It’s that time of year again, when eight-year-olds around the State get a sudden windfall. Some will be gifted hundreds of euro in the annual Communion money bonanza, but what should they do with it?
They could ask Mum or Dad, except many adults in Ireland have significant knowledge gaps when it comes to money. Fewer than six in 10 of us (57 per cent) meet the minimum OECD level of financial literacy, research shows. And the gap starts in childhood.
More than four in 10 of us struggle with managing our money day to day with ease, while considering our financial future, according to the data. This doesn’t bode well for a country.
That’s why we are all now going to get a national crash course, or rather post-crash course, in money. The Department of Finance has kicked off a five-year National Financial Literacy strategy, running until 2029. Last month, Minister for Finance Simon Harris opened applications for the role of “financial literacy ambassador” – a specific post to help increase our money sense.
READ MORE
But what does financial literacy look like, how do you stack up, and why does it matter?
Wake-up call
Financial literacy is a fancy name for being good with money. It’s not so much about getting rich as knowing how to make the most of what you’ve got.
The cost-of-living crisis, the Covid-19 pandemic and, before that, the 2008 financial crash have shown us how quickly events and our capacity to ride them out can upend our finances.
Can you budget your income and bills effectively? Do you save? What are your borrowings like? Do you invest? How are those retirement plans going? And are you likely to fall for a scam? How adept citizens are at these things reveals a country’s financial literacy score.
In only four EU member states – the Netherlands, Sweden, Denmark and Slovenia – do more than 25 per cent of people score highly in financial literacy, according to a Eurobarometer survey, published in July 2023.
The results were a “wake-up call”, said then commissioner for financial stability, Mairead McGuinness.
How would you rate your financial knowledge? Just 5 per cent of people in Ireland rate “very high” in the Eurobarometer survey. A majority of us, 58 per cent, describe ourselves as “average”.
The survey asked people one question on a number of topics – inflation, interest rates, compound interest, risk and investments – to gauge their money smarts.
If you get four or five out of five of these answers correct, you are among the just 31 per cent of Irish adults who did so. More than one in five Irish adults got just one or none of the answers right.
Inflation is one of the big things eating our spending power, but do we understand it?
If you are given a gift of €1,000 and inflation is running at 2 per cent, in a year’s time will you be able to buy more than you could today, the same amount, less than you could buy today or you don’t know?
Some 65 per cent of people in the EU got this right saying their money would buy less. But Irish people are keeping an estimated €170 billion in savings accounts earning practically zero in interest, where it’s losing buyer power, so you’ve got to wonder whether the penny has dropped with us.
What about compound interest? Imagine you put €100 in a savings account with an interest rate of 2 per cent a year. How much would be in the account at the end of five years?
Just 45 per cent of respondents in the EU27 got this right, guessing they’d have “more than €110″.
Compound interest is a topic taught in Junior Cycle here, but just 44 per cent of people displayed a grasp of it in a Bank of Ireland survey published in 2023.
Is an investment with a higher return likely to be riskier than one with a lower return? The two-thirds of EU respondents who answered that a higher returning investment was likely to be a riskier one got this right.
What about investing in a wide range of company shares? Is this likely to be less risky than investing in a single share? Some 29 per cent of respondents got this wrong, 15 per cent didn’t know with just 56 per cent correctly stating that a wider range of shares was less risky.
Next in the quiz was the link between interest rates and bond prices – if interest rates were to rise, what typically happens to bond prices? Just 20 per cent answered correctly that they would fall, while 29 per cent said they would rise and 23 per cent said they would neither rise nor fall. The remaining 28 per cent said they didn’t know.
Overall, people in Ireland ranked above the EU27 average for financial knowledge, placing ninth overall.
But the Dutch, the Finns, the Danes, Estonians, Slovenians and Swedes, as well as those from Luxembourg and Germany all outrank us on financial knowledge.
Finland has set its sights even higher with a goal of being the most financially literate in the world by 2030.
People in Ireland rank low on ownership of investment products, such as funds, stocks or bonds at just 18 per cent compared to the EU average of 24 per cent, according to the survey. This compares to 46 per cent of Swedes.
Call it the Eircom shares effect, but our apathy towards investing means we are missing potentially bigger returns.
The Minister for Finance is trying to address this with plans for a State-backed personal savings and investment account to encourage us to invest a portion of our large bank deposits.
Attitudes
While we mostly understand financial concepts, our “attitude” to money is a bit more laissez-faire. And this is the kind of thing that can see you ending up with two apartments in Turkey and no pension.
The Eurobarometer survey also ranks a country’s “financial behaviour”. This is how financially savvy we are when choosing products, keeping track of expenses and striving to achieve financial goals.
Before you buy something, do you consider if you can afford it? Most people across the EU say they do. A similarly high number say they keep track of and monitor their expenses.
When it comes to setting long-term financial goals and striving to achieve them, however, just one in five “completely agree” with this, while four out of 10 “disagree”.
In each of these three measures – considering affordability, tracking our expenses and striving to achieve financial goals – Ireland ranks slightly below the EU27 average.
We perform least well in setting long-term financial goals and striving to achieve them, where, like the Italians, 21 out of the 27 EU countries rank above us.
The percentage of people in Ireland that score high on financially savvy behaviour is 60 per cent, compared to the EU27 average of 65. This places us joint fourth from bottom with Spain.
Romania, Slovenia and Sweden boast the savviest citizens. Greece, Portugal, Germany and France outsmart us too.
Using online banking or making mobile payments? Over one in five of us say we are either “not too comfortable” or “not at all comfortable” with that. For the Finnish and Swedes by contrast, it’s a doddle. One in five people in Ireland has been victim of some type of financial fraud, according to separate CCPC research published in 2023.
Financial knowledge and attitudes both combine to give a country its overall financial literacy score. Ireland ranks one place ahead of the EU27 average overall. The top spots go to the Dutch, the Swedes and the Danes.
If there was a Eurovision for financial literacy, we would not make the final. Some 17 per cent of people in Ireland have a low financial literacy score.
Making ends meet
If you lost your main source of income, could you cover six months or more of your living expenses without borrowing money or moving house? Fewer than a third (32 per cent) of people in Ireland could. In Luxembourg, the Netherlands and Sweden, nearly half said they could do so.
One in eight people in Ireland would only be able to cover their costs for a month or less in the event of an income shock, according to CCPC research.
Retirement also gives people in the EU cause for concern. A majority (52 per cent) feel they are either “not too confident” or “not at all confident” they will have enough money to live comfortably.
The figure is slightly better in Ireland where some 37 per cent of us are “somewhat confident” about money in retirement.
Karl Cronin of the North Connaught and Ulster Money Advice and Budgeting Service (Mabs) sees the State’s financial literacy gaps play out every day. Mabs will be involved in delivering aspects of Ireland’s financial literacy strategy.
“There is definitely a gap there in terms of making your money go further,” says Cronin.
From utility bills to car and house insurance, we can all get better value by shopping around more.
“We have a habit of auto-renewing and that’s just costing us more year on year,” says Cronin. “And certainly, with utility bills, we would see it is very much a loyalty thing. Consumers don’t think of shopping around.”
His casework has made him familiar with different household compositions.
“We know what might be a typical electricity bill or annual house insurance cost for a household like that, and then you see an extraordinary figure being paid. When you tease it out, you find they have been with the same provider for years.”
A quarter of respondents don’t shop around when buying a financial product, according to CCPC research. Cronin recommends CCPC.ie or switching websites like Bonkers.ie for finding better value.
Knowing where to get trusted financial information is another gap. Some 73 per cent of students are using TikTok to learn about money, says Cronin.
Separately, “buy now, pay later” is a financial product that many using it don’t fully understand as a form of credit, he says. Some clients have multiple buy now, pay later agreements where high interest and late payment fees mean costs have racked up. Late repayments can damage your credit rating.
Some of us could be better at tracking and monitoring our expenses too. “You would be surprised the amount of people who have subscriptions and they have no idea what they are for,” says Cronin.
“Go through your bank statements over a three- to six-month period and pick out where savings can be achieved,” he says. “There are cuts that won’t have any material effect on your household. It’s a really powerful exercise.”
Mabs plays a big role in advising people of their benefits and entitlements and where to get support if they are struggling too. More people than ever before are coming to the agency proactively seeking budgeting advice, he says.
“It’s what we love to see if someone identifies they could get into trouble this year because of time off due to illness, a separation looming, or maybe their employment is going to be affected.”
Others want help with a savings goal.
“It’s not problem debts. They want to know how to start saving for a wedding or put money aside for third level or save for a house,” he says. “It’s so heartening to see there is more awareness now that budgeting is the key to everything. It can be a simple sheet of paper, money in, money out … At the end of the day, that’s a really good start for anybody.”
Mortgage arrears affected nearly 100,000 borrowers at the post-crash peak in 2013, according to Central Bank figures. More than 8,000 had their homes repossessed in the period from the crash to 2018.
The crash was also linked to a significant rise in suicides, with an estimated 57 per cent higher rate of male suicides between 2008 and 2012, according to the National Suicide Research Foundation.
Now, AI is accelerating a shift towards the gig economy and portfolio careers, where individuals will bear more responsibility for their money, their retirement and their healthcare. That’s a big burden for people never formally taught about money. Financial health and physical and mental wellbeing are interconnected. It’s something we need to get right.
