Last month, I was fortunate to attend McGraw Hill Financial’s launch event for Standard & Poor’s Ratings Services’ recently released Global Financial Literacy Survey and the results were dramatic. Two-thirds of adults worldwide are not financially literate and in practically every country across the globe women have lower financial literacy than men.
The survey was conducted in collaboration with Gallup, the World Bank and the George Washington School of Business and is one of the most extensive to date. Researchers tested financial literacy by assessing more than 150,000 respondents from 148 countries on four basic financial literacy concepts:
- compound interest,
- inflation and
- risk diversification.
Individuals who understood three of these four concepts were considered financially literate.
Based on these tests, the researchers found that financial literacy across countries varies from a low of 13 percent (Yemen) to 71 percent (Norway). Higher education, greater income and access to financial products and services are correlated to increased financial skills. However, only 45 percent of savings account holders were found to be financially literate, meaning they may not be fully benefiting from their bank account. One thing remains consistent across almost all nations: the gender gap. Worldwide, 35 percent of men are considered financially literate while only 30 percent of women are financially literate. This gap persists even among advanced economies: according to the report, “a man with an account is 8 percentage points more likely to be financially literate than a woman with an account.”
There is however, an unexpected bright spot in this report. In developed nations, financial literacy increases with age, as can be expected, but in emerging economies, young people (between the ages of15 – 34) are more financially literate than older adults. Don’t get me wrong—youth literacy numbers in these markets are still very low at 32 percent. However, it does bode well for institutions and organizations like ours serving low-income youth. It tells us that young people have more financial knowledge than others and are ready to be served by financial institutions. That is why we make sure that the youth savings programs we develop with our partner financial institutions include a financial education component (see our guide to developing youth savings programs, Banking on Youth, and our blog on various forms of financial education for low-income youth for examples.)
Why is financial literacy so important? As stated in the report, “People who are financially literate have the ability to make informed financial choices regarding saving, investing, borrowing, and more. Financial knowledge is especially important in times where increasingly complex financial products are easily available to a wide range of the population.” For organizations like Women’s World Banking that seek to give low-income women access to a full-suite of financial products, enhancing literacy through education has always been a key part of our product development and rollout process, from everything to credit, savings and insurance. For instance, in India where the financial literacy rate of women is at 20 percent (compared to 27 percent for men), Women’s World Banking has contributed to BSR’s HERfinance program to increase financial capability of low-income workers in global supply chains by offering peer-to-peer training on financial literacy and improving their access to financial products (download our report, From Access to Inclusion: Educating Clients for additional examples of our financial education work).
And we know financial education works. In another project we did in India, Project Samruddi, we worked with SEWA Bank to create a comprehensive client education strategy that tied lessons to women’s aspirations with the goal of increasing the frequency and amounts that their clients save. The key tactic of the project was using every client interaction as an opportunity to share and reinforce financial education. The results showed that these short, frequent interactions can work – 47 percent of the actively saving clients receiving training increased their savings by ten percent or more and 71 percent of dormant clients who received training began saving again.
Annamaria Lusardi, one of the chief researchers leading this effort, gave a clear call to action to those of us in attendance: “This data clearly shows that we need to step up the effort to improve financial literacy around the world. And we need to focus on some vulnerable groups, such as women and the young.” Women’s World Banking is, and we hope this powerful data will encourage others to join us.