EU citizens are not doing well when it comes to financial literacy. Nearly half lack an understanding of basic financial concepts, including inflation.
A third of Europeans do not understand how inflation works, according to a survey by Eurobarometer. The same survey revealed only 18% of EU citizens were able to show a high level of financial literary.
According to the survey, 65% of EU citizens are aware that, in times of positive inflation, the purchasing power of their money decreases, meaning they can buy less than they could before with the same amount of money.
Lack of knowledge about inflation could be seen as concerning
In October 2022, the annual inflation in the EU reached levels not seen before in the previous four decades at 11.5%. While the rising cost of living was the most pressing worry for 93% of Europeans at that time, apparently a third of EU citizens do not know how inflation affects their lives.
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The best performers were the Netherlands (43%), Denmark (40%), Finland (40%) and Estonia (39%) where about four in 10 respondents display a high level of financial knowledge.
Romania and Portugal reported the worst scores in high levels of financial knowledge at 13% and 16%, respectively.
The questions weren’t about esoteric financial instruments that allow the rich to get away with murder, they were home ec style questions:
Stuff like
Imagine that someone puts €100 into a savings account with a guaranteed interest rate of 2% per year. They don’t make any further payments into this account and they don’t withdraw any money. How much would be in the account at the end of five years, once the interest payment is made?
Now imagine the following situation. You are going to be given a gift of [€1,000] in one year and, over that year, inflation stays at 2%. In one year’s time, with the [€1,000], will you be able to buy: [more, less, or the same]
Which of the following is true? An investment with a higher return is likely to be: [more risky, less risky]
Maybe part of the reason governments keep bailing out bad financial moves by private companies is because the electorate has decided investing is black magic and ignores it.
€100 into a savings account with a guaranteed interest rate of 2% per year. How much would be in the account at the end of five years, once the interest payment is made?
That’s an insanely hard problem to know the equation and do it in your head. Because the interest compounds (current year plus interest adds to last year’s total).
The equation is P( (1+r/n)^t*n -1)
