A third of Cypriots are ‘financially fragile’
A third of Cypriots are “financially fragile” and are unable to cover emergencies, the University of Cyprus’ Economics Research Centre (CypERC) said on Wednesday.
The findings were unearthed as the centre aimed to examine the role of financial literacy on people’s financial resilience during the Covid-19 pandemic, with a total of 840 people aged between 25 and 64 years of age studied.
The term “financially fragile” means an individual who would not be able to cover an emergency financial need in any given month without borrowing or asking for financial assistance.
In addition, around three in five respondents said they did not have enough money set aside to cover three months’ worth of living expenses should they lose their main source of income.
Young people, the unemployed, low-income households and the elderly were all the least financially resilient on average, according to the study.
At the same time, the study found that fewer than four in ten Cypriots have a “good level” of financial knowledge, negatively impacting people’s ability to deal with the adverse financial impact of the pandemic.
People with higher levels of education and income were better placed to be able to weather the adverse effects of the pandemic, but CypERC insisted that one’s financial literacy was the key for being able to best manage the situation.
“The findings show that even when someone has the money to build a reserve fund for tough times, they are less likely to do so if they do not understand the basic concepts surrounding saving, investing and borrowing,” they said.
They added that those with greater wealth but lesser financial knowledge potentially “do not see the benefit of setting up such a fund, or even if they recognise the benefits of saving, do not know how to do so”.
“It is also possible that this phenomenon occurs due to a lack of confidence or the results of previous financial mistakes,” they said.
For this reason, they said they recommend that policymakers implement policies which will improve people’s financial literacy.
“Several studies have shown that people who receive financial education are more likely than those who do not to start saving and planning for their future,” they added.
In this regard, they pointed out that the Organisation for Economic Cooperation and Development (OECD) recommends that financial education start from a young age, “to shape positive habits and attitudes and transfer correct financial knowledge and skills before they are needed”.
“The results of our study demonstrate that Cyprus’ youth needs such financial education to build their financial resilience.”