THERE ARE ‘CLEAR gaps’ in Irish people’s understanding of basic personal finance issues, a new survey suggests.

The Irish Association of Pension Funds (IAPF), which commissioned the Red C Research survey, said it identified “clear gaps in the Irish public’s understanding of basic personal finance issues”.

Participants were asked three questions and in total just three in ten (31 per cent) Irish adults answered all the questions correctly while 53 per cent answered two of the questions correctly.

Survey

Ireland didn’t fare well when compared with our worldwide counterparts, with the country’s results being described as “noticeably below average” on most measures.

Our result contrasts with 53 per cent of Germans getting all questions correct and Japanese and American participants scoring slightly poorer than the Irish at just 27 per cent and 30 per cent respectively.

Following the findings, the IAPF has called on Government to provide a greater level of financial education in Irish schools, particularly at 2nd level.

According to Jerry Moriarty, Director of Policy with the IAPF, consumers have had to address significant personal finance problems in recent times.

Simply put – having an enhanced understanding would lead to better decision-making. While first-time buyers may no longer need to “know what a tracker mortgage is” as they are no longer available, there are plenty of other aspects of household financial planning that people encounter on a daily basis. With mortgages the biggest commitment people will take on and pensions the biggest asset they will have, it is crucial that people know how inflation, interest rates and diversification of investments can impact their financial security.

The Questions

Participants were asked whether they would have more or less than €102 after five years assuming they lodged €100 at the start in a savings account at an annual interest rate of 2 per cent.

Approximately seven in 10 (69 per cent) of Irish adults correctly answered this question, with 28 per cent getting it wrong. In the Netherlands and Germany, 85 per cent and 82 per cent of people respectively got the correct answer. Only the USA fared worse with 65 per cent getting it right.

The participants were then asked to assume that the interest rate on their savings account was 1 per cent per year and the inflation was 2 per cent per year. They were then asked after saving for 1 year, with the money in this account, would they be able to buy more than today, exactly the same as today, or less than today?

Three quarters (76 per cent) of Irish adults correctly answered this question which was pretty close to the best – the Germans at 78 per cent.

Finally they were asked: Whether buying a single company stock or a unitised fund usually provides a safer return.

Just over half (56 per cent) of Irish adults correctly answered this question with almost 1/5 (19 per cent) not understanding it.

This was the toughest question and again only the Germans bettered us at 62 per cent, with only 40 per cent of the Japanese getting it right.

Gender

Jerry Moriarty said that Irish males appear to be more financially literate than their female, as in question one, 75 per cent of men answered correctly compared with 63 per cent of women.

Similarly questions 2 and 3 (respectively) signalled the same trend with 81 per cent of men to 70 per cent of women and 59 per cent of men to 52 per cent of women answering correctly.

The IAPF research also found that overall, age is a positive factor with older people doing well and scoring substantially better than those that still attend or have just left our education system.

When contrasted, the various socio-economic groups showed little differences.