Financial literacy: only a third of adults have a sufficient level

Last week, the OECD published the results of its third international survey of the level of financial literacy of adults, which was conducted in 39 countries, including 20 OECD members. This study, which takes place every 3 years, is part of the OECD project on financial literacy.

Let’s take two seconds to explain this term literacy, which is used no fewer than 109 times in the first 50 pages of the study. The OECD has taken care to define this term itself as “the ability to understand and use written information in everyday life, at home, at work and in society, to achieve personal goals and expand knowledge and skills.

Financial literacy is therefore not only theoretical financial knowledge, but also the ability to apply this knowledge in a concrete way in your everyday life..

Let’s take an example from another area: the average individual knows that a password policy must be enforced and that it is not recommended to use the same password on several sites or applications, especially if it is simple. the same individual uses her husband’s date of birth as a password on all commercial sites on which she is registered, and has written down the most difficult passwords (which happen to be the most sensitive) in a notebook that remains next to her computer.

If you ask him, “Is it safe to write passwords on a laptop? » he doesn’t know, but he does it! His knowledge is good, his application less, so his literacy is average.

Brief. Almost 70,000 adults aged 18 to 79 in 39 countries were submitted to an OECD questionnaire to assess their financial knowledge, financial behavior and financial mentality.

Each of these three components was assessed separately and then weighted to give a total score out of 100. The OECD estimates that minimum target literacy score is 70/100: below this score there is insufficient understanding of financial concepts and/or application of financial skills.

That’s the methodology, let’s get to the results:

The overall average of 39 countries is 60 points out of 100, i.e. below the target of 70 points. A score that improves slightly to 63 points if we focus only on the 20 OECD countries that took part in the study.

Overall, only 34% of adults surveyed achieved the target score of 70. But we see very scattered results depending on the country. Germany, Thailand and Hong Kong are on the podium of which 75%, 65% and 60% of adults reach a score of 70.

At the bottom of the pack we note the presence of Yemen, where only 3% of adults have a sufficient level of financial literacy, ahead of Paraguay (11%) and Cambodia (12%).

Looking in detail at the 3 parts of the study, we see that it is overall the financial mentality that is failing and that is even at a lower level than what was observed during the previous edition in 2020, after surveying 26 countries (including 12 OECD members) :

• Financial literacy scores average 63/100 (up from 62.8 in 2020)
• Financial behavior scores average 61/100 (up from 59.2 in 2020)
• While Financial Mentality is rated at 56/100 (up from 59.2 in 2020)

Not surprisingly, the study reveals that adults with higher education and higher incomes fare better than others. However, we find out what is even more surprising and, above all, disturbing 63% of people who own financial products have an insufficient level of financial literacy (ie don’t score 70).

The OECD wanted something new this year also assess digital financial literacy of respondents, i.e. their access to digital financial services, online payments, cryptocurrencies, etc. Based on an approach similar to traditional financial literacy, the OECD came to the sobering, yet unsurprising, finding that only 29% of people had sufficient digital financial literacy. The average for digital financial literacy is 53/100, with a level of 70/100 being the threshold considered acceptable.

Knowledge to perfection and a short-term relationship with money, despite the prevailing prudent behavior

Going into detail, traditional financial knowledge was assessed using seven questions covering topics such as inflation, interest or principles of financial prudence. First observation: while 84% of respondents know what inflation is, only 63% understand its impact on a specific question. Proof that knowing does not mean understanding! Note that these results are encouraging compared to 2020, as an average of 78% know the definition of inflation and just under 60% understand its impact on the value of money over time. The highly inflationary context of the past year is probably not related to this either.

More surprising: more than half of the respondents did not know how to calculate simple interest and it is even worse when we add up the concept of compound interest, which only 26% have fully adopted..

If you want to test your financial knowledge, don’t hesitate take our quiz which brings together the questions asked by the OECD, accompanied by some suggestions on how to improve your financial culture!

Regarding financial behavior, the aim of the study is to assess the presence of three types of prudent behavior: saving and long-term planning, considered purchases and monitoring cash flows. We see a prevalence of relatively healthy behavior: in all 39 countries, 68% of adults are actively saving, and just as many keep a close eye on their finances. 70% of them even make deliberate purchases, that is, they check in advance that they can afford them. In contrast, only half of them set long-term financial goals and just over a quarter compare financial product offers before signing upwhich means that the vast majority choose the most readily available products.

The third part of the study consists of an assessment of financial thinking, that is, how people position themselves in relation to money. To this end, they were asked for their opinion on the following three statements: “I get more satisfaction from spending money than from saving it for the future”, “I tend to live from day to day”. A day without worrying about tomorrow.” and “money is meant to be spent” (YOLO!). They are average less than half disagree with these statements! So there is still considerable room for improvement in the way people view their relationship with money.

And that’s what this study is for: it’s not about pointing out good and bad students or being able to shine in society thanks to good scores, but about define global education policies and identify common areas for improvementwith the goal of bringing as many people as possible to the minimum level of culture for their enable them to manage their money independently and make wise financial decisions, which is more so in an increasingly tense and complex economic context.

The OECD therefore suggests that it is not enough to spread basic financial knowledge, but that it is also enough important to reinforce the behaviors and attitudes most likely to promote financial resilience and well-beingsuch as developing critical thinking, comparing before buying, relying on independent sources, monitoring your cash flow, etc.

The OECD also unsurprisingly points to the absolute need to focus efforts on the most vulnerable populations that the study identified by country: the poorest, the least educated, women, the youngest etc.

The aim is to break the vicious circle to the extent that the people who have the least financial literacy are also the ones who need it the most and who, for example, are more likely to be victims of fraud..