Having the knowledge on how money works is something people from all walks of life can benefit from. With the right financial understanding and skills, it is easier to make sound decisions around personal finances, from choosing a mortgage to investing for retirement.
Study after study reveals that a lot of people continue to struggle with the basic economic concepts. According to a new research by MasterCard, the financial literacy levels across the Asia Pacific region, with the exception of a few countries, is falling.
MasterCard’s Financial Literacy Index measures the progress of financial literacy in 16 countries, including India, Philippines, Malaysia, Bangladesh, Indonesia, Thailand, Vietnam, Japan, China, Korea and Myanmar among others.
These countries, where a huge proportion of expatriates in the UAE originate from, are considered a region of savers. The majority of these consumers know how to budget and save regularly, but many of them have a poor grasp of other financial concepts, including retirement funds, the risks associated with investment, inflation and asset diversification.
“In both developed and emerging markets, people are struggling to understand the basic financial concepts such as inflation. In addition, while Asia Pacific is a region of savers, the lack of retirement planning should cause particular concern,” said T.V. Seshadri, MasterCard group executive, global products and solutions, Asia Pacific.
The good news, though, is that among the consumers in the emerging markets, Indians are progressing the most in financial knowledge and skills. According to MasterCard, India’s financial literacy index gained three points, placing it at the 12th place in the region.
Sudhesh Giriyan, COO of Xpress Money in the UAE, said the growing volume of remittances by Indian expatriates from around the world is testament to the fact that people from India are becoming more financially literate.
In 2014, Indians from around the world sent $70 billion to their home country. A good amount of that came from expatriates in the UAE.
“Many Indians believe in saving. They save for the future. They know that [they can’t stay permanently abroad and that] one day they have to go back home. So they make it a point to remit money and set aside for the future. Many have built their homes, purchased apartments in their home country,” said Giriyan.
He said Indians are active in investing their hard-earned savings in real estate, stocks and fixed deposits. Fixed deposits that offer as much as 8.5 per cent to 9 per cent per annum are particularly a favourite among Indian expatriates.
“In fact, many of them who are based in the UAE would borrow money from the banks and deposit the funds in a bank account in India. With the interest on loans here hovering around 4.5 per cent, those who choose to put their money in a high-interest account stand to gain more,” Giriyan said.
India, as well as Indonesia, Vietnam and Taiwan are the only markets to improve their financial literacy scores in 2014 and 2013. The other markets, including the Philippines, Malaysia, Bangladesh, Thailand and Singapore scored lower in financial literacy.
Overall, people from Taiwan are the most financially literate, followed by New Zealand and Hong Kong. Singapore’s financial literacy dropped from the second to sixth place, while Japan remains in the bottom spot.
Filipinos occupied the 8th spot, while Indonesians were ranked 14th and Bangladeshis 15th.
China ranked first in terms of investment know-how, but rated worst in basic money management.
MasterCard’s study was conducted for the fourth time between July and August 2014. The findings were released only last week.