When it comes to financial education in Germany, there is clearly still room for improvement. This is shown by a current study by the IU International University (IU), which wanted to know how Germans are financially literate. In a representative survey (1202 adult participants), it came out that 92.3 percent of all respondents consider financial education to be important to very important.
And 79.7 percent rate their own financial education as good to very good. But that seems to be a hopeless overconfidence, because the measurement of financial literacy showed that the participants achieved an average of just 10.7 points out of a possible 20 points.
Financial literacy is the knowledge, ability, and willingness to make sound financial decisions. The measurement was based on the questionnaire of the OECD. With this, the Organization for Economic Cooperation and Development aims to assess and compare financial literacy in different countries.
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In essence, there are three questions: In the first, the subjects should answer how much money they have after five years if they invest 100 euros at two percent interest per year. In the second question, you should indicate how much purchasing power you have after a year, if the 100 euros are invested for one percent, but inflation is two percent. The third is an assessment of whether buying stock in a single company typically offers a safer return than a mutual fund.
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“Women answer these questions after doing the calculations. Men, on the other hand, guess more often,” says Carmela Aprea, Chair of Business Education at the University of Mannheim and Director of the Mannheim Institute for Financial Education (MIFE).
She researches the financial education of the Germans and confirms that the self-assessment of the Germans has been significantly higher in several studies than the actual financial knowledge.
Gen Z trusts family finances
The IU study also found that only just under half of those surveyed felt they had sufficient financial literacy through their schooling. But nine out of ten respondents continue to educate themselves when it comes to financial issues. The first source of information is the family for 41.3 percent. In Generation Z, the under-25s, even 60.6 percent rely on their families for financial matters.
This is followed by general advice (37.1 percent), financial websites with classic information (36.6 percent) and recommendations from friends and acquaintances (35.2 percent). Influencers and social media are far more important to 39 percent of Gen Z than the average of all respondents (19.6 percent).
A little more than half of the participants invested in financial products such as funds, shares, real assets – or put money away, for example in the current account, as overnight money or in a savings account. The other half of those surveyed do not do this – mainly because they say there is no money left for it (50 percent of all those who do not invest money), they are risk-averse (24.7 percent) or do not feel sufficiently informed about financial products (23 .6 percent).
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And when it comes to financial decisions, respondents trust themselves above all (82.1 percent). Only then do family (60.4 percent) or friends (43.6 percent) follow. With 39 percent of the mentions, financial advisors are apparently asked last when it comes to investing.
“Handling money and understanding investments, debt and financial instruments determine whether people lead a financially stable life and achieve financial goals,” says Johannes Treu, Professor of General Business Administration and Economics at IU.
It is therefore of great importance if people in Germany expand their financial education. “But if you trust yourself, your family or influencers too much, you are taking an unnecessary risk. Given the below-average level of financial education in this country, we urgently need more comprehensible information and investment in education in this area,” says Treu.
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Federal Minister of Finance Christian Lindner and Federal Minister of Education Bettina Stark-Watzinger (both FDP) have also decided to do the same. In the spring of 2023, they launched the “Financial Education Initiative”. Too many people wouldn’t understand compound interest, for example. Financial knowledge in everyday life also includes understanding one’s own mobile phone contract or old-age provision.
“Financial education is a prerequisite for economic independence,” said Lindner. Millions of people in Germany let opportunities lie because they are not so well positioned when it comes to pensions. Others make investment decisions from which the investment brokers may benefit more than they do themselves.
After all: Germany, with its mediocre financially literate citizens, is in the middle in an international comparison, according to several studies in recent years. In most industrialized countries, financial knowledge reaches 52 percent of 100 – as in the current IU study. Incidentally, Sweden is ripping upwards, according to S&P’s Global Financial Literacy Survey back in 2014.
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There is also a voluntary PISA module that asks about the level of knowledge of 15-year-old students, says Aprea. But Germany does not take part in this investigation. At the beginning of 2022, the EU, together with the OECD, also decided to measure financial literacy.
But results are not yet available. The aim of this cooperation is to improve the financial literacy of EU citizens so that they can make sound decisions about their personal finances.
It is also about the development of financial literacy programs and educational materials by Member States to support educational institutions and industry.
Many can get by without compound interest
According to Aprea, the usual questions for measuring financial knowledge are a good first approach to the topic, but they do not allow for any diagnostics. “Three questions to get to the bottom of financial knowledge: That’s not enough. In our research we look at sub-areas. For example: Do people know more about private old-age provision than about statutory pensions?” Answer: Yes, because for many, statutory pension insurance is a closed book. “People don’t know much about that,” says Aprea.
One should also not draw conclusions too quickly from the answers to the OECD questions: “Just because people don’t know how to calculate interest doesn’t necessarily mean that they can’t cope financially in everyday life,” says the expert.
The business educator also sees the concept of financial education in a broader sense: “Since both the EU and the federal government have wanted to promote financial education, there have also been more private offers. For example, a financial knowledge boot camp for women for a participation fee of 3,000 euros. A woman smart enough not to spend that money also demonstrates a good level of financial literacy.”
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