Commentary: We need to make students smarter about money
To build a strong foundation for financial literacy, you need to start young. As the first fully digital generation in Asia, Generation Alpha face unique challenges and advantages too, says Junior Achievement's Kirk Kenny.
File photo. The need for financial literacy is especially acute for Generation Alpha, born between 2010 and 2025, as they navigate a fully digital world. (Photo: iStock/mapo)
SINGAPORE: The current state of play around financial literacy education globally - and within Asia - faces considerable challenges.
As Ben Bernanke, then chairman of the United States Federal Reserve, observed during the onset of the 2008 global financial crisis: “The financial preparedness of our nation’s youth is essential to their well-being and of vital importance to our economic future. In the light of the problems that have arisen in, we are reminded of how critically important it is for individuals to become financially literate at an early age so that they are better prepared to make decisions and navigate an increasingly complex financial marketplace.”
Yet, more than a decade later, financial literacy levels remain inconsistent worldwide.
According to a 2018 report by the Organization for Economic Co-operation and Development (OECD), only 10 per cent of 15-year-olds in OECD countries have a high level of financial literacy where they can analyse complex financial products and literature.
Moreover, financial education is inadequately taught in schools, with just 22 per cent of students in OECD countries reporting having received such education, such as dealing with bank accounts and debit cards, understanding interest rates on a loan, or choosing between a variety of mobile phone plans.
IF IT’S ON TIKTOK, THEN IT MUST BE TRUE?
The need for financial literacy is especially acute for Generation Alpha, born between 2010 and 2025, as they navigate a fully digital world. It is estimated they will eventually make up the largest generation ever with around 2 billion members.
They are the first generation to have grown up in a fully digital world - to them, “apple” isn’t just a fruit, it’s also a device for them to chat with their friends, watch social media clips and play games on.
Mostly the children of millennials, Gen Alpha is on track to be the richest generation ever as huge intergenerational wealth transfers take place, and Asia is at the centre of that. According to McKinsey, the Asia Pacific region accounts for around 42 per cent, or US$218 trillion, of global wealth. As the younger generation inherits family money, the greater their spending power will rise.
Growing up in a world where digital payments and cryptocurrencies are increasingly common, however, Gen Alpha may have less tangible experience with physical cash and may struggle to understand the value of money.
Their affinity for digital platforms may also make them susceptible to online financial influencers or “finfluencers”. These social media influencers have a massive following: On TikTok for example, among the most famous finfluencers are Humphrey Yang with 3.3 million followers, Tori Dunlap with 2.2 million followers and Taylor Price with 1.1 million followers.
The influence such personalities wield can help raise awareness about finance, but because they are largely unlicensed, they may not be equipped with adequate knowledge, or they may be paid to promote certain products.
Scrutiny around finfluencers is strengthening. In the United Kingdom, the Financial Conduct Authority and the Advertising Standards Authority have teamed up to warn finfluencers of risks of promoting illegal “get rich quick” schemes.
In May, Australian online personality Gabriel Govinda was sentenced to two and half years’ jail and fined for market manipulation and “finfluencer conduct”.
In a first in India, the Securities and Exchange Board of India recently fined well-known YouTuber PR Sundar, a math teacher turned online trading guru, for investment advisory activities.
How should students be taught about financial literacy? Listen to Daily Cuts:
Meanwhile, easy access to credit due to fintech advancements also presents its own challenges, potentially hindering Gen Alpha’s ability to learn saving habits and avoid debt.
And of course, this generation faces unique economic uncertainty. A looming global recession, inflation, the COVID-19 pandemic and technology disruptions in the workplace all make it harder for them to plan for their financial future and understand the importance of financial resilience.
ASIA, PRIME TESTING GROUND FOR YOUTH FINANCIAL LITERACY PROGRAMMES
Home to 60 per cent of the world’s youth population, Asia has an undeniable imperative to get financial literacy education right. The stakes could not be higher.
Many people lack basic knowledge of financial concepts such as budgeting, saving, and investing. According to a 2015 survey by Standard & Poor's Ratings Services, two-thirds of adults worldwide are not financially literate. The study, involving more than 150,000 adults, gauged their understanding of financial concepts such as inflation, interest rates, and risk diversification.
This is intrinsically tied to the scarcity of financial education in schools, compounded by a dearth of resources and qualified educators to impart financial knowledge and skills.
Also, in the fast-growing Southeast Asian markets, demonstrating social status through conspicuous consumption is highly valued, particularly for the emerging middle classes. The pursuit of luxury items or extravagant experiences, driven by a quest for social validation, can jeopardise prudent long-term financial planning.
There is also the issue of limited access to financial services. Globally, about 1.4 billion adults do not have bank accounts, impeding their ability to save, invest and manage their money effectively.
The question of where to start educating our young on financial matters reminds me of the line by Desmond Tutu: “There is only one way to eat an elephant, a bite at a time”.
BUILDING THE VILLAGE
Moving the needle on financial literacy will truly require a village. Non-governmental organisations (NGO), the private sector, policymakers and the wider community all have a role to play. But things are moving in the right direction.
In Indonesia, the Financial Services Authority (OJK) last year launched the second pillar of a five-year strategy to improve Indonesian financial literacy, focusing on utilising digital technology and strategic alliances to expand access to inclusive financial products and services.
In Malaysia, the government has set out a five-year roadmap to implement long-term financial education policies and initiatives under the National Strategy for Financial Literacy (2019-2023).
Companies across Asia are also making efforts towards enhancing financial literacy among young people, starting in schools. In January 2022, our NGO launched a programme with insurer FWD, working with primary schools across Asia to give students access to volunteer-led financial management lessons.
Games can play a pivotal role in imparting these principles. Visa and Kuala Lumpur-based financial literacy provider GProvision have developed a mobile board game app replete with real-life simulations to encourage Malaysian youths to learn financial concepts. Similarly, Alliance Bank Malaysia is using a comic book competition to teach kids about financial literacy.
Parents also play a crucial role, because for financial literacy to really take root, it needs to be successfully modelled at home.
The juncture for meaningful change in financial education is ripe. Given the unique economic environment and accelerating digitalisation, Gen Alpha may be the first cohort to fully realise this potential.
Kirk Kenny is Chief Development Officer for Junior Achievement (JA) Asia-Pacific, an NGO dedicated to preparing young people for employment and entrepreneurship.
