In the international environment, there is not much research in financial literacy that compares individual countries in terms of the level of financial literacy, much less such research regarding Slovenia. Therefore, my article focuses on the 2020 International OECD Survey on Adult Financial Literacy, part of which is also used in the international PISA survey carried out in Slovenia by the Educational Research Institute and involving the population of young people.
The aforementioned OECD survey covered three areas of financial literacy: knowledge, behaviour and attitudes towards finance, and compared the results of 26 countries of Asia, South America and Europe, including Slovenia. The result of all countries was an average of 12.7 points, showing relatively weak financial literacy. Slovenia was well above the average in all three segments, with higher results than even Austria and Italy, and Hungary and Croatia.
From this survey, we can assess that financial literacy in Slovenia is at a satisfactory level. However, it cannot be overlooked that the subject of the research was relatively simple financial products. Slovenians are showing a high level of awareness about financial security and also have clear long-term financial objectives.
In terms of savings growth and the possibility of investing in various financial investments, Slovenians are quite rigid, conservative and ill-informed, best highlighted by the amount of household savings in banks, which currently stand at more than EUR 22bn.
Slovenians have traditionally high confidence in banks, but their offer is limited to deposits and mutual funds, rarely providing services of so-called wealth management. Financial security, stability and the achievement of long-term financial objectives are understood primarily through savings.
Based on the European Central Bank survey, we can see that the most important reasons for household savings are the provision of funds for unexpected expenses, the provision of a reasonable income at retirement, the provision of funds for larger purchases (housing, furniture, vehicles) and savings for travel, education and financial support for children or grandchildren. In Slovenia, the gross saving rate was 13.3% in 2019, and traditionally the highest in Sweden (18.5%) and Germany (18.4%).
According to the Statistical Office, net assets, as a difference between assets and liabilities, have been increasing in households for 18 years, amounting to EUR 43.4bn at the end of 2019 and increasing by 10.9% compared to 2018. Household financial assets, including cash and deposits, shares and other financial instruments, have been increasing to a greater extent over the past eight years compared to financial liabilities, especially loans. Compared to 2019, they increased by 9.1% compared to 2018, amounting to EUR 58.2bn, while liabilities increased by only 4.4% to EUR 14.8bn.
In the structure of financial assets, despite extremely low interesting rates, deposits in banks (in particular transferable deposits) and cash (47.7 percent) still hold the largest share, followed by equity and shares (30.6 percent), insurance (especially life insurance) and pension schemes (13.7 percent), debt securities and other claims (5.8 percent) and loans (2.2 percent). This points to the fact that households remain conservative and risk-averse in their investment decisions, as, unlike cash and deposits, the percentage of more risky investments remains relatively low.
By comparison, it should be noted that households in the European Union have on average a higher share of assets as insurance and pension schemes (38.0 percent), which are stable and significantly lower than cash and deposits (30.4%) compared to households in Slovenia. The key factors for such behaviour of Slovenian savers are, in particular, the very underdeveloped capital market and the lack of stable alternative investments.
The capital market for households represents, among others, the possibility of investing in securities and investments into the debt market thought shares or bonds issued by the Government or Companies. The Slovenian capital market development was under the powerful influence of privatisation in the 1990s through the process of ownership transformation and ownership certificates with the goal to divide social capital. At the turn of the century, mutual funds, whose investments consisted mainly of domestic securities, also developed more rapidly. At the end of 1998, the assets in mutual funds amounted to less than EUR 19mn. Because of various irregularities, the mutual funds, which as a result started to stagnate, were negatively affected. Besides the changes experienced by mutual fund managers concerning strengthening regulation, the increased capital flow was also dampened by the events in the financial markets at the time (affairs, stock market licensing, fund liquidation) and, as a result, households were not prepared to invest surplus money in forms where the yield to maturity is unknown and perceived less safe. The losses experienced by investors before and during the economic and financial crisis, whether because of capital losses or the deletion of shares or bonds, have seriously undermined confidence in the Slovenian capital market, making investors much more cautious and conservatives. Presently, additional pension savings funds have developed significantly and are becoming increasingly important for the liquidity of the country’s capital market. Assets in mutual pension funds amount to more than EUR 2bn and in alternative investment funds more than EUR 130mn. Most of these funds are, of course, invested in foreign capital markets because of limited options in Slovenia.
Slovenians have a very poor perception of alternative investments, i.e. all those investments that are not classical financial instruments in substance (shares, bonds, or money market instruments). The alternative investment group includes private equity and debt funds, mezzanine funds, real estate funds (e.g. REIT), infrastructure funds, raw materials and raw materials funds, debt redemption and other investments. Slovenians are inclined to invest in real estate, but only in physical form (direct ownership). Why not, instead of that, invest in a fund which invests in factoring of the consumer financing that is considered stable because of the large dispersal and in terms of the structure (households’ exposure) conservative. This means that such funds represent an interesting alternative to well-known investments.
If the capital market continues to stagnate, it will take considerable effort by all stakeholders to revitalise it, something that has recently been seen as a larger supply of alternative investments. While more and more Slovenians are aware of the importance of financial literacy, they still do not trust their assets to financial professionals. Wealth management is a financial service where an individual leaves the management of his assets entirely to financial professionals. It is certainly an exceptional opportunity for growth in this area today and, in the future, because of its unavailability in Slovenia. More about this topic another time.