Europe faces a crisis of financial literacy, with millions of its people struggling to cope with even basic concepts of savings and investment.
These are the stark findings of a new report from the European Fund and Asset Management Association (EFAMA), entitled Building Blocks for Industry Driven Investor Education Initiatives.
The report, which was launched in Brussels to help push the critical issue of investor literacy, unveiled widespread ignorance of financial matters, with consumers baffled by concepts such as interest rates and inflation.
When asked the impact of a 2% interest rate on a deposit of €100, those respondents who gave the correct answer of €102 ranged from more than 85% in some European countries to less than 40% in others.
The best-performing nations were the Netherlands, with 84.8% giving the right answer, Germany, with 82.4% responding correctly, and Switzerland, where 79.3% were able to do their sums.
Furthermore, while an understanding of risk diversification is crucial to making good financial decisions, only a minority of individuals have a good grasp of the concept.
Professor Annamaria Lusardi, of The George Washington School of Business, said: “Financial illiteracy is both widespread and particularly severe among specific demographic groups. Low levels of financial literacy are not specific to a given country or stage of economic development. They are found everywhere.”
Peter De Proft, director general of EFAMA, added: “It is widely recognised that many people lack the level of financial education required to decide how much they should save to prepare for retirement and how they should manage their savings and investments.
Unless action is taken, this bodes ill for the future, as responsibility for financial provision increasingly shifts from the state to the individuals.”
Sally Percy is editor of The Treasurer