Financial Literacy in the EU

In the digital age, it is paradoxical to find that financial illiteracy remains a persistent problem in society. Despite the vast amount of information available at our fingertips, many people worldwide struggle to navigate the economic landscape, which is becoming increasingly complex over time. In recent decades, consumers have been faced with a growing array of financial products, including various types of mortgages, payday loans, student loans, complex retirement plans, credit cards, investments, cryptocurrencies, and so on. Each of these products requires a level of understanding that, for many, remains beyond their reach.

On behalf of the European Commission's Directorate-General for Financial Stability, Financial Services, and Capital Markets Union, Ipsos European Public Affairs conducted the "Flash Eurobarometer 525 Survey" to assess financial literacy across the European Union (EU). Between 29 March and 5 April 2023, a representative sample of 26,139 citizens aged 18 and over from each of the 27 Member States was interviewed online. The survey highlights that financial illiteracy is a widespread issue affecting individuals of all ages, driven by historical, contemporary, and cognitive factors.

A significant finding of the survey is that while 52% of respondents consider their financial literacy to be average and a quarter consider their financial literacy to be quite high, only 26% were able to demonstrate a high level of financial literacy, 50% scored average and 24% scored low on the test.

Countries such as the Netherlands, Denmark, Finland and Estonia lead in financial literacy, while Cyprus, Romania, Greece, and Portugal lag behind, underlining the uneven distribution of financial education across the EU.

Cognitive biases and heuristics play a substantial role in shaping financial decision-making, often leading individuals to make poor financial choices. These mental shortcuts, while useful in some contexts, can result in significant missteps in financial planning and management. The survey found that 65% of respondents exhibited "financially savvy" behaviors, such as tracking expenses and setting financial goals. Yet, even in a financially literate society, these biases can undermine otherwise sound financial practices. Romania, for instance, had the highest proportion of respondents engaging in prudent financial behaviors, while Finland had the lowest, indicating that even in well-developed economies, financial behavior can vary widely.

Overall financial literacy score

The overall financial literacy score combines financial knowledge and financial behaviour, giving both aspects equal weight. The score calculated varies between 0 and 10.

On average, across the EU, 18% of respondents have a high score for their overall level of financial literacy (score 9 or 10), 64% have a medium score (score >5 and <9) and 18% a low score (score ≤5).

Men, older individuals, those with higher education levels, and employed or self-employed people are more likely to score highly on financial knowledge questions. Conversely, women, younger individuals, those with lower education levels, and manual workers are more likely to score poorly in financial knowledge assessments.

Men are more likely than women to report having (or, in the past two years, having had) an investment product (30% vs 18%), a private pension or retirement product (25% vs 19%) or life insurance (34% vs 29%). Men are also more likely to own (or, in the past two years, have owned) crypto-currencies (10% vs 3% of women).

Digital Financial Services

Historically, the shift from trade systems to complex financial markets has continually increased the demand for sophisticated financial knowledge. This transition, combined with educational gaps, has left many adults without a solid foundation in financial literacy.

The survey results show that about three-quarters of respondents across the EU report being comfortable with using digital financial services, such as online banking or mobile payments; 36% reply being 'very comfortable' and 41% 'somewhat comfortable'.

The need for ongoing learning, especially in the face of technological innovations such as online banking and mobile payments, poses significant challenges for many adults.

Financial resilience and inclusion

Financial resilience and inclusion remain critical areas of concern. The survey reveals that while 46% of respondents have non-life insurance and 31% have life insurance, only one-third (33%) could cover living expenses for six months or more without borrowing. This finding underscores a lack of preparedness for financial emergencies among a significant portion of the population.

Additionally, 16% of respondents reported having no emergency savings, highlighting the vulnerability of a substantial minority within the EU. The survey also found widespread uncertainty regarding retirement savings, with a majority of respondents lacking confidence in their financial security for retirement. This uncertainty varies significantly across countries, reflecting differences in pension systems, financial planning practices, and cultural attitudes toward saving.

Investment advice received from a bank, insurer or financial advisor

Trust in financial advice, particularly regarding investments, is another critical issue identified by the survey. Only 32% of respondents were confident that the investment advice they received was in their best interest. Even in Finland, where confidence was highest, only 60% of respondents felt assured that the advice they received was trustworthy.

This pervasive skepticism towards financial advisors highlights the need for greater transparency and consumer protection within the financial services industry.

In conclusion, the 2023 Flash Eurobarometer survey provides a comprehensive analysis of financial literacy in the EU, revealing a complex and uneven landscape. The results underline the urgent need for targeted financial education initiatives and policies to overcome gaps in financial knowledge and behaviour, ensuring that all citizens are equipped to make informed financial decisions in an increasingly complex world.

Moreover, businesses that incorporate financial education about their own products can play a significant role in addressing this issue while also enhancing their profitability. By empowering consumers with the knowledge they need to understand and use financial products effectively, companies can build trust, increase customer engagement, and differentiate themselves in competitive markets. This approach not only contributes to closing the financial literacy gap but also fosters a more informed and confident customer base, ultimately benefiting both consumers and businesses.