Two-thirds of adults worldwide are financially illiterate, according to the survey
KUALA LUMPUR: A total of 73% of adults in Asia do not adequately understand key monetary ideas, including risk diversification, inflation and compound interest, according to Standard & Poor’s Ratings Services global financial literacy survey.
The findings of the survey, which were released on Wednesday, showed the percentage of financially literate adults across the continent was lower than the global average.
This was after factoring in regional differences in knowledge between East Asia, South Asia, and Southeast Asia.
“Two-thirds of adults worldwide are financially illiterate,” according to the survey.
The survey results come from interviews conducted with more than 150,000 adults in more than 140 countries who were tested on their knowledge of four basic financial concepts: numeracy, risk diversification, inflation, compound interest (saving and debt.)
The data were collected in 2014 by Gallup 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 (GFLEC) at the George Washington University.
Singapore is home to the highest percentage of financially literate adults (59 percent) in Asia, while only 18 percent of Cambodian and Nepalese adults were able to correctly answer the questions on basic financial concepts.
The survey also uncovered information about varying levels of consumer knowledge about of financial products.
In China, 63% of adults who own a credit card are financially illiterate. Overall, 28% of Chinese adults were financially competent.
Significantly, the survey found younger Asians more likely to be financially adept than older respondents.
In Hong Kong, 58% of residents between the ages of 15 and 34 are financially literate, compared to 31% of residents over 55. In Taiwan, the 15-34 age cohort were almost twice as likely to be financially literate as the over-55 group.
“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.”
Meanwhile, Matthew Bosrock, executive managing director and head of Asia-Pacific for S&P pointed out that 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.
Excluding China, 40% of East Asian adults were sufficiently familiar with the financial concepts tested by the survey.
The East Asian results are higher than the global average of financially literate adults (33%), while Southeast Asia’s scores were closer the global average at 31%. Less than a quarter of South Asians correctly identified the concepts posed by pollsters, a significantly lower percentage than the global average.
The survey defines East Asia as China, Hong Kong SAR, Japan, South Korea, Mongolia and Taiwan. South Asia comprises Afghanistan, Bangladesh, Bhutan, India, Nepal, Pakistan and Sri Lanka, while Southeast Asia includes Cambodia, Indonesia, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam.
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.
In China, credit card ownership has nearly doubled since 2011, yet less than half of the respondents could not correctly answer the survey questions on interest.
Financial inclusion presents both a challenge and an opportunity in other Asian markets as well. About 47% of adults in India – 415 million adults – lack a bank account.
Roughly 80% of those without bank accounts have weak financial skills, according to the survey.
Additional major findings from the S&P Global FinLit Survey include:
• 61% of adults in China do not save for old age. About 72% of those non-savers have low financial literacy scores, according to the survey findings.
• Six out of 10 Chinese adults do not have formal savings, and about 20% of the adult population is unbanked. Only about one-third of formal savers in China are financially literate and just 52% of them understand interest.
• 73% of Indian men — and 80% of Indian women—are financially illiterate. Combined, only 24 percent of Indian adults are financially literate, the lowest score among the BRICS (Brazil, Russia, India, China, South Africa) club of nations.
• 38% of Indian adults with a tertiary education are financially literate; compared to 30% of adults with a secondary education, and 18% of adults with a primary education.
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