CHAPTER 1
ARE EUROPEANS IN FINANCIAL TROUBLE?
Financial difficulty continues to be a critical problem for residents of Europe regardless of age, education, or nationality. This fear is the direct result of personal banking and financial illiteracy.
How important is the intelligent use of money to the reader's peace of mind?
The answer to this question may surprise the reader and help him or her understand their financial conduct. Financial decision-making is a complex process involving human emotions and behavioral psychology that changes across the readers' lifespan. This book will prove that emotions and human behavior in financial decision- making begins with the reader beliefs, values, and is vital to his or her survival. It is critical to the peace of mind and the overall well-being of the reader and family. Financial literacy is essential to the reader credibility, reliability, and sustainability of his or her personal relationships and all others affected by the day-to-day financial conduct. To grasp an understanding of the severity of the financial illiteracy problems that may affect European residents the immediate focus is to examine the roots of the problem.
Income inequality will pose the single greatest challenge for the European Union in the coming decades. The gap between the rich and the poor has widened. Austerity programs enacted by a series of European governments since 2009, with the aim of reducing budget deficits, have had disproportionate effect on those with lower incomes and intensified income differences, fueling expectations that inequality will further increase in years to come. Not only does this represent a reversal of progress for the European Union-income inequality had declined in most member states in recent decades-but it also is at odds with one of the foundational purposes of the Union: inclusive growth.
Income inequality is just one of several dimensions of widening inequality across the European Union. The interaction of all these dimensions-the income gap, skills gap, an age gap, a gender gap, the digital divide, the polarizing effects of new technologies, and the heightened vulnerability of particular household compositions. These issues could feed a vicious cycle for vulnerable groups, including secondary school and university students and adults, pensioners, low-skilled workers, migrants and their children, as well as single parents and their children.
If European societies wish to counter these trends1, they will need to help citizens equip themselves with the numeracy and financial skills that are in demand in the labor market and will need to protect the most vulnerable against misfortune. The priorities for investment should be early childhood education, secondary school, vocational, lifelong learning and apprenticeships in important and upcoming fields in the near future.
Magnitude of the Problem
To give the reader a vivid picture of the magnitude of the financial illiteracy problem in Europe, the reader should picture reading a world statistical population report; a key graph shows Europe's total population 333 million. He or she spends every day being busy over the issues of life and enjoying the EURO (?) consumer purchasing power benefits. These advantages will spread even more widely as other European countries adopt the euro.2 The intelligent use of money is the measure of consumer power to meet their personal needs and fulfill their wants for products and services.
This single currency, (?), is shared by 18 of the 28 European Union's member countries,3 which together make up the euro area.
The introduction of the euro in 1999 was a major step in European integration. In addition, it has been one of the Europe's major successes. It became the new official currency of 11 countries, replacing the old national currencies - such as the Deutsch Mark, Italian Lira, and French Franc. At first, the euro was an accounting currency for cash-less payments and accounting purposes, while the old currencies continued to be used for cash payments such day-to-day purchases. Since January 1, 2002, the euro is circulating in its current physical form, as banknotes and coins. The euro is not the currency of all European Union countries. Two countries, Denmark and the United Kingdom, preferred "opt-out" clauses in the Treaty exempting them from participation, while the remainders (several of the more recently acceded European Union members plus Sweden) have yet to meet the conditions for adopting this single currency.
Personal Banking and Financial Illiteracy Reality
Given the great importance of the financial illiteracy problem in Europe, the author and team of subject matter experts, examined three leading studies conducted by the International Network for Financial Education (INFE)4, and by the authorities of 28 countries of the European Union. Results of these studies and comparisons with data from the Gateway on Financial education5 indicate that most school students and adults of all ages, residing in Europe are ill equipped to take advantage of new financial opportunities and responsibilities. In addition, reviewed studies commissioned in 2013 by the Organization for Economic Co-operation and Development; the International Network of Financial Education; and the World Bank6, determined that on average, Europeans and households display some basic financial knowledge. These studies further concluded that an understanding of basic personal banking and financial concepts, such as compound interest, and risk diversification is lacking among sizeable proportions of the European population in every country.
Furthermore, these investigations documented two additional studies conducted nationally (e.g. in the United States, by the Financial Industry Regulatory Authority (FINRA 2009 and 2013).7 Results also demonstrate that American and European consumers tend to overestimate their financial knowledge, making them unaware of their immediate needs for personal banking and financial literacy education. Additionally, the examination of three studies in emerging economies, showed the level of financial culture and awareness of available existing financial products is at best partial (Atkinson and Messy, 2012;8 Monticone and Messy, 2012;9 Garcia, Grifoni, López and Mejía, 2013)10. Worldwide, school students, Millennial Generation11 and adults of all ages; also tend to display limited personal banking and financial skills. While sizeable shares of the population across different countries appear to be relatively good at short-term money management skills, seven personal banking and financial behavioral aspects are more problematic. These include:
(1) Absence of financial discipline;
(2) Lack of checking accounts;
(2) Insufficiency of saving accounts;
(3) Inadequate investments in formal financial products;
(4) Excessive reliance on credit;
(5) Using credit cards to make ends meet,
(6) Difficulties in choosing relevant financial products; and
(7) Population is making inaccurate and poorly informed financial decisions.
Results from these studies also cover wide variations of financial literacy between and within countries of Europe.
International and European studies revealed that specific groups across socio-demographic characteristics, including gender, find it particularly hard to deal with money matters and display lower levels of financial literacy. These groups can differ depending on national circumstances, but generally include youth, Millennial Generation, and adults - in almost all countries - women in a majority of countries, with a few exceptions, and recently financially included migrants as well as the elderly. Financial literacy education of Europeans' is essential to the success of the "Single Market for 21st Century Europe." This concept brings direct purchasing power benefits to European Union residents, particularly by empowering them to travel freely, work where they wish, and shop around for the best financial services, whether in their own country or across borders. The reader whether he or she is a student, Millennial, or an adult of any nationality residing in the European Union, will be able to take full advantage of these financial opportunities. The first step is for the reader to become aware of his or her real needs for financial literacy and then develop an interest to learn how to take advantage of new financial opportunities. The goal is to have an inner desire to act on the newfound knowledge in this book.
Europeans' Financial Literacy Needs
Review of the 2013 assessments of population needs, conducted by 28 European countries, evidence from the European Union surveys indicate Europeans' low level consumer numeracy and financial literacy. For example, the evidence showed that 45% of Europeans responding to these assessments could not calculate six percent, (6%) of ?50.000.12 In addition, the first comprehensive international survey of adult skills shows that one in five adults in Europe have low financial literacy and numeracy skills, and even a university degree in the same subject is no guarantee of the same level of skills in different countries.13 This Survey's key findings:
- 20% of the European Union working population has low financial literacy and numeracy skills;
- 25% of adults lack digital skills to solve problems in technology-rich environments; and
- There are striking differences between countries in skills provided through...
