Recent data shows 55% of Irish people are financially illiterate
We are financially illiterate.
We know this because of recent, unflattering financial data and rankings, which got almost no media coverage.
Rankings are funny. Some rankings get headline news.
Thus, the PISA rankings, which look at science and maths ability, are always good for a headline on how poorly our education system serves us.
With 15% of the 15-year-olds last examined being ‘illiterate’ in science and maths, there is a problem.
It’s not as big a problem as in the US, which scored a 25% share, but it’s still a problem.
Then, there are the university rankings, in which the failure of Irish universities to meet an arbitrarily selected and methodologically protean target is regularly decried.
Again, we are subjected to editorialising and sermonising on how our system fails us.
The questions on financial literacy hardly involve quantum mechanics.
Can the respondent calculate a percentage, differentiate between compound and simple interest, differentiate between spreading and concentrating risk in making decisions about savings, and understand inflation?
Getting three out of four answers correct makes the respondent financially literate.
The study was conducted, by the World Bank and Standard & Poor’s, on more than 150,000 people in 144 countries.
It is a global snapshot of financial literacy.
Globally, a third of the survey respondents were deemed financially literate; in Ireland, it was 55%. In other words, 1.6m adults in Ireland were deemed financially illiterate.
This is pretty serious stuff.
If half the adult population were literally illiterate, there would be a massive government and social outcry and a plan put in place to remedy it.
Little has been done to improve the situation.
Wealth and financial literacy, both on a national and on an individual basis, are fairly reasonably linked.
However, what is not at all clear is the cause of financial illiteracy.
Although older people have a lower actual literacy, they also display greater confidence in their knowledge, which perhaps suggests how easy it is for the elderly to fall prey to financial scams.
There is a gender issue, too, perhaps related, in that levels of financial literacy tend to be lower among women.
The 2012 PISA study included an examination of school students’ financial literacy and found that, at age 15, there was little gender difference.
Unfortunately, this module of the PISA study was not administered in Ireland, so, again, we find ourselves making policy without evidence.
In fact, earnings are obviously linked to literacy, with rural communities, lower education, and regional impoverishment all being associated with not just lower income outcomes, but also lower financial literacy.
So, does it matter? A lot of research suggests that lower financial literacy, not surprisingly, is associated with poorer financial decision-making in daily life.
In particular, lower financial literacy is associated with lower participation in financial products and with lower forward financial planning, particularly in pension provision or precautionary savings.
Those who are financially less literate tend to have costlier loans and to be more prone to finding themselves in financial difficulties.
They take out costlier loans from costlier borrowers and do not manage these as well as they might.
This happens, regardless of earnings or education or gender — it is the literacy aspect that seems to drive them.
Financial literacy programmes tend to be shoehorned into second-level schools, with little regard for the need to individualise and contextualise.
Those done by financial institutions and advisers, typically in workplaces, are bedevilled by perceptions of marketing.
One thing is clear — financial illiteracy is a problem and one that is being swept under the carpet.
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