Do you believe it? Two third of adults over worldwide are financially illiterate. Shocking but the reality. This is the data from Standard & Poor’s Ratings Services Global Financial Literacy Survey of more than 150,000 adults in 148 countries in 2014.
This shocking revelation is not only from developing countries but also from developed countries. The country-level financial literacy ranges from 71% to 13%.
What are the parameters considered to arrive at literacy level?
- Risk Diversification-Let us say you have Rs.1,00,000 to invest. How will you invest? Whether you put all money in one asset class or put it in different?
- Inflation-“Suppose over the next 10 years the prices of the things you buy double. If your income also doubles, will you be able to buy less than you can buy today, the same as you can buy today, or more than you can buy today? “
- Numerical (Interest)-Suppose you have to borrow Rs.100. Which is the lower amount to pay back-Rs.105 or Rs.100+3% interest?
- Compound Interest-“Suppose you put money in the bank for two years and the bank agrees to add 15 percent per year to your account. Will the bank add more money to your account the second year than it did the first year, or will it add the same amount of money both years? “
Based on above questions, a person is said to be literate, when he or she correctly answers at least 3 out of 4 questions. Based on this, around 33% are ONLY literate and rest of them are considered as illiterate.
Below are some interesting findings of this survey.
- On average, 55 percent of adults in the major advanced economies–Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States–are financially literate. But even across these countries, financial literacy rates range widely, from 37 percent in Italy to 68 percent in Canada.
- BRICS (Brazil, the Russian Federation, India, China, and South Africa)—on average, 28 percent of adults are financially literate. Disparities exist among these countries, too, with rates ranging from 24 percent in India to 42 percent in South Africa.
- Higher GDP countries have higher financial literacy.
- However, education, consumer protection and shape of financial literacy are major factors.
- Inflation and numeracy are the most understood topics worldwide.
- Knowledge of risk and diversification is lowest. The same is explained in below chart.
- People who faced the reality in their life are more understandable about the concepts like inflation.
- Lower financial literacy among women and the poor.
- Financial literacy grows with age but later decline ( adults age 65 plus have the lowest financial literacy rates of any age group).
- Financial literacy grows with income.
- Adults who lack in accounting also lack in financial skills.
- Credit is more common rich countries than poor.
- Credit cards are gaining popularity. But sadly how interest is calculated or interest concept is totally low.
- In this report, India stands at 24% financial literacy.
The complete details is available at “Standard & Poor’s Ratings Services Global Financial Literacy Survey“.