Money and the Irish: a nation of know-it-alls who haven’t a clue

Irish people have a very high opinion of themselves when it comes to managing their money. According to a new survey published this morning, almost 70 per cent of us believe we are either good or excellent when it comes to caring for our cash. And the numbers who claim to have great financial literacy are climbing fast.

Pricewatch has been given the first look at the poll of a representative sample of more than 1,000 adults carried out in February by ad agency Chemistry. It says that 68 per cent of Irish consumers described themselves as good to excellent with their money, an increase of eight points in less than a year.

Men are more likely to talk up their financially savvy nature: 23 per cent describe themselves as “excellent with money”, compared with 14 per cent of women. Is this true? Are we a nation of mini-Eddie Hobbses? And are men better with money than women?

Spoiler alert. No.

Sinéad Cosgrove is the planning director with Chemistry, and this report is just one of many she has put together examining how Irish consumers have been coping with the recession.

“I see across the board people saying post-recession that they will never go back to the way they were, that they have never been more prudent,” Cosgrave says.

She is not, however, at all convinced this is actually the case, and evidence suggests that chastened consumers could quickly slip back into the more casual habits that marked “boomier” times.

“We all move en masse and we feel comfortable when the people around us are engaged in the same behaviour as us,” she says. “That was one of the reasons the bubble inflated to the extent that it did. Then when it burst, people stopped spending; even those with money were holding off.”

What happened next was that the one-upmanship that was so prevalent during the boom became one-downmanship. That could easily reverse again, Cosgrove says, particularly if we start to think we’re better than we are at handling money.

"I think people overestimate how good they are with money," she says. "The global benchmark figures would suggest that around 30 per cent of the general population are financially literate. Our poll results suggest Ireland is running at more than twice that level and that seems unlikely."

Questioning savvy

To test people’s true personal finance literacy, as opposed to how they perceive it themselves, Cosgrove asked respondents questions that would prove their savvy one way or another.

For example, she asked if people thought pensions were more risky now than when the financial crisis started in earnest in 2008. Just under three-quarters of those polled said that pensions were either “riskier” than they were when the bubble popped or just plain old “as risky”.

A further 20 per cent of those polled said there had been no change in the level of risk attached to pensions, while just 6 per cent said pensions were less risky today than back then.

“Since the crisis hit, pension funds have actually been de-risking very significantly,” Cosgrove says.

So that is nul points for Irish consumers on that score.

Then she asked if people understood the new mortgage rules rolled out by the Central Bank in January. Under those rules, the regulator imposed lending caps on banks to stop them lending more than 80 per cent of the purchase price to a homebuyer. (The cap rises to 90 per cent for first-time buyers.) Banks are also prevented from issuing loans of more than 3½ times a borrower's household income.

Pretty simple, right? But just 10 per cent of those polled said their understanding of the new rules was excellent, while 27 per cent admitted they had little clue what the changes meant.

The survey also demonstrated that many people in the fortunate position of having access to large amounts of cash have a poor grasp of how to maximise the returns.

Almost a third of consumers said that had savings of more than €10,000 on deposit – despite the fact that interest rates are at historic lows and represent possibly the worst place to store savings.

Cosgrove addresses the gender differences: “I have spoken to a lot of brokers who deal in personal finance about how men and women approach personal finance. It appears that many men come in believing they know it all, but it quickly becomes apparent they have a very poor grasp of the detail. Women fare better when it comes to addressing and understanding that detail.”

Another key element that Cosgrove was keen to explore in the survey was the impact of information on our understanding. “I wanted to test whether people could make better or more informed decisions if they had access to more information online,” she says. “We looked at age differences and it appears that, although younger people have more and better access to technology than older people, it does not appear to be helping with their financial acumen.”

Risk to consumers

The imperative to have a better grasp of personal finance has never been greater, Cosgrave says. “We are coming out of recession, but now more than ever we have to be better with money because now more than ever all risk has been pushed on to individual consumers. People are more responsible for their financial wellbeing that ever. There has been a move away from defined benefit pension schemes to defined contribution ones, and the jobs that used to be for life are gone.”

Then there is the reality that people with 20 or 30 years to retirement will most likely not be able to rely on the State pension to do much more than keep them just above the poverty line.

And it is on pensions that the most revealing and alarming element of the survey is to be found. It shows that 50 per cent of Irish adults do not have a pension. This has been repeatedly borne out by other surveys.

If 70 per cent of Irish people think they are financially clued-in and only 50 per cent have a pension, then something is very wrong.