According to the Organization for Economic Co-operation and Development (OECD), financial literacy is a combination of awareness, knowledge, skill, attitude and the behavior necessary to make sound financial decisions and ultimately achieve individual financial wellbeing.
Following the global financial crisis, financial literacy has gained international recognition as a critical life skill for individuals. The crisis highlighted the lack of financial knowledge among consumers across the globe. The results of an OECD survey undertaken in 14 countries in 2013, highlighted a lack of financial knowledge amongst a sizeable proportion of the population in each of the countries surveyed. Furthermore, based on a financial literary study across the world (S&P Global FinLit Survey), only 33 percent of adults worldwide are financially literate, that is worldwide, only 1-in-3 adults are familiar with the most basic economic concepts needed to make saving and investment decisions. This means that around 3.5 billion adults globally, most of them in developing economies, lack an understanding of basic financial concepts. However, these global figures vary around the world.
Why is financial education important?
When consumers are financially literate they understand better how bank accounts and credit cards work and what do they really mean, as well as how to avoid wrong decisions and excessive debt. In sum, financial literacy impacts the daily decisions an average family makes when trying to manage its budget, savings and investment activities.
Financial education is so much more important these days than it was 20 years ago. Today, consumers face more complex market environments and a variety of financial choices. There are hundreds of credit card options, several types of mortgages, various investment options that lead to complicated financial decision making. Either in emerging, advanced or developing economies, individuals should be financially educated in order to be able to choose the right savings, loan or investments products that respond to their needs and at the same time be in a position to recognize mistakes and weigh any financial risks involved. Individuals are in charge of securing their own financial well-being and must have the proper financial knowledge to do so. And well-informed consumers are critical to a strong and stable economy.
Financial education concerns all ages but more importantly the young generation since they will be likely facing even more complex financial products and services. Furthermore, young people have access to credit at a much earlier age than their parents did. Accordingly, they need a more comprehensive understanding of credit than was afforded to the previous generation.
In this respect, more and more countries are developing financial educational strategies and programs within their continents. Financial educational activities in Europe vary according to the country’s own culture and educational system. In some countries, financial education is compulsory as part of the primary school curriculum, thus reaching a whole generation in a broad scale. Primary and high school students are educated about basic economic concepts and learn how to make thoughtful and informed decisions about their personal finances. Additionally, financial literacy workshops are organized for the education of both young children, adults and senior citizens in many countries. In this frame, financial institutions are seen as the most frequent and active supporters of the educational initiatives. In some European countries, national strategies are implemented involving the collaboration of various stakeholders (governmental /public bodies, private organizations, consumer organizations, charities, financial institutions, etc.).
At the same time, in most countries national educational websites have been established posting information and guidance about various economic issues such as budget management and planning, savings, borrowings, investment and insurance issues.