Financial education: gap between perception and reality

While the pandemic has encouraged people to think about financial literacy, as Global Money Week gets underway, research shows consumers may not be as competent as they believe – and they could be passing poor information to younger people.

The Covid-19 pandemic has focused consumers’ minds on getting to grips with their finances. In Intrum’s 2021 European Consumer Payment Report, six in ten (59 per cent) said they expect another global pandemic during their lifetimes and want to ensure they are in a stronger financial position to cope with it.

This is especially true of younger generations and those who were forced to rely on government support during the crisis.

Being prepared for upheaval

As a result, four in ten people (40 per cent) say they are putting additional money aside in case of recession and setting targets to better manage their bills and savings. Parents are also trying to instil positive behaviour in their children when it comes to finances.

In the survey, 57 per cent of those with children said they are spending more time helping them understand the principles of financial management than they were in pre-Covid times.

The impact of the Covid-19 crisis and the unstable political environment with the war in Ukraine will affect many consumers for years to come. It is good that many people are taking this opportunity to enhance their knowledge. A strong grounding in financial literacy will help consumers support themselves and their families.

Confident or competent?

However, while 82 per cent of Europeans said they had received sufficient or excellent financial education, their ability to answer questions on financial terms was mixed.

For example, when it comes to understanding the impact of inflation on savings, only 41 per cent of 18-21 year olds correctly answered a question on this subject, compared with 76 per cent of those over the age of 65.

With inflation fears and interest rates rising, it is important consumers understand the impact this could have on their ability to meet their financial commitments. Our research suggests many people’s confidence is not always backed up by reality.

Educating the next generation

Although well-meaning, parents who are passing advice to their children may be passing on misconceptions. For example, in the wake of the pandemic, 60 per cent of European parents said they are warning their children not to take on debt.

While over-indebtedness is a problem, debt is also an integral part of society, enabling entrepreneurs to fund businesses and consumers to buy homes. It is important that children are taught to understand and manage their finances, instead of being frightened of debt.

About Global Money Week 2022:

The Global Money Week, taking place 21st to 27th of March, is an annual global awareness-raising campaign on the importance of ensuring that young people, from an early age, are financially aware, and are gradually acquiring the knowledge, skills, attitudes and behaviours necessary to make sound financial decisions and ultimately achieve financial well-being and financial resilience.