Financial Literacy in Europe

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RESEARCH FINDINGS ON FINANCIAL LITERACY IN EUROPE

HONOURS RESEARCH PAPER

10/31/2010
PALLAVI SOMANI
SYBMS

INDEX

FINANCIAL LITERACY………………………………………….2 EUROPE AND FINANCIAL LITERACY………………………...4 EUROPEAN UNION AND FINANCIAL LITERACY……………9
FRANCE……………………………………………………………15 GERMANY…………………………………………………………18 ITALY………………………………………………………………21 UNITED KINGDOM……………………………………………….24 SPAIN……………………………………………………………….27 OVERVIEW OF FINANCIAL LITERACY IN OTHER

EUROPEAN COUNTRIES ………………………………………...29 WAY AHEAD……………………………………………………….33 CONCLUSION………………………………………………………34 BIBLIOGRAPHY……………………………………………………35

FINANCIAL LITERACY

An individual's ability to make informed judgments and effective decisions regarding the use and management of their money is called Financial Literacy. It refers to the knowledge required for managing personal finance. It is not formal education in finance. Instead it encompasses an understanding of how to use credit responsibly, manage money, minimize financial risks and derive long-term benefits of savings. Using information and objective advice, they develop the skills and confidence to become more conscious of financial risks and opportunities and make informed choices to advance their financial position. Financial education is increasingly significant, and not only for investors. It is becoming crucial for the average family trying to decide how to balance its budget, buy a house, fund the children’s education and ensure an income when the parents retire. The growing sophistication of financial markets means clients are not just choosing between interest rates on two different bank loans or savings plans, but are rather being presented a variety of complex financial instruments for borrowing and saving, with a large range of options. Simultaneously, the responsibility and peril for financial decisions that will have a major impact on a person’s future life, notably pensions, are being shifted increasingly to workers and away from government and employers. As life expectancy is escalating, the pension question is particularly important as persons will be enjoying longer periods of retirement. Financial literacy covers all aspects of planning your financial future. It includes: * Setting financial goals

* Creating your budget
* Itemizing your expenditures
* Planning for high-budget expenditures (including buying a home) * Basics of banking (account types and interest rates)
* Basics of investing (into stocks, bonds and mutual funds) * Planning for retirement (including 401K)
* Insurance
* Taxes
* Understanding the impact of inflation and interest on money and investments.

The Organization for Economic Co-operation and Development (OECD) initiated an inter-governmental plan in 2003 with the aim of providing ways to improve financial education and literacy standards through the expansion of common financial literacy principles. In March 2008, the OECD launched the International Gateway for Financial Education, which acts as a clearinghouse for financial education programs, information and research universally. In the UK, the substitute term “financial capability” is normally used: the Financial Services Authority (FSA) in the UK started a national strategy on financial capability in 2003. The US Government also started its Financial Literacy and Education Commission in 2003. An international OECD study was published in late 2005 analyzing financial literacy surveys in OECD countries. A selection of findings included: * In Australia, 67 per cent of respondents indicated that they understood the concept of compound interest, yet when they were asked to solve a difficulty using the concept only 28 per cent had a high-quality level of understanding. * A British survey found that clients do not enthusiastically seek out financial information. The information they do receive is acquired by chance, for example, by picking up a pamphlet at a...
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