In the past years the OECD International Network on Financial Education (OECD/INFE) conveyed a global survey set to measure and compare financial literacy of world‘s adult population. This unprecedented exercise provided countries with useful insights and data alowing to see how their adult population rank among other countries. In total, 51,650 adults aged 18 to 79 were interviewed using the same core questions, thirty countries and economies, including 17 OECD countries, participated in this international survey of financial literacy. The report was first published on October 12, 2016 in Auckland, New Zealand.
We are sharing with you the key results and conclusions that were drawn below. Please use the link to access the full document (http://www.oecd.org/daf/fin/financial-education/OECD-INFE-International-Survey-of-Adult-FInancial-Literacy-Competencies.pdf).
The results prove for the need of working to enhance financial literacy around the world and suggest strong links between financial knowledge and quality of life. We believe this survey is possibly a cornerstone for new rising education era, where finance skills will be finally and deservingly regarded with the same attention and respect as other necessary life skills.
Survey results indicate that:
- Overall levels of financial literacy, indicated by combining scores on knowledge, attitudes and behaviour are relatively low;
- Average levels of financial knowledge show room for improvement, whilst there is wide variation between countries;
- On average, just 56% of adults across participating countries and economies achieved a score of at least five out of seven (considered to be the minimum target score), compared with an average of 63% across OECD countries, indicating that many adults around the world are currently unable to reach the minimum target score on financial knowledge.
- Some areas of financial knowledge appear to be more problematic. Only 42% of adults across all participating countries and economies are aware of the additional benefits of interest compounding on savings (48% across OECD countries), and only 58% could compute a percentage to calculate a simple interest on savings (65% across the OECD). Only about two in three adults – across OECD and all participating countries and economies – were aware that it is possible to reduce investment risk by buying a range of different stocks.
- Gender differences in financial knowledge are noteworthy, with 61% of men achieving the minimum target score compared with only 51% of women across participating countries and economies, (69% of men, compared with 56% of women in OECD countries), although there are variations between countries;
- Self-assessed financial knowledge is, surprisingly, relatively realistic.
- Across participating countries and economies, on average just one in two (51%) respondents achieved the minimum target score of at least six out of nine on financial behavior. The average across participating OECD countries is only slightly higher, at 54%;
- The weakest areas of financial behaviour across these measures appear to be related to budgeting, planning ahead, choosing products and using independent advice. On average, across participating countries and economies, only 60% of adults reported having a household budget (57% across the OECD); and only about 50% set long-term goals and tried to achieve them (51% across the OECD). Among those who had chosen a financial product in the last two years, only 44% made an attempt to shop around on average across all participating countries and economies (46% across OECD countries), and only 19% used independent information (20% across OECD countries).
- Financial resilience (or the ability to cope with external shocks, at least in the short-term) should be strengthened in general, and is a particular concern in some countries;
- Long-term financial goal setting and planning is not common in many countries.
- In particular, the overall low level of financial literacy stresses the importance of starting financial education early and, ideally, in schools, also confirming the OECD 2005 Recommendation (OECD, 2005). Indeed, if effective, this would ensure that future generations have the knowledge, skills and attitudes necessary to strengthen their financial well-being and build positive habits from a young age.
- Public authorities should also seek ways to strengthen knowledge, skills and behaviours of adults through a combination of financial education and other policies.
- Basic financial knowledge and the application of knowledge and skills in a financial context should be addressed. Low levels of understanding and skills relating to basic principles, such as compound interest and diversification, indicate that there are many aspects of knowledge that could be improved among the general population.
- Differences in financial knowledge by gender should also be more systematically measured, and, where necessary addressed through targeted programmes.
- Positive correlations between financial knowledge and goal setting and between financial knowledge and retirement planning indicate potential benefits from exploring how knowledge may reinforce positive behaviours.
- Financial resilience and long-term planning could be further promoted through:
i) User-friendly budgeting tools and ways of monitoring income and expenditure which could encourage more adults to create a household budget and use realtime data to make necessary changes before falling into difficulty
ii) People may also need education and guidance to identify realistic alternatives to borrowing when income is insufficient to make ends meet.
iii) In countries where people are very focused on the short term, it may be necessary to approach financial education by stressing the short-term benefits before encouraging longer-term financial planning. Such consumers may appreciate learning how to gain better control of their day-to-day spending rather than receiving guidance on how to save for longer-term goals. A financial education programme could start by enabling people to free-up some money for regular small treats through choosing more cost-effective financial products or utility services, for example.
iv) Education that applies behavioural insights, such as encouraging people to set goals and commit to them, could also help people to behave in more financially literate ways, including active savings behaviour and longer-term planning
- Active and smart choice of financial products could be enhanced through the promotion of easy to access and free impartial comparative tables of products and potentially through well-designed, appropriately regulated computerised (robo) advice.
- Regulation and consumer protection framework should be combined with financial education to improve people’s financial resilience. For example, regulation relating to the suitability and use of credit products can help consumers avoid becoming trapped in a cycle of debt through using high-cost credit or being fined for falling behind with payments, and reduce the likelihood that they will choose unsuitable financial products.