Financial literacy critical to European retirement

Australians are not alone when it comes to leaving retirement savings on the table from a lack of financial literacy. However, Europeans arguably face a steeper learning curve.

The J.P. Morgan Asset Management 2018 Income Barometer Survey, which interviewed more than 8200 Europeans in March and April, found more than 80% of UK and Italian residents do not own any investment products. This was closely followed by Germany (79%).

On average, about one quarter (23%) of respondents from each of the six regions surveyed said a lack of understanding was a reason for not investing. Fear of volatility (22%) was next on the list.

Speaking to a group of international media in London on Wednesday, J.P. Morgan Asset Management head of Europe funds business Massimo Greco said the statistics left a large puzzle for wealth managers as the lack of financial literacy and investment "does not allow for growth in retirement savings in real terms."

"Despite 10 years of low interest rates and a few years of negative interest rates because of quantitative easing in Europe, households still keep holding cash and do not own investment products," Greco said.

"Why? Because they don't understand, they are scared and frustrated and don't really know why they're staying away.

"[European] households can invest those savings better for the long term considering the ageing population and the dynamics in our society."

He said investors missing out on the end of a bull market and economic expansion could be costly in terms of missing returns. Even though the expectations for future returns are not enormous, missing out can also become costly, Greco added.

This said, the executive was not recommending individual investors try and time the market as this can be an ineffective way to invest. He advocates staying invested and staying diversified through a market cycle.

"It might be wise to reduce exposure to investment types that might be riskier than average, and when it comes to investment solutions, flexibility is important," Greco said.

On top of the financial literacy gap, the survey indicates an increasing need for financial advice as large numbers of savers don't know which types of financial products they will invest in more over the next 12 months.

In his half-hour panel discussion, Greco also touched on ESG investing.

"Integrating ESG in our investment processes makes them more effective and more robust. At the same time, we see increased demand from the market for different forms of ESG investment including exclusions and tilts," he said.

He went on to explain the European Commission is working heavily in the areas of sustainable finance "which will offer great direction and consistency in this [ESG] field."

Greco added there's also going to be an addition in the MiFID II regulation requiring sustainability to be part of every suitability conversation with clients, "which would bring these ESG issues to the forefront."

The journalist is a guest of J.P. Morgan Asset Management in London.

Read more: ESGJ.P. Morgan Asset ManagementJ.P. MorganMassimo Greco
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