Financial literacy is crucial to having successful financial outcomes, yet only 55% of people in Ireland understand 3 out of the ‘big 4’ financial concepts [1]. This is almost 20% lower than in the UK, Germany, Denmark, Sweden and the Netherlands.
Drilling into the data for Ireland the new moneysherpa study has three main takeaways.
- The 18-44 age group is 20% further behind the curve than older age groups
- Dublin lags rest of the country for financial literacy
- Unlike findings in most other countries Irish women are 15% ahead of men when it comes to financial savvy
Read on to find out, why financial literacy matters, what the ‘big four’ concepts you need to know are and the Irish survey findings.
If you want to check out your own financial literacy score, you can take our financial literacy test.
Why financial literacy matters
Financial literacy matters more now than ever. According to a recent survey conducted by Laya healthcare, the single biggest source of worry for Irish people today is financial worry [2].
In an increasingly dog eat dog financial world where traditional safety nets like defined benefit pensions and jobs for life have fallen away, Irish consumers need to be able to financially fend for themselves.
Yet study after study has shown we are singularly unprepared for this task, with young people in particular lacking the basic skills and knowledge to make smart financial decisions.
Anne Richards, CEO of Fidelity International one of the largest financial providers in the world, believes real world money maths matters “Armies of people leave school knowing their SOHCAHTOA [trigonometry]” she said “perhaps teaching children and young students the building blocks of how mortgages, credit cards, insurance and pensions work … might be more useful.”
Financial Times
The good news is that these building blocks can be boiled down to just 4 fundamental concepts that are easy to learn and teach.
The ‘big four’ concepts you need to know
The 4 concepts behind financial literacy are very straightforward, yet over 66% of people worldwide failed to get 3 out 4 of them correct in the S&P Finlit survey.
- Diversification, spreading risk to reduce the overall level of risk = “never put all your eggs in one basket.”
- Inflation, the value of money isn’t fixed, it is simply a function of what you can buy with it.
- Numeracy, 2 + 2 does equal 4, good basic arithmetic is the cost of entry for financial literacy
- Compound Interest, is the interest you earn on your money, plus the interest it’s already accrued
The last one compound interest is a particularly slippery customer, because of the powerful mathematical process that lies behind it.
Albert Einstein is said to have called compounding “the most powerful force in the universe.”
“Compound interest is the eighth wonder of the world,” Einstein reportedly said. “He who understands it, earns it. He who doesn’t, pays it.”
Inc.com
The exponential growth curve that results from compounding is often hard for us to get our head around and the source of many financial mis steps.
Irish financial literacy survey deep dive findings
18-44 age group under prepared for financial decisions
The moneysherpa survey shows that the 18-44 age group are over 20% less financially literate than the 45-64 age group.
This is crucial as it is at this stage many of life’s critical financial decisions are made. Financial mistakes made before 44 are quite literally compounded as the years roll by.
By the time we reach our peak financially at 45+, the decisions we have made on our pensions and mortgage may have set us on a path that it is hard to break from.
Dublin lags the rest of the country in financial literacy
Generally financial literacy falls in line with economic development. As Ireland’s economic powerhouse you might expect Dublin to lead the country in financial literacy.
In fact Dublin financial literacy is 5% lower than in the rest of the country.
In a region with higher income levels and house prices, low levels of financial literacy could have long term consequences.
Irish women bucking world wide financial literacy trend
In countries rich and poor around the world financial literacy surveys have consistently shown women coming out around 15% lower than men in financial literacy.
This is usually attributed to cultural factors or access to education, reducing both financial confidence and knowledge.
Interestingly the Irish survey data shows women leading men in financial literacy by 15%. Turning the trend seen elsewhere completely on its head.
Maybe Brehon Law has something to do with it…
Test your own financial literacy
At this point you may be wondering how you would score for financial savvy. Our quickfire 5 question quiz tests you for the same concepts used in the survey and S&P Finlit report, gives you a score and will point you in the right direction if you get any answers wrong!
In a nutshell – Financial Literacy
Financial literacy in Ireland is almost 20% lower than in other Northern European countries and is particularly low in Irish men aged 18-44.
Only 55% of people in Ireland understand 3 out of the ‘big 4’ financial concepts. Almost 20% lower than in the UK, Germany, Denmark, Sweden and the Netherlands.
- The 18-44 age group is 20% further behind the curve than older age groups
- Dublin lags rest of the country for financial literacy
- Unlike findings in most other countries Irish women are 15% ahead of men when it comes to financial savvy
If you want to learn more about how to manage your finances check out our six steps to money zen guide here.
If you are after saving tips you can go here or use our calculators to help save with mortgages and more here.
Survey Methodology
The moneysherpa financial literacy survey was conducted over 3 days from April 30th 2021. Using a statistically valid sample, weighted to align with Irish demographic data. The questions were based on the 2015 S&P finlit survey and various OECD reports. Irish data is given as comparative across segments only to allow for differences in data collection across the various finlit data sources used.
