Authors : Desmond Choong
January 01, 2013
At the March 2013 Organisation for Economic Co-operation and Development (OECD)/World Bank/Reserve Bank of India Conference on Financial Education, it was acknowledged that empowering financial consumers has become a “necessity in an evolving societal and financial context” given the low level of financial literacy among consumers in an increasingly risky, broader and complex financial landscape. In their proposition for national financial education strategies, the OECD and its International Network on Financial Education (INFE) accentuated the need to promote financial literacy as a life skill for financial wellbeing, and stressed that due to the different needs that exist in each country such as the development of the financial systems, degree of financial penetration, demographic profile and cultures, a tailored approach that is adapted to the specific needs of each country is necessary.
MasterCard recognizes the vital role that financial education and inclusion play towards achieving financial wellbeing, combating poverty and sustaining long-term economic growth. As part of its proactive effort towards promoting knowledge enhancement, the latest MasterCard Financial Literacy Index (2013H1) has been created based on a survey conducted between April 2013 and May 2013 on 12,205 respondents aged 18 – 64 in 27 countries across 3 key regions: Asia/Pacific, Middle East and Africa (APMEA). This is the 3rd survey of Financial Literacy conducted since 2010. Bangladesh and Myanmar are new additions in this latest survey.
The purpose of the survey is to gather more insight of each country’s current financial literacy, the progress each country has made since the previous survey, and how each country fares relative to its peers across all regions.
The Index comprises questions covering three major 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 their 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 was calculated out of the weighted sum of the 3 components.
 “Developing National Strategies for Financial Education: OECD/INFE High Level Principles” at the OECD/WB/RBI Conference on Financial Education, 4-5 Mar 2013, New Delhi, Online http://www.finlitedu.org/news/23/
There are 16 countries included in the Asia/Pacific region: Australia, New Zealand, China, Hong Kong, Taiwan, Japan, Korea, Bangladesh, Malaysia, Philippines, Thailand, Indonesia, Singapore, Vietnam, India and Myanmar. Bangladesh and Myanmar are new additions to the list of countries. As coverage of these two countries only began in 2012 H2, all references to 2012 H1 data for these two countries are actually 2012 H2.
Thailand showed most significant improvement, New Zealand 1st in overall ranking
The Top 3
New Zealand’s overall financial literacy index increased from 73 points in the previous 2012H1 survey to 74 points, placing it at the top spot at both the Asia/Pacific and APMEA levels. Singapore’s index increased by 1 point to 72 points, advancing its ranking from 5th spot at both levels during the previous survey to 2nd place within Asia/Pacific and 3rd place across APMEA. Taiwan lost its top ranking at both levels but still retained an overall high ranking of 3rd place with an index score of 71 points within Asia/Pacific and 4th place across APMEA. The overall financial literacy scores for Australia and Hong Kong remained at 71 points, unchanged from the previous survey.
The Best & Worst Performers
It is interesting to note that the most significant progress in overall financial literacy was demonstrated among respondents in the developing markets of Thailand, the Philippines, and China, and less prominent in developed countries such as Australia and Hong Kong where the index score remained unchanged from the previous survey. There are two possible reasons for these differences. First, the acquisition and search for greater financial knowledge and skills have become more of a necessity in developing countries as compared to developed countries, effectively resulting in people being more prudent and responsible in their financial planning, money management and investment decisions. Second, in developed countries such as Australia and Hong Kong where the index scores have remained unchanged at 71 points, it is possible that there is a natural ‘cap’ to how financially literate a population can be.
The survey also showed that Indonesia declined the most from the previous survey with the overall index dropping from 67 points to 60 points, bringing its ranking from 7th to 14th spot within Asia/Pacific, and 8th to 21st spot across APMEA. Japan’s financial literacy worsened, shedding 3 points to 57 points, bringing it to the last place in the region, and retreating to 25th spot across APMEA.
Chart 1a: Asia/Pacific - Financial Literacy Index: Ranking 2012H1 vs. 2013H1
In Thailand, the index improved 3 points from 65 points to 68 points, resulting in an increase in ranking from 12th to 7th spot within Asia/Pacific, and from 14th to 8th place across APMEA. Financial literacy improvement was also evident among respondents in the Philippines: the index advanced 3 points from 65 points to 68 points, lifting the country’s overall ranking from 11th to 8th place within Asia/Pacific, and from 13th to 9th spot across APMEA. In China, the overall index rose from 64 points to 66 points, boosting the country’s ranking upwards from 13th to 10th spot within Asia/Pacific, and 17th to 11th spot across APMEA.
In terms of Basic Money Management skills for budgeting, credit card management, big item purchases, and tracking of expenditure, Asia/Pacific’s performance declined slightly with the index score dropping 2 points from the previous survey to 63 points.
New Zealand retained its top ranking from the previous survey at both the Asia/Pacific and APMEA levels with the index unchanged at 77 points, while Australia secured its 2nd and 3rd rankings at the Asia/Pacific and APMEA levels with the index score unchanged at 75 points. Singaporeans were also quite savvy when it came to money management, with the index increasing by 4 points from 69 points to 73 points, raising the country’s ranking from 5th to 3rd place within Asia/Pacific, and 6th to 4th place across APMEA.
Chart 1b: Asia/Pacific - Basic Money Management: Ranking 2012H1 vs. 2013H1
Respondents from Thailand and China also showed improvement in their basic money management skills, with the index score increasing from 60 points to 63 points, and 55 points to 58 points, respectively. In contrast, respondents from Myanmar and India were the least literate in this category, with Myanmar scoring 54 points (down from 55 points in the 2012H2 survey) and India scoring 50 points (down from 55 points in the 2012H1 survey). Indonesia showed the biggest deterioration, with the index score shedding 9 points from 65 points to 56 points, the biggest drop from the previous survey.
India: Reason for Poor Literacy in Basic Money Management
In terms of money management, the survey found the Indians to have performed poorly, particularly in terms of: (i) keeping up with bills and credit commitments – low score of 31 points vs. regional average of 62 points; (ii) having problems with setting money aside for big purchases – low score of 29 points vs. regional average of 52 points; and (iii) making the minimum payment each month for credit cards – very low score of 17 points vs. regional average of 44 points. The lack of ability to keep up with bills, set money aside for big item purchases and to pay off credit cards fully could be due to a lack of surplus cash, resulting from the fact that income levels are not high enough to cover expenses. According to the World Bank’s Global Financial Inclusion Index (Findex) 2012, only 22% of adult Indians saved in the past year (2011). This low propensity to save may be due to the fact that they were simply not earning enough to set aside money for savings, big purchases, and credit commitments.
In terms of savings and planning for the unexpected and retirement, Myanmar ranked top at both the Asia/Pacific and APMEA levels with the highest index score of 88 points, up 2 points from 2012H2. Taiwan upheld its 2nd place ranking at both regional levels with the index score unchanged at 83 points, while Malaysia advanced from 7th place to 3rd place at both regional levels with the index score jumping from 79 points to 82 points. Respondents in Thailand, China and India also showed notable improvements.
Chart 1c: Asia/Pacific – Financial Planning: Ranking 2012H1 vs. 2013H1
In contrast, Japan’s score was the lowest at 68 points, down 1 point from the previous survey, and with the ranking unchanged and lowest at 16th place within Asia/Pacific, and moving 2 spots down from 20th to 22nd at the APMEA level. The lower proficiency of the Japanese in terms of financial planning was evident regardless of age, working and marital status, income levels, or job positions (managerial or non-managerial). They also ranked the lowest (7th) among their Asia/Pacific peers during the survey’s first run in 2011H1. It is interesting to draw upon findings from Aegon’s recent “Retirement Readiness Index” which highlighted that Japanese employees were lacking in terms of their confidence in retirement, with 43% noting that they associated retirement with “insecurity”. In contrast, Aegon’s study showed that the Chinese were the most confident about their future and their ability to retire early at age 55, with 66% showing optimism about their retirement, compared with just 18% of Japanese.
Respondents from Indonesia and Korea showed the largest deterioration from the previous survey: Indonesia’s index score fell 6 points (from 81 points to 75 points), while Korea’s index score shed 5 points (from 83 points to 78 points).
Japan: Much more could be done to boost financial knowledge
In recognition of the need to improve financial literacy of the Japanese, the Bank of Japan and the Central Council for Financial Services information collaborated in a joint effort in 2011-2012 to launch a Financial Literacy Survey in Japan, the purpose of which was twofold: (i) to know the level of financial literacy of Japanese individuals age 18 years and above; and (ii) to improve the efficiency of financial education activities.
The survey focused on several aspects including: (i) financial preparations for the future, (ii) self-assessment of financial knowledge and ability to make appropriate judgments; (iii) fundamental knowledge of financial issues such as interest rates, inflation, etc.; (iv) basis for decision making on financial products and transactions; and (v) way to obtain financial information.
The findings of the survey revealed that in terms of way of thinking and behaviors on money, respondents’ way of thinking and behaviors on money were long-term oriented, sound, and cautious; and they tend not to shop around to make a financial product choice and showed tendency to be not well prepared for the future. This was consistent with Aegon’s study which suggested that the Japanese were insecure and lacked confidence about their retirement. The Council’s findings also revealed weakness in terms of financial knowledge (interest rates, inflation, risks, financial returns, etc.), and this was especially pronounced among the older and female cohorts.
These findings were consistent with and amplify the concern reflected in MasterCard’s most recent survey whereby the financial planning skills of the Japanese were not only the lowest in the region, but had shown no improvement from the previous survey.
 http://www.guardian.co.uk/money/2013/may/17/retirement-worse-off-than-parentsAegon is a multinational life insurance, pensions and asset management company with major operations in the U.S., the Netherlands and the United Kingdom. The “Retirement Readiness Index” is based on an interview with 12,000 employees in 12 countries on a wide range of financial planning issues. Extracted from article “Most people expect to be worse off than parents in retirement – except Chinese”, The Guardian, 17 May 2013, Online
 http://www.finlitedu.org/news/23/ The Financial Literacy Survey in Japan was based on interviews with 8,000 core samples and postal mails and internet for 2,000 over samples, of which 3,531 samples were used for analysis. The survey was conducted from 11 Nov 2011 until 8 Dec 2011 by the Central Council for Financial Services Information and published on 21 Sep 2012. Online:
As a region, Asia/Pacific’s overall index score for investment dropped marginally from 59 points in the previous survey to 58 points. Respondents from China topped the ranking at both the Asia/Pacific and APMEA levels with an index score of 68 points, up 3 points from the previous survey; while Hong Kong slipped from 1st to 2nd place with a score of 67 points, down from 68 points in the previous survey. Taiwan moved down one place from 2nd to 3rd place in both regions, with the index score declining from 67 to 63 points.
Within Asia/Pacific, respondents from Malaysia, the Philippines, Thailand and New Zealand showed some improvements in their investment acumen; while Australians, Vietnamese, Bangladeshis and Singaporeans fared worse as compared to the previous survey.
Japan’s score of 39 points was the lowest in the region and 2nd lowest across APMEA, moving down 2 points from the previous survey; while Indonesia remained in 14th place with a drop in score of 4 points to 47 points.
The investment questions were not asked of Myanmar survey participants as Myanmar does not have a functioning stock market. Myanmar will set up a security exchange by 2015 with the help of the Tokyo Stock Exchange and Daiwa Securities Group.
Chart 1d: Asia/Pacific – Investment: Ranking 2012H1 vs. 2013H1
Indonesia: A closer look
Various other studies have been conducted in recent years to uncover why financial literacy among Indonesians has remained poor, as was reflected in MasterCard’s surveys. In 2013, the Department of Banking Research and Regulation, Bank Indonesia launched a ‘Financial Inclusion (FI) Program’ to raise the financial literacy of Indonesians through enhanced methods of disseminating financial education, information and tools, a strategy which may help lead to more widespread financial inclusion – a key ingredient for sustainable economic growth and financial stability. According to statistics from the World Bank and the Global Financial Inclusion Index 2011, only 19.6% of adults in Indonesia had an account in the formal financial sector, compared to 66.7% in Malaysia, 77.7% in Thailand, 63.8% in China, and 35.2% in India. World Bank’s 2012 study also highlighted that one of the dominant factors why Indonesians are not connected to formal financial services was due to the lack of financial knowledge such as lack of understanding about banks, lack of credit worthiness and collaterals, lack of funds, etc.
The 2012 study “Improving Access to Financial Services in Indonesia” conducted by the World Bank showed that in terms of savings, of the total 237 million people in Indonesia, 68% have some form of savings, of which only 50% have a savings account at formal institutions. 41% use their own bank accounts, while 6% use someone else’s accounts. A separate study conducted by Cole, Sampson and Zia (2010) showed an increase in demand for savings accounts among those with low initial levels of financial literacy.
These findings demonstrate that there is a clear need to educate Indonesians who are lacking in financial literacy so that they are better equipped to manage, plan and invest their finances.
Thailand: Commendable progress evident
The progress made by the Thais in financial literacy (overall score increased by 3 points to 68 points, ranking advanced from 12th to 7th place in Asia/Pacific and from 14th to 8th place across APMEA) is notable, and may be attributed to the increasing role played by various authorities and institutions such as the Bank of Thailand (BOT), Thailand Securities Institute (TSI), Ministry of Education, Ministry of Finance, and other specialized financial institutions such as the Government Savings Bank and Bank for Agriculture and Agricultural Co-operatives in actively promoting the importance of financial skills and competencies – especially among the youths in schools and universities – through various training programs and projects. According to the Ministry of Finance (Fiscal Policy Office), the need to empower youths in financial literacy is vital given the aging population in the country, a trend which will impose greater burden on the next generation. Based on their ‘burden ratio’ estimates, while there were 6 workers for every elderly, by 2027, the ratio of workers to elderly will shrink to 3.
 “Financial Education for Financial Inclusion: Indonesia Perspective”, Department of Banking Research and Regulation, Bank Indonesia, 2013, Online http://www.finlitedu.org/news/23/
 Referenced in “Financial Education for Financial Inclusion: Indonesia Perspective”, Department of Banking Research and Regulation, Bank Indonesia, 2013, Online http://www.finlitedu.org/news/23/
 Referenced in “Financial Education for Financial Inclusion: Indonesia Perspective”, Department of Banking Research and Regulation, Bank Indonesia, 2013, Online http://www.finlitedu.org/news/23/
 Cole, S., T. Sampson, and B. Zia (2010). ‘Prices or knowledge? What drives demand for financial services in emerging markets?’ The Journal of Finance. Online http://www.povertyactionlab.org/publication/unpacking-causal-chain-financial-literacy
 “Youth: Developing financial skills and competencies – Thailand’s Experience”, India/OECD/World Bank Regional Dissemination Conference on Financial Inclusion, March 2013, Bank of Thailand, Online http://www.finlitedu.org/news/23/
2.4.1. BY AGE
New Zealanders aged 30+ topped the region with a score of 76 points, surpassing the younger cohort (<30 years old) by 8 points, and notably higher than the regional average of 68 points and 63 points for those aged 30+ and <30, respectively. Singaporeans, Australians and Taiwanese aged 30+ also demonstrated more superior financial literacy than their younger cohorts.
Chart 2a: Asia/Pacific – Financial Literacy Index: Comparison by Age
2.4.2. BY WORK STATUS
The findings also indicated that respondents who were in the workforce possessed higher levels of financial literacy (except Indonesians), with Kiwis topping the region with a score of 76 points, higher than the regional average of 67 points. This finding suggests that those who are working tend to be more savvy in their financial proficiency and this may have arisen due to two reasons: (i) the natural ‘habit’ of having to budget, manage expenses, and save, and (ii) people who are out in the workforce tend to be more exposed to various investment instruments/products and financial markets, and hence acquire more awareness and understanding of investment concepts.
Chart 2b: Asia/Pacific – Financial Literacy Index: Comparison by Work Status
2.4.3. BY MARITAL STATUS
A positive correlation was also apparent between those who are married and 30+ years old, and higher levels of financial proficiency in most countries (except the Philippines), suggesting that the need to be financially savvy becomes more pronounced as one gets married and the responsibilities of managing the household expenses, paying for a home, funding the children’s education, planning for retirement, among others, increase and become more complex. This observation is most apparent among New Zealanders who are married (30+ years old) with the highest index score of 79 points, followed by Australians (77 points), and Taiwanese (76 points).
Chart 2c: Asia/Pacific – Financial Literacy Index: Comparison by Marital Status
Desmond Choong is a business and market economist who specializes in providing research and business advisory services to clients in the areas of economic and market modeling with a key focus on Asia/Pacific and the African & Middle East regions. In the past twelve years, he has served as consultant to companies in financial services, manufacturing, logistics, energy, and the tourism industry. As a researcher, Desmond served as Fellow at the American Institute of Economic Research and taught International Trade at Boston University. Desmond holds a B.A. in English/Economics from Boston College and a M.A. in Political Economics from Boston University, MA, USA.