation increases.
Financial Guidance
“Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver.” — Ayn Rand
Money Fact
More Monopoly money is printed each year than actual money!