How are we able to manage basic financial concepts and make the right decisions for our “wallet” in a cloudy period for global economy;
As a new report from the Organization for Economic Co-operation and Development (OECD) has revealed, many adults around the world, including our country, lack the necessary knowledge to understand and manage the complexities surrounding their finances.
Specifically, according to research, only 34% of adults have the minimum required level of financial education. This means that the majority, at least in the 39 countries included in the report, are unable to effectively manage their finances, a skill considered essential for both individual and societal well-being.
In the same report, the OECD also highlights how vulnerable those without basic financial knowledge are becoming, especially at a time when rising prices are putting even more pressure on our ‘wallets’.
“High inflation and rising interest rates have highlighted the importance of equipping citizens with the financial knowledge and skills to cope with difficult circumstances,” said Chiara Monticone, OECD Principal Analyst.
As she told Euronews Business, “our survey results show that while most adults understand basic financial concepts, the overall level of financial knowledge and skills could be significantly improved, including when using digital financial services.”
What do the figures for Europe show?
The OECD assessed each of the 39 countries included in the survey on the overall level of financial literacy of their citizens. The table below details the results for EU member states:
Looking at these numbers, it seems that only the Germans surpass and the Irish “reach” the minimum level of 70 out of 100 when it comes to financial education.
In fact, Greece’s score was low. Specifically, our country had a score of 23/35 in terms of the level of financial knowledge, but only 28/45 in terms of financial behavior and 11/20 in terms of the financial attitude and mentality of citizens. The Greeks thus remained below the “basis” as their overall score was fair 62/100.
In addition to differences between states, the report also highlights the differences observed between population groups in each country.
People with more education tend to manage their finances better, as do those with higher incomes and those with jobs. Other factors that play a role are gender and age.
In the countries included in the OECD survey, however, people aged 30 to 59 generally appeared to have higher levels of financial literacy than those in the 18 to 29 age group. Moreover, as the survey showed, men have a slightly higher level of financial knowledge than women.
Knowledge of basic concepts
When it comes to basic economic principles, the OECD reports that 84% of adults know what “inflation” means, but only 63% can put the “time value of money” concept into practice in how they save.
It should be noted that the “time value of money” is defined as the perception that a certain amount of money is worth more now compared to what it will be worth in the future.
For example, if you were offered $1,000 right now and had a choice between taking it now or later, the smart choice would be to take it now.
But why; One reason is inflation and the other is income potential. By taking the money immediately, rather than waiting ten years, they have the opportunity to invest and earn more money, which means they can increase the initial amount.
Another term that confused OECD respondents was ‘compound interest’, a term understood by only 42% of adults.
Simply put, this term refers to earning “interest on interest.”
By putting the money you earn from your investments in the bank, you can accumulate even more through interest payments.
Digital skills and fraud preparedness
When it comes to financial vulnerability, 15% of respondents said they had been a victim of some type of financial fraud at least once.
The OECD found a negative correlation between financial literacy and risk, with around two out of three people who fall victim to fraud still not achieving the required financial literacy score.
The ability to stay alert to potential scams is also related to the level of digital literacy, as many criminals now use online avenues to target people.
This fact, combined with the results of the OECD digital financial literacy assessment, creates a negative picture. On average, only 29% of adults surveyed achieved a “basic level” of digital skills, although these scores increase with education and income levels.
Saving money for critical periods
Given the pressures on household budgets in the current period, the OECD says more financial education is needed to improve their resilience.
On average, the agency reports that only 59% of adults in the survey could currently pay substantial expenses equivalent to their monthly income without relying on some form of support. This may mean taking a loan from the bank or borrowing money from family and friends.
To solve this problem, the OECD says that education should focus on new, digital ways of managing money and should be accessible to people with the lowest skill levels.
Source: Euronews Business