76% Indians not financially literate, says S&P survey

Most respondents understand inflation, but very few understand risk diversification, says the ratings agency in its Global Financial Literacy Survey

As much as 76 per cent of Indians do not understand key financial concepts like inflation and interest rate, lower than the worldwide average, an S&P Ratings Services survey said on Tuesday.

Standard & Poor’s Ratings Services Global Financial Literacy Survey said in Asia, Singapore is home to the highest percentage of financially literate adults (59 per cent), followed by Hong Kong and Japan (both at 43 per cent). Less than a third of adults in China (28 per cent) are financially literate.

“This is lower than the worldwide average of financial literacy, but roughly in line with other BRICS and South Asian nations,” it said. Also, about 66 per cent of adults worldwide are not financially literate.

The material gap between men and women existed in almost every country. Worldwide, there is a five-point gender gap with 65 per cent of men not being financially literate compared with 70 per cent of women, the survey said. In India, the gap was wider with 73 per cent of men and 80 per cent of women not being financially literate.

The survey also found out information about consumers' familiarity with the financial products they utilise.

“While the array of financial products available in Asia continues to grow rapidly, the survey suggests that most consumers lack a general understanding of credit, compound interest and other key concepts,” the survey said. Research increasingly shows that saving money is better for development than credit. Yet, just 14 per cent of adults in India save at a formal financial institution and their weak financial skills raise questions as to whether they’re getting the most out of their money, it added.

The survey interviewed more than 150,000 adults across over 140 countries and tested individual’s knowledge on four basic financial concepts: numeracy, risk diversification, inflation, compound interest (saving and debt).

According to the survey, 75 per cent of Asian adults and in comparison, 57 per cent of adults in US and 67 per cent in UK are financially literate.

Only 14 per cent of Indian adults correctly answered the question on risk diversification. Conversely, 56 per cent answered the inflation question correctly.

About 39 per cent of adults who have a formal loan are financially literate, while more than a quarter (27 per cent) of formal borrowers were found to be not financially literate.

Only about half of the participants (51 per cent) understood compound interest.

It said in India, 26 per cent of adults in the richest 60 per cent of households are financially literate compared to 20 per cent of adults in the poorest 40 per cent of households.

Worldwide, 36 per cent of adults in relatively richer households and 27 per cent of adults in relatively poorer households are financially literate.