We need more than financial literacy in our schools

financial-planning-1

By TK Chua

I agree it is about time to introduce financial literacy in our schools and universities. However, the subject should include more than just the knowledge component. The right values and attitude among Malaysians and the roles of regulating authorities are equally important.

People falling into the clutches of ‘ah longs’, being swindled by pyramid schemes and sob stories on the Internet, living a lifestyle way beyond their means, and having no nest egg for retirement are common news we read every day. It is just too dissonant to have a nation enjoying rapid growth in the past 30 years and yet having more people fall into financial troubles.

Without doubt, we should get to know the basics of money, interest rates, inflation, risks and returns trade-offs, and bona fide investment opportunities that are available. I believe sufficient knowledge in this area will help us manage our finances better. However, we need to do more about our attitude and value aspects towards money.

We must teach our kids the value of delayed gratification – the ability to put off something pleasurable now in order to gain something that is more pleasurable or rewarding later. Setting aside part of our income for investment is essentially practicing delayed gratification. If we live only for today, then of course we will have less in the future especially when we have retired.

We must also teach our kids that there is no short cut to financial success. There is no wealth without ingenuity and hard work. The reality is most of us are likely to be average people earning average incomes. It is futile to complain or to get distracted by others who have become very wealthy through donations, gifts, connections, inheritance or other means.

More important is teaching our kids not to be overtly greedy. It is common for us to blame the promoters of devious schemes for cheating others. But has it ever occurred to us that it is our desire to get rich quickly (and without working for it) that attracts us to such schemes? Please, no matter how tempting, enticing or “genuine”, it is always better to seek counsel and advice before parting with our hard earned savings.

The regulators too must play their roles more proactively. I have seen many bona fide investments that benefit the promoters and their agents more than the investors. Of course it is always the caveat emptor principle that we have to adhere to. However, there are information asymmetries that the promoters know more than the investors. I wish the regulators could do more to protect small investors.

The case of many civil servants falling into debt is also partly due to regulators not doing their job. Cooperatives in collusion with banks dish out loans indiscriminately to civil servants using their salary slips as collateral. I wish regulators could do more to prevent civil servants from borrowing to go for holidays or to buy fanciful home furnishing all for the sake of keeping the economy buoyant. We want to keep our GDP growth numbers up, but we care little that it is often at the expense of civil servants who fall into heavy debt.

Mainstream economists often suggest using EPF money or personal savings to stimulate the economy whenever there is a slowdown. I do believe this measure has been taken to nonsensical levels. The EPF is a retirement fund, not for us to withdraw or contribute less to at the slightest of excuses. No wonder so many have practically no savings by the time they retire. Of course Malaysian workers must earn the right wages to begin with, not the depressed ones they earn now due to the unfettered entry of foreign workers.

Regulators must encourage prudence and reward those who save if they want more people to be financially independent. If inflation is persistently high, it encourages us to spend for the present. If deposit rates are too low, there is no incentive to save but to indulge in more get-rich-quick schemes.

Finding oneself in financial dire straits is usually due to a combination of factors. Our own lack of personal responsibility is one of them. Our education and knowledge to deal with it is another. Beyond that, regulators too must be vigilant and play their part proactively.

TK Chua is an FMT reader.

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