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Poles Face Financial Vulnerability: Inflation Drives Investment Awareness, But Knowledge Gap Remains

INVESTINGPoles Face Financial Vulnerability: Inflation Drives Investment Awareness, But Knowledge Gap Remains

Just one month’s salary away from bankruptcy after job loss is the reality for many Poles, due to a lack of savings and investment, claims Dr. Michał Masłowski, Vice President of the Board of the Association of Individual Investors. However, the situation is gradually improving, with the country’s residents undergoing an accelerated investment course due to high inflation in recent years. Still, the capital market remains an unpopular choice among investors, though with increasingly wider access to foreign markets, the number of interested individuals should grow.

The study “The Level of Financial Knowledge of Poles 2024,” commissioned by the Warsaw Banking Institute and the GPW Foundation, shows that over the last few years, there has been a gradual increase in the awareness of the need to save and invest. People can also differentiate these two terms and identify their strengths and weaknesses.

“Inflation has helped us here. Until now, when we had very low inflation throughout the last decade, around 1, 1.5, 2 percent at most, and even a moment of deflation, we practically didn’t need to invest. Keeping money in a current account was enough. Inflation very brutally forced us that many people realized that it’s not enough just to hoard money in an account, but we need to start investing,” says Michał Masłowski to the Newseria Biznes news agency. “In the last two to three years, due to the pandemic and war, Poles are going through an accelerated course in investing. They are increasingly distinguishing saving from investing, and high inflation forces us to differentiate between them.”

61% of respondents believe that last year’s experiences should prompt them to save regularly. Nearly half say they need to diversify their saved funds. 33% declare the necessity to reduce expenses. A similar percentage highlights that consumers need to think more about their future (30%). The studies thus show that in the area of saving and investing, there’s still much to be done, and this – according to the Vice President of the SII – is a negative aspect of the Polish market.

“Unfortunately, Poles do not save and do not invest, this is improving over the years, but still, based on various studies, it’s visible that a very large part of society, and that’s a hefty several dozen percent, has no savings at all. Often it’s just one paycheck away from bankruptcy that can occur after losing a job,” says Michał Masłowski.

The cause of this situation is not so much financial shortsightedness as a lack of knowledge, e.g., in the area of stock market investing. Survey participants rated their knowledge about the functioning of the Warsaw Stock Exchange very low. Only 12% believe they have extensive knowledge in this area. 55% assess it as very and rather small. One in four respondents claims to have no knowledge of the stock exchange at all. Among this group, the least educated people dominate. At the opposite end are university graduates and people aged 45-54 years. We also know little about stock market instruments: 70% of respondents do not know what shares are, having only heard of them. The same goes for bonds (62%). Three-quarters of those surveyed have never heard of options, and nearly 4/5 are unaware of futures contracts or ETFs.

“The level of Poles’ knowledge about the capital market, investing in capital markets, unfortunately, is not too high. Plus, there’s a whole host of events from history, such as the second division of OFE (Open Pension Funds), unfortunate statements by politicians, or very unfortunate management of State Treasury companies by politicians, which cause the capital market in Poland not to have a good brand, not to have a good image,” the expert evaluates.

The study indicates that two-thirds of respondents do not invest in the stock market because they fear losses. This answer was most often given by people aged 35-44 years. Another barrier indicated by respondents is the fear of risk (65%) and the aforementioned lack of sufficient knowledge, mentioned by nearly half of the survey participants (45%). Poles prefer activities, e.g., in the real estate market, where relatively high returns have been recorded in recent years.

“Poles invest where they see high returns. We had a wonderful streak in the real estate market over the last dozen or so years, especially in the last year or two. The Polish capital market in the last dozen or so years has not allowed us to earn solidly,” emphasizes Michał Masłowski. “These returns and the lack of a more robust bull market for many years in the Polish market certainly do not encourage us to invest widely. If we experienced a real bull market, everyone would forget about the problems and rush to invest in the Polish stock exchange.”

As he highlights, today investing in the Polish stock market is seen as a sport for hobbyists and connoisseurs, and investors themselves are rather negatively perceived in society.

“It’s also changing because more and more people invest passively, invest abroad, but there’s no

talk of any mass scale, such as in the United States,” says the SII Vice President. “Fortunately, we’ve reached a time when investing in Western markets has become much more accessible for investors. First, the range of brokerage services has expanded, second, we observe a huge drop in the costs of investing in Western markets, and third, access to technology. Today, anyone can buy an ETF on the American stock market with a smartphone in a few minutes. This also helps us a lot.”

From the “National Survey of Investors 2023” prepared by the SII, it appears that 45.6% of investors made investments in ETFs for passive investing in the 12 months preceding the survey. This is about 5 percentage points more than the year before. Ten years ago, only 5% of individual investors invested in them. A larger percentage of respondents last year invested in ETFs listed on foreign markets (36.6%) than on the GPW (Warsaw Stock Exchange) (21.6%).

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