Frontpage News 2014 Greater financial ...

Greater financial literary among the well-off

11 March 2014

… but one out of five Danes with a yearly income of more than 450,000 Danish Kroner still has outright poor financial literacy. For the lowest incomes of less than 150,000 Danish Kroner, it is only one out of two who has a good level of financial literacy. This is according to the Danish Bankers Association’s survey of the Danes’ knowledge when it comes to interest rates and loans.

The research company A&B Analyse has just completed a comprehensive survey for the Danish Bankers Association with a high number of respondents (3,500). The study tests the Danish population's financial literacy from six basic questions about interest rates, loan, risk, etc. 
 

The literacy level increases with income

The study’s high number of respondents makes it possible to break down the results to the population’s income and educational levels.
 
 
Figure 1. The relation between income and financial literacy
Source:  A&B Analyse for the Danish Bankers Association. 
Note: Good financial literacy is achieved by five or six right answers, while four right answers or less categorises the respondent as having poor financial literacy. The survey was conducted in week 7 and 8 this year and this figure is based on 2,857 responses.
 
 
The figures show that financial literacy is greater the higher the income. Thus, approximately 8 out of 10 Danes with an annual income over 450,000 Danish Kroner have comprehensive financial knowledge based on the test. For the lowest incomes (under 150,000 Danish Kroner), it is just every other person who has good financial literacy.
 

Poor financial literacy among the least educated

The study also shows that there is a correlation between the respondents' level of education and their financial literacy. 
 
It appears that the big leap in relation to financial literacy occurs if the respondent has a high school education compared to having primary school as the highest completed education.
 
As much as 60 percent of those with primary education have poor financial literacy, while it is just over a third of people with upper secondary education as the highest who have problems with understanding financial issues.
 
 
Figure 2. The relationship between education and financial literacy
Source: A&B Analyse for the Danish Bankers Association.
Note: The analysis is based on the respondent's highest educational level. Good financial literacy is achieved by five or six correct answers, while four right answers or less categorises respondents as having poor financial literacy. The survey was conducted in week 7 and 8 this year and this figure is based on 3,355 responses.
 
 
The proportion of people with good financial literacy is at the same level for those with upper secondary education, vocational training, short higher education or medium higher education.
 
For people with a higher education, the proportion with good financial literacy is larger - namely 78 percent.
 

Social imbalance - but collective problem

Overall, the figures suggest that there is a social impact associated with problems of lacking financial literacy. To a greater extent, it is people with lower incomes and education that have trouble understanding even basic concepts and calculations. Thus, these problems may contribute making the economic situation of these population groups even worse.
 
The problem is, however, collective, as the study points out that relatively large shares - over 20 percent of the groups with the highest income and education also have trouble understanding the financial concepts.
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