In Germany some people live in a financial world of illusion. They make false assumptions and base their financial life plans on them. A survey by the Allensbach Institute for Demoscopy on behalf of the MLP School of Financial Education shows that these are not a few people. It is available to the FAZ in advance.
Three key questions need to be highlighted. The first concerns pension. A third of the representative respondents agree with the statement that the pension corresponds to 70 percent of the last income before retirement. That’s wrong. Civil servants with many years of service receive a pension that corresponds to a good 70 percent of their last income.
But the pension is calculated differently and in most cases is significantly lower. In working life, earnings points are accumulated depending on income. There is one earnings point for each year of average earnings. Currently, around 3200 euros gross wage is required for this. Anyone who has done this for 40 years currently has a pension of 1440 euros with 40 payment points. That is far from the 70 percent of the last income. In line with this, only 40 percent state that they know their pension entitlements. 36 percent know where to look it up. However, 22 percent are not aware that the German pension insurance provides an overview every year that shows this. Not knowing is particularly high among executives at 27 percent.
Children reduce pension entitlements
Another assumption about the pension is also wrong. Around half are of the opinion that the pension is automatically higher with more children. The opposite is often the case. Children reduce the gainful employment of at least one parent over the years and thus reduce pension entitlements.
Wrong and too high pension assumptions lead many people to believe that they are adequately provided for in old age. This would be less of a problem if the old-age provision were nevertheless set up sensibly. But this is where mistake number two happens. A quarter of those surveyed rely on the statement: “You can usually achieve more returns on a call money account than on the stock exchange and don’t have to take any risks for it.” One in six also supports the statement: “The best way to save or for old age to make provisions is to invest money in the savings account.” The underestimated need for old-age provision thus coincides with unprofitable investments.
The third mistake that comes along is the great trust in one’s own property as a retirement provision. In addition to the experience that the proceeds from the sale of old, run-down properties are overestimated, the survey also shows that 19 percent believe that the property can be passed on to children tax-free in principle. However, this is only possible under certain conditions, such as the children having to move in and live there immediately.
“Many people not only have a lack of knowledge in the field of finance, they also significantly overestimate their financial knowledge,” summarizes Jan Berg, Spokesman for the Management Board of MLP Finanzberatung. “They run the risk of making bad financial decisions based on false beliefs.” This corresponds to a separate part of the survey, which was carried out among 319 executives who are representative of financial decision-makers in companies with ten to 249 employees. This comparison group of owners, board members, managing directors and authorized signatories did hardly any better than the population. A quarter of them are of the opinion that the percentage of wage tax is the same for all employees. And almost half believe that an increase in interest rates will automatically lead to an increase in inflation. In the general population, 38 percent hold this incorrect view.
Almost the entire population is of the opinion that it is important to be familiar with financial matters. But only 37 percent are interested in it (see chart). “Trend analyzes show that interest has not increased over the last ten years, but has tended to decrease,” says Renate Köcher, Managing Director of the Allensbach Institute for Public Opinion. “This also applies to economic issues in general.” The problem is that information is increasingly being provided selectively based on interest. “The greater the challenge of imparting knowledge on topics that only arouse limited interest, even if the vast majority classifies them as important,” says Köcher. “For a long time, the vast majority of the population has been calling for economic and financial issues to be given more consideration in the curricula of the education system – a demand that has not been taken up enough so far.”
