Half of those aged 20 to 29 don’t make their own financial decisions, study finds

A large percentage of Maltese young adults don’t make their own financial decisions, a study has found.

The findings emerged from a 2018 survey on financial capability in Malta based on an international OECD study. The findings were presented by Marika Fsadni, a market researcher.

Respondents were asked whether they made their own decisions on financial matters, with 95% of the total cohort responding that they managed their own money.

The figure for the 18-19 and 20-29 cohorts, however, painted a different picture, with 67% and 47% respectively saying that someone else made financial decisions for them.

When it came to decisions about the household’s money, over 60% said they decide on these matters together with someone else.

In the 20-29 cohort, over 55% said that someone else in the household made these decisions, with Fsadni saying it was somewhat worrying that people this age did not manage such finances.

Nearly one in three (29%) don’t plan how to manage their money, the survey also found.

When it comes to measures taken to save money, almost 85% of the total cohort said they used a basic savings or deposit account for savings in the last twelve months, while over 23% said they invested in stocks and shares.

Almost 7% said they hadn’t saved anything in the last year. Despite this, 72% of participants said they could afford a major expense equivalent to their monthly income, without needing assistance.

Retirement planning

In terms of whether they thought they had made enough plans for their retirement, only around 25% said they were confident or very confident that they had, while 11% answered that they were not confident on how they were preparing for retiring.

About 45% had no retirement plan, with Fsadni also highlighting this as a cause for concern.

Around 55% said they would be getting their retirement funds from their savings, 45% said they would have a government pension, and 32% would continue to work. Only 15% said they had a private pension plan. More than one retirement funding source could be chosen in the survey.

One in three don’t make ends meet

While 64% said they could cover their living expenses in the past 12 months, 33% – one in three adults – could not cover these costs.

From those who couldn’t make ends meet, 87% said they were cutting back spending, 57% said they withdrew from their savings account and 37% used their credit card.

Borrowing from family or friends was cited as a copying method by 12%.

Most of the core questions used in the study were adapted from those used by the OECD International Study on financial literacy and financial education, but were tweaked to reflect the realities of Malta.

It involved answering online questions supplemented by face-to-face interviews for the older cohorts involved in the survey, with a total of 1,013 participants.

‘Red alert’ on young persons’ monetary management

Family permanent secretary Mark Musù said the high percent of young people who don’t make their own financial decisions was “staggering” and raised an “orange if not a red alert”.

“We need to understand more why this is happening, for we are here talking of tomorrow’s society – they very society in which we must instil a culture of responsibility for money management and retirement income,” Musù said.

The fact that almost one in three don’t plan their money management was also an area were efforts to improve this situation need to be redoubled, he emphasised.

“Good money management is based on knowledge and the application of such knowledge for planning – which in turn leads to good informed actions and decisions.”

He noted that while a high portion of Maltese people save money, they are cautious in their savings, with their money entrusted in financial instruments that they are familiar with, even if these do not render a return.

“How are we going to reverse this innate caution and risk aversion [and turn it into] saving in a ‘right fit’ financial instrument that will render a higher return?” he asked.

Musù also underlined that it was “disconcerting” that 45% of people had no retirement plan.

“It is unfortunate, but factual, that private pensions have only been introduced in 2015 – despite having been recommended in 2004. So the 15% take up is not surprising…”, he said.

The permanent secretary said the government would be studying the data from the research “deeply and carefully so as to better understand the financial literacy landscape we are operating in, and how we can better design the state’s retirement and financial capability actions to secure greater effectiveness.”

Retirement portal

Retirement and Financial Capability Group chairman David Spiteri Gingell said the government had launched a retirement portal connected to financial management, which can be accessed on financialcapability.gov.mt.

“The group has been working for the last two years, but was operating under the radar,” Gingell said.

The portal, which was launched in December 2017, but is now being made available to the wider general public now, is split into three sections.

The first is a latest content area which is updated regularly.

Second is a life events section, covering thing such as home loans, retirement savings, and social security pensions.

There is then a tools section, containing things such as compound interest and wedding expense calculators.

Traffic to the website has been growing, with over 22,000 unique visitors to date.

“The Pensions Reform Working Group is here to stay, and has a sustainable agenda which it is committed to put into effect,” Gingell underscored.

A mobile app, a financial literacy course and an awareness campaign

To help people manage their budget, a mobile app is being developed for monetary planning.

Artificial Intelligence academic Charles Abela said the app will allow its users to create budget plans, keep track of revenue and expenses, convert currency as well as other features.

The app – the first development phase of which is now ready and will be launched for feedback soon – also has an AI aspect which allows it to categorise the users and get initial information about them through asking a set of questions.

“The learning aspect of the app will be through the user’s interaction with the app – the system with try to learn his spending behaviour,” Abela said, “This will be fed back into the application to continuously update the profile.”

In an effort to offer more opportunities for money planning learning, MCAST is offering two courses – aimed at those working in certain specified areas – on financial literary at levels 3 and 4.

Pilot classes for both courses are being carried out, and they are set to also be offered next year.

A financial capability awareness campaign, project to last two years and including the publication of a handbook and media spots, will be launched too.

It will target 14 societal groups, with a focus on their individual situations which affect their ability to access information and knowledge on money management, and keep them from planning their finances.