Financial literacy shows uptick among households

With wider adoption of artificial intelligence by institutions as well as investors, Chinese households have seen an improvement in their average financial literacy for a third consecutive year even as the idea of long-term investment has yet to gain traction, according to a new report.

The report, jointly released by Shanghai Jiao Tong University's Shanghai Advanced Institute of Finance (SAIF) and global financial services provider Charles Schwab, has found that the average financial literacy score was 73 out of 100.

Correct response rates on the internationally recognized "Big Three" financial literacy questions — assessing knowledge of inflation, compound interest and investment diversification — reached 44.5 percent, up 8.3 percentage points from the previous year.

However, the idea of long-term investment still needs more investor education in China, according to the fourth edition of the report that polled 10,990 Chinese people.

As the two institutions discovered, only 44 percent of respondents said they have long-term financial goals, nearly 8 percentage points lower than last year. Correspondingly, scores in the area of financial planning fell to a three-year low. Only 28 percent of respondents recognized the role of long-term fund investment in retirement planning, marking the third consecutive year of decline.

Wu Fei, SAIF professor and the project leader, said that recent market volatility has been one of the major reasons impairing people's long-term financial goals. The market jitters will naturally shake investor confidence over the long term, but long-term goals can help investors weather uncertainties, he said.

Zhou Lefeng, president of Xiangcai Securities, said he believes now is a good time to promote the idea of long-term investment in China since the overall environment has changed.

"Chinese investors were provided with various options, such as peer-to-peer investment, nonstandard wealth management products and even properties. These weakened their willingness for long-term investment. But now, these 'temptations' have been largely reduced, thus pointing to room of setting up long-term financial goals," he said.

Zhao Ran, chief analyst of non-banking finance at China Securities, added that the hot topics in the Chinese capital market have undergone rapid changes, quickly jumping from consumption, medicine, new energy or quantitative trading. Investors lack strategic planning in their asset allocation, but as risk-free interest rates decline, they will have to adopt long-term investment strategies, he said.

According to Thomas Pixley, general manager of Charles Schwab (Shanghai), the idea of long-term investment has been rooted among US investors with the introduction of Individual Retirement Arrangements and 401 (k) accounts in the 1970s. These mechanisms helped US individuals make long-term investments to prepare for their retirement.

Investment is a long process and regular adjustment is needed, while frequent trading should be avoided. The cornerstone of long-term investment is setting up a specific target, like how much a person should get each month if he retires at 65, and not to focus on the return rate, he said.

On the bright side, respondents with higher financial proficiency are embracing new technologies, showing higher usage frequency and acceptance for AI tools, according to the report. Chinese financial institutions are also keeping up with the trend, with nearly 90 percent of the surveyed financial institutions saying they have used AI in front desk services.

Pixley said that China is primed for developing AI, as up to 80 percent of the country's residents have expressed trust in AI tools. The corresponding ratio is only 35 percent in markets like the United States, Germany and France, he said.

shijing@chinadaily.com.cn