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Erscheinung:31.05.2022 | Topic Consumer protection Financial knowledge – room for improvement
Interest rates, returns, cryptos: particularly among women and older people, there are those who show a need to strengthen their financial knowledge. But there is one topic about which people in Germany are well-informed, as a recent study shows.
There is room for improvement in the field of financial knowledge in Germany. This is particularly the case among people with at most a secondary school qualification, with no master craftman’s certificate or academic degree as well as among women and older people. These are the findings of a survey on adult financial literacy competencies in Germany, for which first results – on the topic of financial knowledge – are now available. BaFin coordinated this survey in Germany last autumn, implementing the specifications of the International Network on Financial Education (INFE) of the Organisation for Economic Cooperation and Development (OECD) (see info box).
The respondents had to answer ten questions in total, involving simple calculations, questions on topics such as interest rates, inflation and assessing the risks of financial products as well as on digitalisation. In addition, the respondents were asked to make a personal assessment of their financial literacy competencies. The results have now been published.
OECD/INFE Survey of Adult Financial Literacy Competencies in Germany 2022
The survey of financial literacy competencies forms part of a survey developed and coordinated by the International Network on Financial Education (INFE) of the Organisation for Economic Co-operation and Development (OECD). The objective is to provide internationally comparable data on financial education and financial inclusion.
There have been four surveys so far. BaFin has been coordinating the data collection for Germany since 2019. The latest representative survey took place in September and October 2022, in which a market research institute held 1,000 computer-based telephone interviews with adults between the ages of 18 and 79. BaFin also evaluates the data itself and uses the findings in order to exercise its collective consumer protection mandate.
The focus of this extensive survey was not only on financial knowledge but also on other topics such as the respondents’ attitudes to money and finance, their problems with financial products or services or their trust in the financial system. The complete results of the international survey will be published in the course of 2023.
The results in brief
- Twenty one percent of adults have sound knowledge of all financial matters: Twenty one percent of the respondents knew the right answer to all ten financial knowledge questions. They therefore have thorough basic knowledge. On average, the respondents answered eight questions correctly. Thirty one percent knew the right answers to fewer than eight questions.
- Women and older people scored somewhat worse on average: The interviewed women answered somewhat fewer questions correctly on average (7.6) than their male counterparts (8.4). The older respondents in the age groups 60 to 79 managed to answer 7.6 questions correctly on average, fewer than those correctly answered by the younger age groups that notched up an average of 8.2 correct answers.
- Relationship between educational qualifications and financial literacy competencies: People with at most a secondary school qualification or a basic vocational training (apprenticeship) have on average less financial knowledge than people with a general qualification for university entrance (Abitur), a master craftman’s certificate or academic degree. Respondents from the former group answered 7.1 questions correctly on average compared to 8.5 correctly-answered questions on average for the latter group.
Graph 1
© BaFin
Difficulties with interest rate calculations – well-informed about inflation
Regardless of their sex and age, most respondents have difficulties with interest rate calculations. However, the female respondents have even more difficulties than their male counterparts. Of the female respondents, 24 percent gave the wrong answer to a calculation of simple interest based on the example of a fixed-interest, no-fee savings account, or said that they did not know the answer. Of the male respondents, twelve percent had difficulties solving this calculation.
As regards the next question dealing with the compound interest effect, 34 percent of the female respondents answered either incorrectly or with “don’t know” compared to 18 percent of their male counterparts. All in all, 42 percent of the female respondents solved one or both of the aforementioned problems incorrectly – compared to 24 percent of the male respondents.
There is one area in which the respondents are able to demonstrate sound knowledge. Of all respondents, 91 percent understand that the consequence of high inflation is, amongst other things, a rapid increase in living expenses: for 93 percent of male and 88 percent of female respondents, inflation is when you are unable to buy as much as you could a year earlier with the same amount of money.
Women: knowledge gaps in the area of investing money
The generally worse result scored by women is due particularly to their lack of knowledge about financial investments. As exemplified in the wrong answers to the interest rate calculations, more women have difficulties understanding savings products than men. Overall, the relationship between educational levels and financial literacy competencies also becomes clear in the comparison between the sexes. The questions correctly answered by women with at most a secondary school qualification or a basic vocational training (apprenticeship) were one fewer than those of their male counterparts. The difference is less pronounced with women with higher educational levels: on average they correctly answered half a question fewer than their male counterparts.
More women than men lack basic knowledge of the key rules of financial investment. The statement that higher returns are usually associated with higher risks was wrongly classified as false, or “don’t know” was given as the answer, by 20 percent of the female respondents compared to 11 percent of their male counterparts. The statement that the investment risk on the stock market can normally be mitigated by buying a large number of different stocks was also wrongly classified as false, or a “don’t know” answer was given, by 20 percent of the interviewed women. Overall, 33 percent of the women wrongly classified one or both of the above statements or gave “don’t know“ as the answer compared to 19 percent of the men.
As regards the still relatively new investment class of crypto assets, women know even less about this field than men. Of the female respondents, 57 percent knew that crypto currencies, unlike bank notes and coins, were not legal tender. This compares with the equivalent rate for men, which at least was 75 percent.
Women rely more frequently on their partner when it comes to retirement provision
How do men and women, according to their own assessment, deal with the important topic of retirement provision (see info box)? The answer suggests a connection between abstract financial investment knowledge and previous or planned retirement provision. The reason, as revealed in the survey, is that 32 percent of women, compared to only 21 percent of men, rely on the support of their partner, besides other things, in the area of retirement provision.
Thirty percent of women, compared to 40 percent of men, also invest in stocks, bonds or investment funds for their retirement provision – or intend to do so. As can be seen in figure 2, the only product categories in which women and men rank equal (in each case 63 percent) are endowment life insurance products and Riester pensions. This applies to investments already made as well as those planned.
Graph 2
© BaFin
Older people score better in their understanding of risk and return
A comparison between older people and the large group of the 18 to 59 year-olds reveals a mixed picture. The survey clearly shows that the respondents over the age of 60 lack knowledge about the world of digital finance. For example, only 34 percent of the older people, compared to 49 percent of the respondents from the younger group, knew that it was possible to conclude financial contracts online with legally binding effect without a further signature on paper. Of the older people, 86 percent were aware of the fact that personal data entered online can be used for personalised advertising. The equivalent rate for the 18 to 59 year-olds was 92 percent. The fact that crypto currencies are not legal tender was known to 58 percent of the older respondent group compared to 69 percent of their aforementioned younger counterparts.
On the other hand, the older respondent group displayed better knowledge of the relationship between risk and return compared to the younger group of the 18 to 59 year-olds. Ninety one percent of the older, compared to only 82 percent of the younger, respondents understood that higher returns usually go hand in hand with higher risk.
Knowledge is the best protection
Overall, the survey reveals potential for improvement. The respondents are also evidently aware of this – the fewer correct answers given by the interviewed people, the more gaps the assessment of their financial knowledge contained. Men considered themselves somewhat more knowledgeable in financial matters on average than women.
From BaFin’s point of view, knowledge is the best protection for consumers. Our goal is to enable consumers to act independently on the financial market and make their own decisions on the basis of accurate and relevant information. In its consumer protection strategy, BaFin has therefore placed a focus on strengthening consumers’ financial literacy competencies. What is more, BaFin supports the German government’s initiative to promote financial education.
Warnings for consumers and information on investments and securities, insurance and pension provision products can be found on BaFin’s website.
Authors
Dr Daniela Röstel
BaFin-Division Active Market Monitoring and Mystery Shopping
Ursula Weigold
BaFin-Division Consumer Information and Literacy
Interview:“Focus on the especially vulnerable groups”
BaFin coordinated the OECD/INFE Survey of Adult Financial Literacy Competencies in Germany. In an interview with BaFinJournal, BaFin consumer protection expert Dr Daniela Röstel analysed the results of the survey and placed them in a broader context.
Why is a survey on the topic of financial literacy of importance at all to BaFin?
That’s because we exercise a collective consumer protection mandate, which means that we are responsible for protecting the interests of consumers. This includes strengthening their financial literacy competencies. We believe that, if consumers have a sound understanding of the mechanisms and products of financial markets, they will be able to make their own decisions regarding their finances in a responsible way.
The important thing for us is that we know where to target our activities. How much knowledge do people in Germany have about finance? What gaps need to be closed? The survey provides us with valuable stimulus for this.
And there’s something else to consider: the OECD/INFE survey is an exciting tool that is carried out simultaneously in a large number of OECD member states. It thus enables us to draw conclusions on how Germany compares internationally in matters of financial literacy. BaFin is a member of the OECD International Network on Financial Education and coordinates the survey in Germany.
Particularly women and the 60-plus age group show a need to strengthen their financial knowledge. Did you find this surprising?
In actual fact we see room for improvement generally. But we already know from the last survey on adult financial literacy in 2019, for example, that a higher level of uncertainty about financial matters was more likely to be found among women. We took a closer look for the first time at the data relating to senior citizens and did not have any particular expectations. But it’s also important to note that big differences can be found within the group of female respondents and also among the senior citizens.
How will BaFin deal with the results of the survey in practice?
The information that we gather from the survey will enable us to tailor our consumer protection activities even more effectively to the needs of the various target groups.
In the Consumer Protection Directorate, we have long focussed our attention on the especially vulnerable groups, such as older people. We set priorities here in our educational work. We specifically address groups with less knowledge and try in this way to protect them from disadvantages that could arise from this. For example, we offer a special array of brochures for senior citizens as well as digital events or opportunities for personal dialogue at trade fairs.
This might also be of interest to you:“Strengthening financial knowledge at the point of sale”
In an interview with BaFinJournal, our Consumer Protection Officer, Christian Bock, explains why financial literacy matters. He also describes what is to be gained from the German government’s initiative “Financial Education Strategy for Germany”, in which BaFin is also involved.
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