Global survey highlights financial inclusion challenges
Only 25 percent of Filipino adults are financially literate, a Standard & Poor’s (S&P) Ratings Services survey found, highlighting the challenges facing the goal of boosting access to financial services.
An S&P Global Financial Literacy (FinLit) Survey conducted last year found country financial literacy rates ranging from 13 percent to 71 percent among 143 economies, with Yemen at the bottom and Denmark, Sweden and Norway sharing the top spot.
Globally, only one in three adults, or 31 percent, showed an understanding of basic financial concepts such as numeracy, risk diversification, inflation and compound interest (savings and debt.)
“Although financial literacy is higher among the wealthy, well educated, and those who use financial services, it is clear that billions of people are unprepared to deal with rapid changes in the financial landscape,” the survey said.
“Governments are pushing to increase financial inclusion by boosting access to bank accounts and other financial services but, unless people have the necessary financial skills, these opportunities can easily lead to high debt, mortgage defaults, or insolvency,” it added.
“This is especially true for women, the poor, and the less educated—all of whom suffer from low financial literacy and are frequently the target of government programs to expand financial inclusion.”
The survey involved interviews of over 150,000 adults in more than 140 countries.
Data was collected in 2014 as part of the Gallup World Poll and analytical support was provided by researchers at the World Bank and the Global Financial Literacy Excellence Center at George Washington University.
Data was collected in 2014 as part of the Gallup World Poll and analytical support was provided by researchers at the World Bank and the Global Financial Literacy Excellence Center at George Washington University.
The Philippines accompanied the West Bank and Gaza, Burundi, Vietnam, Bolivia, Turkey, India, Jordan, Honduras, Romania, Macedonia, Uzbekistan, El Salvador, Sierra Leone, Sudan, Iran, Kosovo, Nicaragua, Bangladesh, Kyrgyz Republic, Cambodia, Nepal, Armenia, Haiti, Tajikistan, Angola, Somalia, Afghanistan, Albania and Yemen in the bottom 30 in the survey.
Among the Southeast Asian countries included in the survey, Singapore scored the highest with a financial literacy rate of 59 percent. Cambodia was the lowest at 18 percent and the only other economy to score lower than the Philippines was Vietnam at 24 percent.
A respondent was judged as financially literate if he or she could correctly answer three out of four financial concepts detailed via five multiple-choice questions:
• On risk diversification: “Suppose you have some money. Is it safer to put your money into one business or investment, or to put your money into multiple businesses or investments?’
• On inflation: “Suppose over the next 10 years the prices of the things you buy double. If your income also doubles, will you be able to buy less than you can buy today, the same as you can buy today, or more than you can buy today?”
• On numeracy: “Suppose you need to borrow $100. Which is the lower amount to pay
back: $105 or $100 plus 3 percent?”
back: $105 or $100 plus 3 percent?”
• On compound interest: “Suppose you put your money in the bank for 2 years and the bank agrees to add 15 percent per year to your account. Will the bank add more money to your account the second year than it did in the first year, or will it add the same amount of money both years.”
• Also on compound interest: “Suppose you had $100 in a savings account and the bank adds 10 percent per year to the account. How much money would you have in the account after five years if you did not remove money from the account? More than $150, exactly $150, less than $150, don’t know?”
The correct answers, in order, are multiple businesses/investments, the same as you can buy today, $100 plus 3 percent, more money in the second year and more than 150.
Of the region’s economic powers, China scored 28 percent, Japan 43 percent and South Korea 33 percent. The survey also found that younger Asians were more likely to be financially adept than older respondents.
“While the array of financial products available in Asia continues to grow rapidly, S&P’s FinLit Survey suggests that most consumers lack a general understanding of credit, compound interest and other key concepts,” the ratings firm noted.
Citing China, credit card ownership in the country was said to have nearly doubled since 2011 yet less than half of the respondents could not correctly answer the survey questions on interest.
“We are committed to creating stronger financial markets all over the world,” said Courtney Geduldig, executive vice president of Public Affairs at McGraw Hill Financial, parent of S&P Ratings.
“We believe there are correlations between financial literacy, financial access, and the strength of markets. Addressing financial literacy is a key strategy in building stronger, more accessible and sustainable markets around the globe,” he said.
Matthew Bosrock, executive managing director and head of Asia-Pacific for Standard & Poor’s Ratings Services, said: “Understanding concepts like interest, inflation and the importance of savings are at the core of economic development.”
“A lack of basic financial understanding is one of the factors obstructing faster growth in Asia. This survey gives policymakers the tools to identify the gaps in education and also a chance to improve access to financial products,” he added.
source: Manila Times
