Financial Literacy and Household Access to Emergency Funds at the Beginning of the COVID-19 Pandemic and the Implications for the Financial Resilience of Israeli Households


This report is the third in a series reviewing the economic effects on Israeli households of the COVID-19 pandemic and the social distancing requirements imposed by the government to slow the spread of the virus. An earlier report in the series found that by August 2020, nearly half of all households had drawn down their savings, and one-sixth had borrowed money in order to cope with the pandemic. The financial response of households to the pandemic raises important questions about their level of financial literacy (i.e., financial knowledge) and the financial resources that households brought to these decisions.

The academic literature has found that financial literacy is an important factor in a household’s ability to make sound financial decisions. The pandemic offers a rare opportunity to study the effect of a high level of financial literacy and adherence to recommended financial principles (such as maintaining access to emergency funds) on household welfare in times of widespread economic stress. A finding that many households either lacked emergency savings or drew them down significantly could indicate that they are likely to emerge from the economic slowdown in a particularly fragile financial situation, suggesting the need for continued government support. A finding that low financial literacy was associated with having less savings going into the pandemic and/or higher rates of borrowing during the pandemic would suggest that strong financial literacy is particularly important for weathering periods of economic stress. Insights into these questions can provide important background information when the government considers future policies with regard to financial education and technologies designed to help families manage their finances.


The overarching goal of this research is to expand the existing knowledge on the financial resilience of households in Israel, in light of the ongoing economic slowdown. Specific objectives include determining the extent to which the level of financial knowledge influenced financial decisions at the beginning of the pandemic and examining households’ access to emergency funds.


Data were collected by means of an online survey conducted among a representative sample of 1,501 respondents, aged 25-70, from among the Jewish population in Israel. The survey was conducted during August 16-18, 2020, between the first and second closures imposed by the government to deal with the pandemic in Israel. All the results indicating differences between groups are statistically significant at p=0.05 unless otherwise indicated.


Financial literacy: The survey found that individuals with low levels of financial literacy had less savings than others going into the pandemic and were also more affected financially by the slowing economy (even after accounting for differences in income and education). The study also found that those with lower financial literacy were more likely to deal with the situation by borrowing money. Among the respondents who reported a decrease in income as a result of the pandemic, 16% of those with low financial literacy borrowed money as compared to only 10% of those with high financial literacy. At the same time, respondents who reported high confidence in their financial knowledge were more likely to borrow than those with low confidence (15% versus 8%) (Differences between the groups were little changed after controlling for income and education).

Household access to emergency funds: After the first closure, one in eight households reported that they could not afford an unexpected expense of NIS 2,000; in other words, they did not have access to emergency funds. An additional 33% indicated that they would be able to afford such an expense only with difficulty. This proportion was higher among respondents with less education and lower income. Similarly, among employees who were not working in August during the crisis (because they had been fired or furloughed), 21% reported that they would not be able to afford an unexpected expense of NIS 2,000, compared to 10% of those who were still working. Among respondents who could cover such an expense, over 70% indicated that they would do so by drawing on savings. Households with access to emergency funds coped better with the crisis than those without and they were less likely to reduce spending in a way that impacted their standard of living.

Insights and Policy Recommendations

These findings can provide policy makers with guidance as they consider how to best support households during the economic recovery.

  1. The correlation between borrowing and financial literacy suggests that many households made decisions that may harm their long-term financial situation. As the crisis continues, it remains important to monitor the financial status of households whose decisions during the crisis may have long-term negative consequences and may adversely affect their ability to recover from the crisis. In addition, the relationship between a respondent’s confidence in their financial knowledge and their propensity to borrow suggests that simply giving households access to credit may not be sufficiently helpful for those who do not have enough confidence to take advantage of those borrowing opportunities without additional assistance in navigating the borrowing process.
  2. Policymakers should consider continuing government support to households that are likely to emerge from the economic slowdown in a fragile financial condition and with limited access to the emergency funds they would need to confront additional economic challenges.
  3. Policy makers should promote sound financial decision making (such as setting aside emergency savings) through educational campaigns and should provide convenient infrastructure that will encourage household saving, such as, for example, digital solutions that can help households manage their finances. It is important that these solutions increase households’ self-confidence in their financial knowledge rather than just providing information. In this context, these findings reinforce the case for advancing the “open banking” project, which would allow third parties to access information at financial institutions in order to streamline processes, receive financial services, and analyze financial information. These measures will put Israeli households in a better position if and when another crisis arrives, whatever form it takes. The immediate aftermath of the pandemic would be an auspicious time for launching such interventions, with the memory of the pandemic’s financial impact still fresh in people’s minds.



For MJB’s publications on the COVID-19 pandemic in English, press here.

For MJB’s publications on the COVID-19 pandemic in Hebrew, press here.