Israelis Lack Financial Literacy Despite Strong Savings Habits

Most Israelis make significant financial decisions, such as choosing a pension fund or taking out a mortgage, without adequate prior education. While the school system teaches subjects like trigonometry and history, crucial financial concepts like compound interest are often learned too late in life. To address this gap, a comprehensive series of 20 guides has been launched, covering financial literacy from age three to over 80.

Financial literacy, as defined by the OECD, encompasses knowledge (understanding interest and inflation), behavior (saving, comparing prices), and attitude (time preference for money). While Israelis perform well in international financial literacy tests for adults, with 68% answering basic questions correctly in a global S&P survey, placing Israel among the top five countries, a Bank of Israel study revealed a more nuanced picture. This study gave adults a score of 64 out of 100, similar to the OECD average, but highlighted significant disparities. Non-Haredi Jews scored 67, Haredi Jews 62, and Arab citizens 54. Notably, the gap between men and women in financial literacy is larger than the OECD average. However, younger Israelis tend to be more financially knowledgeable than older generations, possibly due to programs like the "Soldiers' Deposit" and "Savings for Every Child."

The primary financial challenge in Israel is not a lack of knowledge but rather high levels of debt. Household mortgage debt has surpassed 630 billion shekels, with the average mortgage exceeding one million shekels and monthly payments rising significantly. The proportion of high-risk mortgages has also increased. This is compounded by hundreds of billions in consumer credit.

Research indicates that financial knowledge gaps can account for a substantial portion of wealth disparities by retirement age. Those with financial literacy tend to save earlier, pay less for credit, and maintain emergency funds, habits that accumulate over a career. For example, starting to save 500 shekels monthly at age 25 with a 7% annual return yields approximately 1.52 million shekels by age 67, compared to 312,000 shekels for someone starting at 45. Even a decade's difference in starting contributions can result in a gap of around 880,000 shekels in retirement savings.

Financial habits are largely formed in childhood, influenced by discussions about money at home and parental behavior. The Israeli education system is set to introduce financial literacy as a mandatory subject, with one weekly hour for two years starting in ninth grade, replacing a geography hour. However, a shortage of trained teachers poses a significant challenge to effective implementation. The military also provides financial preparation workshops for soldiers before their release, covering their rights and savings, while workplaces offer opportunities to optimize pension and study fund contributions. Online resources are abundant but require caution due to the prevalence of scams and misleading information.