A lack of financial knowledge is costing the French a lot of money!

In France, a lack of financial literacy is estimated to cost a person with limited knowledge approximately 2,390 euros per year, compared to a person with an average level of financial literacy. Over a 10-year period, this would amount to 39,270 euros, compared to households with basic financial literacy.

Allianz recently conducted a new survey on financial literacy among a panel of more than 1,000 individuals in seven different countries: Germany, Australia, Spain, the United States, France, Italy, and the United Kingdom. The main objective was to assess the level of financial literacy regarding a variety of topics, such as interest rates, inflation, and the risks and returns associated with investments.
 

The overall level is low: only 10 to 18 percent of all respondents have a high level of financial literacy. Italy has the highest proportion of people with a high level of financial literacy (18 percent of Italian respondents), while the United States and France rank at the bottom, with only 10 percent of respondents having a high level of financial literacy.
 

In all countries surveyed, the proportion of participants lacking financial literacy was significantly higher, ranging from 20% (Spain) to 26% (France) and 32% (United States).
In particular, nearly two-thirds (66%) of respondents felt they had less knowledge than the average investor about financial markets and investing. In the current environment of high inflation, this reality compounds the lack of financial literacy and proves to be a double burden for savers.
 

What is the actual impact of financial literacy on household investment returns?
 

As part of this study, Allianz developed portfolio models and was able to determine, on a country-by-country basis, the actual returns on household investments based on their level of financial literacy. Overall, the average annual yield gap between a person with low financial literacy and another with an average level of financial literacy proved to be particularly high, ranging from 1.2% in France to 1.5% in Spain.
 

To assess the financial benefits of a strong financial literacy, Allianz created ideal model portfolios based on financial literacy levels, calculating the actual past returns for each country studied. In France, a lack of financial literacy is estimated to cost a person with limited knowledge approximately 2,390 euros per year, compared to a person with an average level of financial literacy. Over a 10-year period, this would amount to 39,270 euros, compared to households with basic financial literacy.
 

For their part, French savers with a solid financial education could expect to earn 2,730 euros more per year than someone without financial literacy—nearly equivalent to the average monthly salary in France. Over a 30-year period, that would amount to a colossal 243,959 euros.
 

Ludovic Subran, chief economist at the Allianz Group, emphasizes: "A lack of financial literacy can have serious consequences. Indeed, over extended investment periods—such as when planning for retirement—this lack of knowledge can significantly influence households’ financial decisions. Nevertheless, nothing is irreversible: by acquiring a solid foundation, anyone can develop sufficient knowledge to optimize their financial management.”
Disparities between women and men regarding financial literacy persist, although they are narrowing in France compared to 2020.
Given the complexity of the current economic climate, the study also focused on participants’ level of confidence regarding their financial future.
Among French respondents, nearly half of men (47%) said they were confident about their personal financial situation, while only 33% of women shared this optimism. This lack of confidence could be explained in part by a knowledge gap, since women (29%) are more likely to have low financial literacy than men (22%). Nevertheless, this gap has narrowed this year (a 6-point gap between men and women with sufficient financial literacy), compared to a similar study conducted by Allianz in 2020 (a 16-point gap).
However, once again this year, more women answered “I don’t know” to one or more questions on topics such as interest rates, inflation, the concept of risk and return, and diversification. This lack of knowledge has a negative impact on their self-confidence when making financial decisions.
 

According to Patricia Pelayo Romero, an economist at Allianz and co-author of the study, "Financial literacy programs focus on improving numeracy skills, but this is not limited to mathematics. Successful financial literacy initiatives, particularly those targeting women and young people, should start by building self-confidence."
 

In addition to this gender disparity, the situation also shows similarities across generations. The study reveals that financial knowledge and skills increase with age, with a higher concentration of people who are highly financially literate among baby boomers (21 percent) compared to Generations Z (6 percent) and Y (11 percent) combined.