The European Central Bank (ECB) has warned that euro area households are keeping too much of their wealth in cash and low-yield deposits, while Cyprus faces a particular challenge in encouraging households to move towards longer-term investment.

In a blog post published this week, the ECB said around one-third of euro area household financial assets, worth almost €10 trillion, remained in cash and low-yield bank deposits.

It said around 80 per cent of households did not own stocks or other market-based financial instruments, with participation substantially lower than in the United States.

The ECB said the difference was particularly pronounced among wealthier households, with more than 65 per cent of the wealthiest 20 per cent of US households holding listed shares, bonds or mutual funds, compared with less than 45 per cent in the euro area.

For Cyprus, the issue is particularly relevant as households continue to hold substantial sums in bank deposits, while financial literacy remains comparatively weak.

Central Bank of Cyprus (CBC) governor Christodoulos Patsalides has previously said Cyprus consistently ranks among the EU countries with the lowest levels of financial literacy, with young people recording the weakest performance among age groups.

According to findings from the Organisation for Economic Cooperation and Development’s (OECD) 2023 survey cited by Patsalides, only 58.8 per cent of young people in Cyprus reached the basic level of financial knowledge, compared with 80.1 per cent of people aged 40 to 49.

The ECB’s analysis similarly found that financial knowledge, perceived risk and trust are major barriers to investment, particularly among households that are not financially constrained.

It said limited understanding of financial products can contribute to low trust and heightened perceptions of risk, making financial literacy an important factor in whether households participate in capital markets.

The CBC’s latest lending data also show the importance of deposits to household finances in Cyprus, with the average interest rate on new euro-denominated household deposits falling to 1.27 per cent in July 2026 from 1.42 per cent in June.

That compared with an average euro area deposit rate of 2.10 per cent, the report added.

The ECB said its analysis identified four broad types of euro area households, ranging from those whose wealth is concentrated in property to those relying predominantly on deposits, pension products or direct capital market investments.

More than 60 per cent of euro area households fall into the property-owner category, while around 25 per cent are predominantly deposit holders.

Around 10 per cent participate indirectly in financial markets through occupational or voluntary pension and insurance products, while only about 4 per cent are sizeable direct capital market investors.

The ECB said the barriers differ between these groups, meaning that a single policy measure is unlikely to persuade all households to invest more.

It pointed to tax incentives, pension structures, the availability of straightforward investment products, trust, education and age as factors influencing investment choices.

The ECB argued that increasing household participation in capital markets could provide higher long-term returns and help channel savings towards innovation, productivity and economic growth.

It highlighted initiatives in Slovenia, Finland and the Netherlands as examples of approaches that can improve participation through financial education, simple investment products and pension schemes that provide indirect exposure to capital markets.

The ECB said the EU’s savings and investments union agenda, including planned savings and investment accounts and pension reforms, would be important in directing more European savings towards productive investment.

For Cyprus, Patsalides has called for a standalone and compulsory financial literacy course in schools, arguing that young people need better preparation for an environment where saving, borrowing and investing decisions are increasingly made through easily accessible digital platforms.

The ECB’s findings reinforce the argument that improving participation is not simply a question of giving households more investment options, but also of ensuring they understand the risks, costs and potential returns before committing their savings.