Financial capability in Malta: Unearthing the facts

Why is it important for Maltese citizens to be financially capable? From a national perspective, developing financial capability reduces the cost of responding to financial and economic crises, which diverts resources from more productive alternatives. Conversely, financial capability positively contributes to the economy by improving individuals’ skills, health and well-being. People can better handle and manage their household finances, provide healthy food within the budget envelope and channel their spending to what is important and necessary.

Individually, the characteristics of different populations and income cohorts present different challenges. For example, the financial capability of vulnerable persons demands greater attention to their ability to manage their income and debt. On the other hand, young adults are conditioned by behavioural heuristics: pensions are for the future while addressing today’s life cycle challenges: getting married, raising a family, buying a home, etc.

The 2010 Strategic Review (SR) on the pension system mandated placed financial capability as a fundamental pillar for pension reform. Indeed, a specific chapter titled Establishing a Framework for Financial Literacy, formed part of the SR report prepared by the Pensions Working Group. The government, late in its administration in mid-2012, acting on the recommendation of the 2010 SR, set up a Commission on Financial Literacy and Retirement Income – setting out for it two short-term goals: (a) carrying out a national survey on financial literacy in Malta to be based on the OECD/International Gateway for Financial Education survey instrument, and (b) to design a national strategy on financial literacy and retirement income – both to be completed by December 2012. Neither task was completed and the Commission was not reconstituted following a change in administration following the March 2013 elections. Regrettably, this Commission did not survive the change in administration in 2013.

The 2015 SR, in a section of its report titled Inculcating a culture of literacy concerning financial savings and investments and retirement income in its final report underlined that the “Pension Strategy Group (PSG) agree[d] with the direction proposed by the 2010 PWG in the setting up of a leading structure that would result in the articulation of a financial and retirement income strategy and which would coordinate its implementation … [that] a Commission for Financial Literacy and Retirement Income” is set-up.

The responsible minister at the time and the chair of the PSG tasked me to draw up a national strategy for financial capability. A draft was published for public consultation in early 2016 and the post-consultation strategy was approved in 2017. I was tasked to implement this strategy. One of the immediate tasks I undertook was the carrying out of the OECD/INFE survey instrument. My objective for Malta participating in this survey was to understand the level of financial capability in Malta and what gaps exist, thus allowing us to determine how these are to be addressed and to establish a baseline against which Malta could evaluate its performance over time in addressing financial capability. The report Financial Literacy in Malta: A Study on the awareness, knowledge, skill, attitude and behaviour necessary to make sound decisions was made public in late 2018. This report has a wealth of data I have long concluded which remains untapped. Among some of the important observations that emerge from this research are the following:

• 1 in 3 adults (29% – 292 respondents) do not take any initiative to track their household finances;
• The overwhelming majority of Maltese persons prefer saving money in savings / deposit accounts: 77.4% for the population cohort 20-29 years and 80% and over from the 30 years and over age cohort, with an average of 84.3%;
• Investing in bonds is highest with the 60-69 and 70-79 population age cohorts at 35.6% and 32.6%  – averaging 10.7% for the 30-39 age cohort and lower;
• Preference in investing in stocks and shares is 17.3% and less for the 40-49 and lower population cohort, relatively high at 30% and 39.7% at the 60-69 and 70-79 age cohorts, respectively;
• Buying in cryptocurrencies at 2.9%, 5.9% and 3.5% for the 18-19, 20-29 and 30-39 age cohorts but insignificant for the other population cohort;
• Among the 60-69 and 70-70 age cohorts use of a banking app or other e-tools to manage money and keep track of outgoings stated at 9.6% and 5.2%, respectively, averaging 36.6% across the other age cohorts, the highest being the 20-29 age cohort at 50.3%;
• 45.2% stated that they do not have a retirement plan and 11.1% stated that they are “not at all confident” or “not confident” in having done a good job of making a financial retirement plan;
• 54.1% are looking at funding their retirement from savings;
• 44.8% depending primarily on the state pension; and
• 14.9% have a private pension plan

The above is only a small insight into the observations from this research. I understand that Ġemma has tacked into the next OECD/INFE survey cycle. I await the publication of the findings of the findings of this research. Comparing the results of this new research with the 2018 OECD/INFE Malta results will present an interesting analysis of behavioural changes within and across different population cohorts and nationally in terms of ensuring that Maltese citizens are financially capable.