Socially Disadvantaged Groups Have Insufficient Financial Knowledge
ResearchZEW Study on financial education in Germany: who is financially literate and who isn’t?
Around 62 per cent of German households are able to correctly answer basic financial literacy questions. In contrast, those who did not finish secondary education or vocational training (37 per cent), women (55 per cent) as well as East Germans (55 per cent) demonstrate below-average financial literacy. And yet, financial literacy helps when making financial decisions: those with higher financial literacy are less likely to experience financial difficulty and are more willing to invest in the stock market. These are the results of a study conducted by ZEW Mannheim based on approximately 4,000 respondents from the fourth wave of the Panel on Household Finances (PHF) from the Deutsche Bundesbank.
“On the international stage, Germany performs relatively well on average in financial literacy metrics. However, there are still many demographic groups in this country who are not well-versed in financial topics. At the same time, financial literacy strongly correlates with financial well-being and the willingness to take part in the stock market. Those with more financial knowledge are less likely to report being affected by financial difficulties,” explained Tabea Bucher-Koenen, leader of ZEW’s “Pensions and Sustainable Financial Markets” Research Unit.
The case for targeted funding
Germany does not have a strategy in place for financial education at this stage. However, discussions are currently under way with the OECD to develop a policy. In light of the research findings, there should be a targeted focus on the needs of the groups who have demonstrated insufficient financial literacy. “The results would suggest that, when developing a national financial literacy policy, the promotion of financial knowledge in socially disadvantaged groups should be placed at the forefront,” explained co-author Bennet Janssen.
Germany performs relatively well
The “Big 3” financial questions used in this study are designed to measure participants’ understanding of interest rates, inflation and risk diversification. They serve as an indicator of financial education. At around 62 per cent response accuracy, Germany performs relatively well in international standings, although there are still distinct knowledge gaps across different social groups. The “Big 3” were primarily used in this study to explore the influence of financial education on individual willingness to participate in the stock market as well as on prevalence of financial difficulties.
