Low money knowledge
A new survey suggests most Europeans lack basic financial acumen, including misjudging the size of their pensions.
ONLY one in five people in the European Union can be regarded as financially literate, going by survey results recently published by Eurobarometer, the European Parliament’s official polling instrument.
While there were variations across the bloc’s 27 member states, only 18% of those questioned showed a high level of financial knowledge, with the same percentage registering as “low” and 64% as “medium.”
Around half the people surveyed managed to correctly answer two to three out of five questions, which covered topics ranging from personal finance including on compound interest to more business-related subjects, including on assessing investment risks.
But around a fifth of those asked could not correctly answer any of the questions, around the same amount that showed an understanding of how interest rates affect bond prices, arguably the most difficult topic covered and the one least related to personal finance.
In Denmark, Slovenia, Sweden and the Netherlands, over 25% of people surveyed could demonstrate a “high” level of knowledge of the basics, going by the framing of the survey.
But the overall findings suggest that there is a “need for financial education” especially among women, younger people and those with lower incomes, Eurobarometer said.
Lack financial knowledge
The results followed a recent survey in Germany that found a “lack of financial knowledge” to be “widespread,” with around a third of people misjudging the size of their future pensions.
According to experts from German consumer testing organisation Stiftung Warentest, the main reason for this lack of financial literacy is that the topic is rarely dealt with in school, making it difficult for people to get to grips with it later on.
For Stiftung Warentest expert Susanne Meunier, it’s obvious that many shy away from the issue in the face of the technical terms used by the finance and insurance industry.
Not taking care of your finances can have disastrous consequences, for example when travelling without overseas health insurance. In most cases, however, not thinking about your finances means that you will miss out on a lot of money in the long term, sums that otherwise could help to boost your pension, for example.
Getting started isn’t that complicated, says Meunier, recommending to set up a money market account and an ETF savings plan as a first step and “as early as possible.”
Next, the expert recommends getting advice from independent consultants, like consumer advice centres or independent insurance consultants working on a fee basis. Even if that means having to pay for a session, that way you can be sure you are not offered a product only because the consultant will receive a commission for it.