Financial literacy can help people avoid debts and plan ahead for their retirement. (Antara Photo/Puspa Perwitasari)

S&P Survey Finds 70% of Indonesians Financially Illiterate


DECEMBER 02, 2015

Jakarta. Seven out of ten Indonesians will fail to answer basic questions about risk diversification, inflation, interest and compound interest to prove their literacy ability in finance, a survey published by Standard and Poor's Ratings Services showed.

Indonesians are not alone in this, however, as financial illiteracy is a global problem.

According to the report, inflation and interest are the most understood concepts in finance among the four while the knowledge of risk diversification is the lowest, with only 35 percent of adults worldwide being able to answer basic questions correctly.

"Based on this definition, 33 percent of adults worldwide are financially literate. This means that around 3.5 billion adults globally, most of them in developing economies, lack an understanding of basic financial concepts," the S&P report said.

The report – which is based on interviews with more than 150,000 nationally representative and randomly selected adults in more than 140 economies in 2014 – suggests that Indonesia ranks 88 out of 143 countries in financial literacy, with only 32 percent adults being financially literate.

Developed countries, including Australia, Canada, Denmark, Finland, Germany, Israel, the Netherlands, Norway, Sweden and the United Kingdom, had a financial literacy rate of about 65 percent.

"In the major emerging economies — the so-called BRICS (Brazil, the Russian Federation, India, China, and South Africa) — on average, 28 percent of adults are financially literate. Disparities exist among these countries, too, with rates ranging from 24 percent in India to 42 percent in South Africa," the report said.

The report also suggests that women, the poor and lower educated respondents in both developing economies and well developed financial markets are "more likely to suffer from gaps in financial knowledge."

According to the report, the average gender gap in financial literacy in emerging economies is 5 percent, excluding China and South Africa, where both men and women scored equally low in financial literacy.

Improving financial literacy can help people avoid debts, make a better job plans and save for their retirement, the report said.