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Understanding financial literacy, an alternate perspective


The fundamentals of financial literacy is the education and understanding of various financial areas including topics related to managing personal finance, money and investing and helps individuals become self-sufficient so that they can achieve financial stability.

Financial illiteracy could lead to the masses deciding on poor or ill-informed financial choices that if left unchecked, could have serious negative impacts on the financial well-being of an individual which in turn, would negatively impact the nation’s economy in the long run.

The fundamentals to achieving financial literacy starts at a very young age and includes learning the skills to manage spending when compared with earnings or savings, learning how to minimize debts and effectively planning for financial independence and security.

To ensure one if financially literate, one must be able to understand the concept of budgeting in order to make wise decisions with money. These skills are vitally important and yet; many, especially amongst the millenials and the rural masses, lack this basic knowledge and as a direct consequence of this, are unable to meet their daily expenses.

Education, the key to achieving financial literacy at a very early age should involve having a basic understanding of how money works and how you can put your money to work, creating and achieving financial goals and managing internal and external financial challenges.

Towards this end, the work of the National Bank of Cambodia (NBC), the Ministry of Education, Youth and Sports (Moeys), and the Ministry of Women’s Affairs, have got a lead role to play collaboratively to promote financial literacy in line with the government’s Financial Sector Development Strategy 2016 – 2025.

The education curriculum on financial literacy should also include organisational skills, attention to detail, consumer rights, technology and more importantly, the perils of living in a globalised world where a cashless society is emerging and where the age old maxim – cash is king is no longer in vogue.

Countries must develop financial literacy programs to ensure people can make sound financial decisions, select financial products, which best fit their needs, and know how to use related channels, such as ATMs or mobile banking and payment gateways which are fast gaining popularity and fast replacing cash as the tool of choice for transactions.

The alternative to financial literacy is financial Illiteracy through lack of education, awareness and knowledge. These are major impediments faced by developing countries like Cambodia as well as developed countries in the world.

Andrew Liew, Head of Retail Banking at  Philip Bank
Andrew Liew, Head of Retail Banking at Philip Bank

Andrew Liew, head of retail banking at Philip Bank says “Financial Literacy poses challenges for both developed and emerging economies alike partly due to the secondary priority it is accorded by educational institutions, governmental agencies and private organisations. “

He adds, at best it is seen as a “nice to have” rather than a clear, present and pressing need requiring immediate attention. But the danger sign are all too clear. A recently updated (Dec 2018) survey showed a staggering number of Americans were unprepared for retirement. 78 percent of the respondents said they were concerned about the ability to retire comfortably while 66 percent indicated that it was likely they will outlive their retirement savings.

But the danger signs are not just being felt in the West. Here in Asia the advent of online shopping and the trend towards conspicuous consumption is taking a toll in terms of the rising level on indebtedness particularly on the part of the young. With the older generation, the frustration of not having sufficient funds set aside for retirement indicate a lack of understanding and knowledge to make financially responsible decisions.

Financial Literacy is not a panacea for all financial ills afflicting society but it can go a long way towards financial, credit and debt management: this is the essence of Financial Education.

As a fervent advocate of Financial Literacy, Mr. Liew suggests a framework or an approach towards Financial Education.

1. Financial Literacy is NOT a project, not an initiative. Rather it is a Strategic Imperative the absence of which has far reaching negative consequences for consumers, businesses and societies.

2. Financial Literacy is too complex an issue to be dealt with by a single government agency, educational institute or private organisation. Rather it is all of the foregoing and more working together in a concerted manner and on a sustained basis if we are serious about making a difference.

3. Start Them Young! Having worked with various segments of the community in Financial Education, I find the young the most receptive by far compared to other age groups. During my time with SGX, we developed close ties with Investment Clubs and Societies in secondary and tertiary institutions. Sitting in on one of these sessions, I was struck by a 12 year old who was espousing the virtue of patience in investing to his peers! We also developed a popular stock trading program on air called “Stock Whiz” which attracted a youthful audience with it’s lure in the form of bragging rights and a handsome cash payout for the winner. And at SIAS, we provided probably the most number of Financial Education programs in Singapore to adults including retirees. The latter are the most grateful and appreciative as they have the most to lose by being financially irresponsible.

4. Start With The Simple. The initial step in Financial Education is always the hardest, yet it is important that we start consumers on the journey towards financial responsibility with easy to understand education. Teaching homemakers and housewives the techniques of balancing the household budget is an excellent way to start on this path. This topic can run concurrently with managing a small/family business for those already in business or are planning to start one. Once again, the older folks are the most significant beneficiaries of such education.

5. Consumers Beware! Two pitfalls in investment I have come across which require self education are: knowing your investment objective and investment time horizon. Most consumers do not give a second thought to why they are making an investment beyond “to make money”. This is where unrealistic expectations on returns (otherwise known as “greed”) set in. And while getting into an investment is a rather easy decision, getting out never is unless your desired investment period has been thought through.

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