Almost all Maltese pay their bills on time and the vast majority of locals say they could face a major expense without needing to borrow money, a study on financial literacy has found.
But while the study suggests Maltese are on a sound financial footing, it also reveals a deep lack of understanding about compound interest and a lack of financial independence among young adults.
Two out of three adults were unable to calculate five years of compound interest; more than half of 20-29 year-olds said someone else made day-to-day household spending decisions for them; and roughly half of 70-79-year-olds do not keep track of their finances.
The study, which surveyed roughly 1,000 locals in 2018, was based on a global OECD study on adult financial literacy and was carried out by a local market research consultant on behalf of the Family Ministry.
Sound finances
It found that 93 per cent of Maltese are active savers, with the vast majority saving money using a bank account. 72 per cent of adults in Malta said they could face a major expense equivalent to their income without seeking help or a loan. 62 per cent of adults said they kept a close eye on their financial affairs while three in every four people said they did not have too much debt.
The percentage of Maltese who do some degree of budgeting (60%) is roughly in line with the OECD average, although that percentage declines among older people.
95% of respondents said they always paid their bills on time. Just 1 per cent said they never did.
Financial planning and literacy
85% of respondents said they made day-to-day spending decisions on their own or in consultation with someone else. That number is lower than the 91% OECD average and only Albania (83%), Brazil (80%), South Africa (67%) and Jordan (66%) scored lower than Malta on this metric.
Financial planning does not appear to be a key motivator for locals, however. More than half – 55% - say they do not have any financial goals and 45% say they do not have a retirement plan. Just 15% have a private pension plan and only one in four adults is confident that they have done a good job planning for retirement.
The study also indicates that young adults aged 18 and 19 may be somewhat overconfident when assessing their own financial literacy: 27 per cent of people in this cohort rated their financial literacy as ‘high’ or ‘very high’. Overall, 44 per cent of respondents rank their financial knowledge as ‘average’.
When their financial literacy was tested, Maltese did relatively well when calculating simple interest and also generally understood what happens to the purchasing power of money if inflation stays at the same rate for one year.
But just 30% of respondents were able to calculate the compound interest they would accrue in a savings account after a five-year period.
When asked whether they preferred to read about financial investment products in English or Maltese, locals were evenly split, with each of the two languages getting 35% of preferences.
Although the Maltese study was based on a regular OECD report on adult financial literacy and Maltese results features within the OECD report, the report writers noted that the Maltese survey was carried out in between OECD survey cycles and based on a draft, unfinalised OECD questionnaire.
Maltese responses concerning financial knowledge and behaviour were therefore not comparable to those in other countries, the OECD report noted. The next Malta survey is expected to be in sync with the OECD’s next survey cycle.