Where in Europe are people the most financially literate?

Only 34% of adults have a minimum level of financial literacy, according to a new report by the Organisation for Economic Co-operation and Development (OECD).

This means that the majority of individuals, at least in the 39 countries studied, cannot effectively manage their money, a skill that’s essential to individual and societal well-being.

In its report, the OECD also stresses the vulnerability of those who lack basic financial knowledge, particularly at a time when price spikes are putting extra strain on wallets.

“High inflation and rising interest rates have highlighted the importance of equipping people with financial knowledge and skills to cope with difficult financial circumstances,” said Chiara Monticone, senior policy analyst at the OECD.

She told Euronews Business: “Results from our survey show that while most adults understand basic financial concepts, overall financial knowledge and skills could be improved significantly, including when dealing with digital financial services.”

Who tops the leaderboard in Europe?

The OECD gave a financial literacy score to each of the 39 countries studied, and the results for various EU member states are shown below.

When looking at average scores across populations, only Ireland and Germany reached the minimum financial literacy threshold of 70 out of 100 points.

The latter also came out top in the OECD’s wider study.

Besides looking at international disparities, the report noted variations between different population groups at a national level.

Individuals who have a higher level of formal education tend to be better at managing their money, as well as those on higher incomes and those in employment.

Other contributing factors include gender and age.

Across the countries studied by the OECD, people between 30 and 59 years old generally have higher financial literacy levels than those in the 18 to 29 bracket.

On average, men also score marginally higher than women.

Knowledge of core concepts

In terms of key financial principles, the OECD says 84% of adults understand the definition of inflation, but only 63% can apply the idea of ‘time value of money’ to their own savings.

To unpack this concept, the time value of money is the notion that a sum of money is worth more in the present moment than in the future

For example, if you were offered €1000, and you had the option to either take it now or later, the smart option would be to take the money now.

Why? One reason is inflation, and the second is earnings potential.

By taking the money upfront, instead of waiting 10 years, you have given yourself the opportunity to invest and earn more money, meaning you can grow that original lump sum.

Another concept that stumped OECD respondents was compound interest, which only 42% of adults understand.

Simply put, this term refers to earning ‘interest on interest’.

By reinvesting money that you earn on your investments, you can accumulate an even greater amount through interest payments.

Scam resilience and digital skills

When it comes to financial vulnerability, 15% of those surveyed say they have been a victim of at least one type of monetary fraud or scam.

The OECD found a negative correlation between financial knowledge and risk, as around two in three people who have fallen foul to fraud do not reach the target financial literacy score.

Staying alert to scams is also related to digital competence, as a number of criminals are now using online channels to target individuals.

In terms of the OECD’s digital financial literacy assessment, this doesn’t bode well.

On average, only 29% of adults surveyed reached the target level for digital skills, although these scores do increase in line with education and income levels.

Saving for financial shocks

Given the pressures placed on household budgets in the present context, the OECD is advocating for greater financial education to improve resilience.

On average, the group reports that only 59% of adults studied would currently be able to pay a major expense, equivalent to one month of income, without seeking external support.

This might mean taking a loan from a bank, family, or friends.

In order to tackle this problem, the group argues that education must focus on new, digital means of managing money, and must also be available to those with the lowest skill levels.