Slovaks lack financial literacy: survey

WHILE most Slovaks no longer keep their money under a mattress, many of them still have a hard time decoding financial terms and making informed decisions when they choose their banking products.

Bank employees are not responsible for explaining the basics of banking to clients, the association says.
photo: Sme - Peter Žákovič

WHILE most Slovaks no longer keep their money under a mattress, many of them still have a hard time decoding financial terms and making informed decisions when they choose their banking products.

Some still cannot tell the difference between a credit card and a debit card and they compare no more than two options before choosing a banking product, said the Slovak Banking Association after releasing its recent survey on Slovaks' financial literacy.

"Financial literacy (in Slovakia) is lower than we had expected," association president Regina Ovesny-Straka said at a press conference.

Slovaks need more training when it comes to financial language, and the initiative must come from the state, the association said. More financial literacy means the number of clients with risky financial behavior decreases, experts say.

The financial literacy survey looked at Slovak consumers' knowledge of the banking products available on the market.

It showed that it is rare for Slovak clients to compare more than two offers from different banks before opting for a banking product, said Ovesny-Straka.

"More than half of those surveyed were not able to choose the more advantageous of two term deposit products, which we consider a relatively simple banking product," she said.

The situation is similar when it comes to loans. Only 19 percent understood that the annual percentage rate is the true cost of a loan, and a third of the respondents were not able to say how a mortgage loan works, said Ovesny-Straka.

The survey was conducted by the MVK polling agency through personal interviews between September 4 and October 10. It polled 107 respondents between the age of 18 and 75 who are clients of at least one bank.

Knowledge gaps

The Slovak Banking Association, which represents all Slovak banks, created a financial literacy index called I-FiG, which measures clients' ability to make effective personal finance decisions based on the available information.

The survey respondents scored 0.56 points on the I-FiG index, which means that on average, 56 percent of all the questions were answered correctly, according to a news release from the association.

People with a university education scored the highest, at 0.66 points in the MVK survey. The self-employed, with 0.65 points, and people between 26 and 45 years old, with 0.60, also did better than the average.

The lowest scorers were people with an elementary-level education, with 0.43 points, followed by people between 66 and 75 years old, 0.44 points, the unemployed, 0.47 points, and pensioners, 0.48 points.

According to the association, there is plenty of information about the banking market available, but many clients can't process and analyse the information well enough because they don't understand the basic terms.

"We set two-thirds of answers being correct as the ideal, so the results are not satisfactory for us," Ladislav Unčovský, executive director of the Slovak Banking Association, said in the release. "An educated client is one of the key elements for the banking market."

The survey warns that the relevant organisations should do more to systematically educate the population in the area of finances, as educated clients are better able to identify their needs and weigh their financial options.

Banking professionals said the financial literacy situation is not unique to Slovakia, and even consumers in more advanced countries have similar problems. Experiences from other countries have shown that raising financial literacy pushes down the number of clients with risky behavior on the market, Unčovský told the press.

"My dream would be for at least high school students to take economics classes," Ovesny-Straka said. "The initiative must come from the state. We, the banks, are ready to help but we cannot do this on our own."

Young and old need education

Sociologist Pavel Haulík agrees that better economic education in the schools would help.

"It seems as though the school system has been slightly falling behind the needs of practical life, and many things that are necessary today have been missing from the school curriculum," Haulík said.

Things like basic economic expressions, financial questions and even consumers' rights should be included in the normal curriculum, he said.

"In the same way students learn about other areas, regardless of whether they will use that knowledge in their lives, they should be even more educated in this area before their high school final exams," he added.

But financial literacy has also been challenging for the older generation, he said. Banks and banking products have been changing along with society since the Velvet Revolution in 1989, Haulík told The Slovak Spectator.

"Banks and banking products as we know them today are a novelty for the older generation," he said. "They need to get oriented in this area, and it really comes down to the fact that older people find it more difficult to learn than younger people do."

Many financial terms are not used clearly, and people with little background in the field can easily get lost in the labyrinth of banking terminology, he said.

Banks have many products which are very similar in content but offered under different names, or products which have similar names but represent different products, said Haulík.

"For many people it is like learning a foreign language which they only have a very poor knowledge about," Haulík said. "The (survey) results are in no way catastrophic, though they show that there are some shortcomings."

Improving the country's financial literacy will be a long-term project, the banking association said.

The situation can't be blamed on bank employees who are not able to explain these terms to their clients, Ovesny-Straka said. All banks invest in staff training, but banks should not substitute the work of the National Bank of Slovakia or the state in the area of financial education, she said.

"The role of the banks is to explain concrete products, however I do not think that it is our job to explain what the interest rate is," Ovesny-Straka said.

"The rapid financial and demographic social development over the past 10 years has far exceeded the financial education of the Slovak population and its ability to absorb the necessary information from the area of finances."

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