Early financial education for the benefit of the youth

KUALA LUMPUR: Ever since the pandemic has taken a toll on the world economy, talks about financial literacy have been going around more frequent given the challenging situation involving livelihoods and the critical need for people to have sufficient savings to survive the rainy days. This is particularly pointed to the youths who have become more vulnerable economically and more concerning, their low level of financial literacy. Hence, this calls for practical action plan and it needs to start from the core foundation of the society – education.

A study conducted by the Organisation of Economic Cooperation and Development (OECD) on 26 countries including Malaysia has shown that financial literacy is already low as an overall.

Specifically, on youth aged 18 to 29, financial literacy appears to be at the lower level on the back of poor financial knowledge and less prudent financial behaviour.

The study also suggests that financial literacy might be positively correlated to access to digital devices or services as digital use may be consistent with greater financial knowledge and more prudent financial behaviour.

This can be explained given the present reality whereby almost everyone depends on social media or online portals to keep themselves updated about current issues.

It was also reported recently that 40 per cent of millennials are spending beyond their means, according to the Finance Minister Tengku Zafrul. He also added that 47 per cent of Malaysian youths have high credit card debts.

Additionally, another survey by RinggitPlus on financial literacy of Malaysians also revealed some worrying statistics about the youth:

1. Nearly 29 per cent of youth only realised the importance of emergency funds since the MCO; 2. Nearly 60 per cent are unable to survive beyond three months; 3. Almost 47 per cent spend exactly or beyond their earnings; and 4. Almost half of the youth have not started saving for their retirement.

Since the current dire situation for the youth has been reflected by these numbers and given youth’s low wages to afford living needs and underemployment, financial education needs to be consistently promoted and emphasised in the society.

Some recommendations by the OECD to improve financial literacy do involve education, as follows:

1. Look into the priority areas of financial knowledge such as simple interest, interest compounding as well as risk diversification which are important for consumers choosing and using savings and credit products; 2. Promoting small but consistent contribution of funds for emergency needs; and 3. Start providing financial education as early as in primary school in order to embed the knowledge of basic financial concepts comprehensively.

Fortunately to know, in Malaysia, efforts to pursue early financial education for the youngsters to be more financial literate has started and they are expected to begin in selected primary schools early this year – a financial literacy programme.

The programme would be a collaboration between all Malaysia financial institutions known as Financial Industry Collective Outreach (Finco) alongside guidance from Bank Negara Malaysia (BNM) and a particular focus would be directed towards the underprivileged communities.

This is indeed a positive move that is in line with expectations and hopes but perhaps, Malaysia could start infusing financial education into the curriculum a bit earlier such as beginning at the age of 6.

Generally, children are known for their ability to absorb information faster and easily compared with adults. Past literature has shown that children make great strides in economic understanding between the age of 6 to 12, such that children’s understanding is “essentially adult” around age 12.

By infusing financial education into the curriculum from an early age, it allows children to acquire the knowledge and skills to build responsible financial behaviour throughout each stage of education and life.

For the syllabus structure, art of managing money should be taught – spending, saving, investing and borrowing. Financial education does not have to be a ‘stand-alone’ subject. Rather, it can also be integrated into other subjects such as economics and mathematics so that practical real-life experiences can be shown to the students.

In-school education should be considered as an additional medium of learning or as an alternative to home education about financial management because not all parents are sufficiently equipped or privileged to teach their children about money and levels of financial literacy.

Nevertheless, if it is possible, family plays a crucial role in shaping children’s financial behaviour. Past research has shown that better savings behaviour is associated with an “authoritative” (supportive but structured) parenting style. Other research reveals that there is a significant correlation between parental teaching of money management and higher future credit scores.

At the same time, there is a need to pay attention to the competency of educators who are responsible in transferring the knowledge to the students in schools. Based on past studies, teachers’ knowledge and skills are critical to ensure effective delivery of financial education.

So, educators from all disciplines should be provided with appropriate trainings related to financial management so that it can be applied through the teaching process.

This corroborates well with the strategic priority and action plans laid out in the National Strategy for Financial Literacy framework (2019-2023) that was launched by the former government. In other words, this framework needs to be continued and pursued as it is very timely given the current situation.

Financial education is a long-term process as it is difficult or not possible for one to absorb and adapt to new knowledge overnight or within a few days. Therefore, it is quite a clear message that this particular effort should begin as early as possible.

Sofea Azahar is Research Analyst at EMIR Research, a think tank focused on strategic policy recommendations based on rigorous research.

** The views and opinions expressed in this article are those of the author(s) and do not necessarily reflect the position of Astro AWANI.