Financial Illiteracy, Motivations and Barriers to Saving and Investing by Spanish Households

Understanding basic financial concepts such as simple and compound interest, inflation, and risk diversification are essential prerequisites to possessing a minimum level of financial literacy. People who are financially literate are better equipped to manage the increasingly complex challenge of navigating the diverse set of problems inherent in an ever-changing financial landscape. One important consequence related to higher levels of financial literacy is an improved ability to make well-informed decisions regarding activities such as saving, investing, borrowing, and beyond. This work describes the results of a study conducted by the Center for Insurance Research of IE, that was designed to explore how the current level of financial literacy within different segments of the Spanish population affects saving and investing behavior and the perceived barriers to these practices. Using an online market research firm (Netquest), we conducted a survey in which 1538 participants were drawn from a representative sample of the Spanish population with internet access. Our data suggests an endemic lack of understanding within Spanish society regarding financial basis concepts and financial products available for investing, across all segments of the population. Decisions to save and invest are largely motivated by the desire to supplement one's pension, prepare for unforeseen events, increase wealth, and diversify risks. However, financial scandals and corruption, high levels of perceived risk in financial products and institutions, and a general lack of knowledge, are perceived as a strong barriers against investing. We conclude with a brief discussion of several tactics that can help inform the design and implementation of strategies geared toward increasing public understanding of financial products and investing, as well as helping to develop healthy saving and investment practices within the Spanish population