Progress towards financial wellbeing is stagnant across Asia Pacific

SINGAPORE – Progress towards financial wellbeing is stagnant in the majority of the Asia Pacific markets with the overall literacy score retreating by 1 point to 64, hitting a record low since the survey commenced in 2010, according to the latest MasterCard Index of Financial Literacy.

Overall, the developed economies show largely unchanged scores while the emerging markets show the biggest decline in scores. The most disappointing performances are observed in the markets of Vietnam (58, down -7 points), Myanmar (60, down -6 points), Philippines (62, down -4 points), Malaysia (67, down -2 points) and India (60, down -2 points).

“The fact that we have hit a record low in financial literacy scores across the region is a huge concern and must be immediately looked into. As far as emerging markets are concerned, while the reduced gender gap is certainly laudable, this year’s Financial Literacy Index shows that these countries are evidently struggling the most here. Generally, the young and the unemployed across all markets require special focus to boost the overall financial literacy in the region,” says Georgette Tan, Group Head, Communications, Asia Pacific, MasterCard.

“The increasingly complex and interconnected financial markets along with mounting uncertainties surrounding the global economy have made it even more paramount for greater financial knowledge among consumers, and this is especially vital when it comes to making sound investment decisions. What is evident from this year’s outcome is that mere individual initiative is not going to be enough to counter this problem. The resolution of this issue lies in a collective endeavor comprising government reforms, community initiatives, education and financial services combined with individual effort,” she added.

Top findings:

• Singapore places at the top for the first time, with a score of 71.3, and it is the only market that

showed improvement in all three literacy components – Basic Money Management, Financial

Planning, Investment). It is closely followed by Taiwan (71.1, ranked 2nd) and New Zealand (71.1, ranked 3rd).

• While developed markets maintain their lead over emerging markets, Japan remains the outlier staying in the bottom spot with 56.5 points.

• Asia Pacific consumers exhibit the most amount of knowledge about matters pertaining to

‘Financial Planning’ (score of 74) compared to ‘Basic Money Management’ (61) and ‘Investment’ (53), for the fifth year in a row.

• Consumers in Taiwan continue to top the region as the best financial planners (82), followed by

Thailand (81) and Malaysia (80), while Vietnam experiences the biggest drop in ranking from 2nd to 15th, with a 12-point deterioration to 69 points.

• Indonesia shows the biggest improvement in ‘Financial Planning’, increasing from 70 to 78 points; however it also experiences the largest decline in the ‘Investment’ component which dropped from 55 to 47.

• New Zealand (75) and Australia (72) retain their top two positions when it comes to ‘Basic Money Management’ this component, while Singapore’s gain of 4 points to 71 points places it in 3rd place, overtaking Hong Kong (69) which was previously the 3rd highest. Some of the largest declines are observed in the emerging markets of Myanmar (50-neutral point mark, down -7 points), the Philippines (59, down -7 points), Vietnam (55, down -4 points) and Malaysia (62, down -4 points).

• Understanding of ‘Diversifying assets’ and ‘Inflation’ worsens across Asia Pacific to barely-acceptable levels of 35 and 36 points, respectively.

• Asia Pacific women make progress towards closing the gender gap, with the regional average score increasing by 2 points to 100. Women in emerging markets are more at par with their male counterparts compared to women in developed economies, with the biggest improvement shown by women in Vietnam (score up 13 points to 121 from the previous survey).

• In terms of age, people under 30 are less financially literate than those over 30 in all markets, except Sri Lanka, where the younger cohort is more financially literate.

• With regards to employment status, generally “Working” professionals are found to be more financially proficient than those who are “Not Working”. While Indonesia, Philippines and Bangladesh exhibit no difference between the two groups, India stands out with working consumers being less financially literate than their counterparts. On average, working consumers in developed markets (except Japan and South Korea) are more financially savvy than their peers in emerging markets. India, Vietnam and Bangladesh form the bottom tier of financial literacy with regards to working consumers.

Full Index data can be found on final page.

Issue specific insights

• Singapore lagging behind in retirement planning – Although Singapore showed an overall improvement in scores in the ‘Financial Planning’ category, doing well in terms of starting early with financial planning and showing prudence in savings and insurance, it continued to perform badly in terms of retirement planning. This may be attributed to the high degree of uncertainty and lack of confidence in financial management, resulting from a possible lack of employment security, risk of over-dependence on others during retirement years and lack of awareness or exposure to financial resources.

• Indonesia’s newfound prudence in Financial Planning – Indonesia has shown marked

improvement of 8 points in the ‘Financial Planning’ category, which has propelled it from 13th to 5th place. This could be a result of the insecurity in terms of income and employment prospects arising from the economic slowdown and tight labor market conditions in the 12 months prior to the survey. These conditions may be the driving force behind Indonesians being particularly prudent in financial planning, feeling the need to save regularly and set aside emergency savings, as well as develop an attitude of starting to save early, irrespective of one’s wealth. This progress is likely to continue with governmental reforms such as the five-year plan to encourage merger of the country’s three large state-owned Islamic banks in order to increase efficiency and develop innovative Islamic financial products.

• Explaining low financial literacy among the young cohort – Matured consumers (aged above 30) are more financially literate than their younger (aged less than 30) counterparts in the Asia Pacific region, with the exception of Sri Lanka. This lack of financial prudence amongst the young cohort might simply be attributed to the fact that they are at a different life stage, where insurance, investment and retirement planning may seem like less urgent needs. Moreover, in emerging markets, the reason why the young may be lacking in financial know-how could be poor banking, IT and telecommunications infrastructure, which curbs opportunities for them to be exposed to financial concepts. In fact, studies by the Centre for Banking Studies show that improving the banking penetration as well as the IT and telecommunications infrastructure has helped boost financial literacy in Sri Lanka. Measures such as the Micro Finance Act that help young Sri Lankans, set up their business, have further enabled the country to enhance financial literacy amongst the younger cohort.

Methodology

MasterCard’s Financial Literacy Index is conducted this year for the 5th consecutive time, during the period May and June 2015 on 8,718 respondents aged 18-64 in 17 countries in Asia Pacific (Australia, New Zealand, China, Hong Kong, Taiwan, Japan, Korea, Malaysia, Philippines, Thailand, Indonesia, Singapore, Vietnam, India, Bangladesh, and Myanmar, Sri Lanka). The Index comprises questions covering three components: Basic Money Management (50% weight) which examines respondents’ skills with regards to budgeting, savings, and responsibility of credit usage; Financial Planning (30% weight) which assesses knowledge about financial products, services, and concepts, and ability to plan for long-term financial needs; and Investment (20% weight) which determines respondents’ basic understanding of the various risks associated with investment, different investment products and skills required.

A Financial Literacy Index Score for each market is calculated out of the weighted sum of the 3 components.

Country ranking and score

Score breakdown by component

Overall Asia Pacific, Singapore, Taiwan, New Zealand, Hong Kong, Australia, Malaysia, China, Thailand

Sri Lanka, Indonesia, Philippines, South Korea, India, Myanmar, Bangladesh, Vietnam, Japan