Last update on January 30, 2019

Aside from the general complexities surrounding a move abroad, such as applying for visas and looking for work as an expat, personal finance is one of the most common areas of confusion.

Financial literacy, which refers to the knowledge of finances and the ability to make sound financial decisions, is a skill that all expats (and, in fact, all people) need. Globalisation and the increasing number of available financial products—and their fine print—can make it easy to fall into financial traps, making life as an expat more difficult and frustrating.

We explain why financial literacy is important for expats and those looking to make the move abroad.

State of financial literacy in Europe

Knowledge of personal finances—and, in general, the way money works—is not something commonly taught in school, though some countries seem to provide better access to information and produce more knowledgeable citizens. OECD’s international survey of adult financial literacy, which supplied questions about knowledge, behaviour and attitudes towards finances to over 50,000 adults in 30 countries in 2016, however, showed that overall financial literacy levels around the world are still relatively low.

France, Finland and Norway scored the top three spots in terms of financial literacy, above the OECD average, while the Netherlands and the UK scored below average; Germany will be included in a later report. These findings are startling, but have encouraged action to improve the population’s overall financial education.

Why financial education is important for expats

Nearly three-quarters of respondents in one survey stated that at least one aspect of expat finances had become more complex after moving abroad*. One of the most common areas of complexity has been dealing with multiple currencies, e.g. “How do I move money from one country to another?” Most expats send money back to their home countries, and many maintain bank accounts there as well; the rise in work done across borders, which is especially applicable for freelancers and other self-employed individuals, has also made it possible for expats to earn money in multiple currencies.

It may seem like an easy task—take money out of one account and transfer it to another—but exchange rates and banking fees can make it a costly endeavour. There are many ways to transfer money internationally, including through banks and specialised services, but comparing the overall cost of money transfers can be difficult if expats do not understand the terminology or are unable to determine whether those fees translate into long-term savings or losses.

Plan for your retirement as an expat

Financial literacy

Regardless of your plans as an expat—staying in the new country indefinitely or simply spending a few years abroad—retirement planning is essential, even if it is many years away. An OECD survey showed that people are generally not saving enough for retirement, perhaps falsely believing that the pensions they receive from the government, either in their home country or new place of residence, will be enough. However, people are living far longer—countries in Europe have some of the highest life expectancies—and government-funded pensions have shrunk, making cross-border retirement planning a crucial step for expats.

Expats may have already built up pensions in their home countries, and must determine if those pensions can be transferred or if they can continue to build upon them while abroad. And for some, the rules are ever more complex: UK pensioners, for example, may see their pensions frozen if they move to certain countries such as Canada.

Improving your current financial health

The OECD survey also showed that people also struggle with choosing financial products, i.e. opening savings accounts, taking out loans or purchasing insurance, with less than half making an attempt to comparison shop and only 20 percent researching independent information. Not only could this lack of research lead to poor decision-making, it can put expats at risk of buying into fraudulent schemes.

Part of the issue may be the language barrier, which is always higher when it comes to finance. Even those who are fluent in the language, and often even those are who are native speakers, may have difficulty deciphering the legal language that makes up the laws surrounding retirement planning, as well as the terms to the many financial products available.

Expats can certainly brush up on financial knowledge on their own, but it is often more helpful to employ a financial adviser. Those that provide financial advice for expats can help translate the legalese, understand how to compare financial products and plan for retirement, all while improving the much-needed financial literacy.