Tuesday, November 23, 2010

Personal Finance Part 20 – The Curious Case of Financial Literacy in Singapore

Perhaps I’ve been harping too much on this issue in my monthly portfolio ramblings, but it just occurred to me that Singaporeans (the youth in particular) are either becoming more and more ignorant of financial matters, or that it has been the case all this time but no one bothered to bring it up to the forefront for discussion. After all, financial literacy can be considered a critical life skill which most young adults (and I dare say even teenagers) should grasp as early as possible, in order to cement their views on spending and saving and to inculcate positive values within them regarding money management. Yet, it seems that many schools are not teaching such topics to students, and many parents also neglect to talk to their children about proper money management. This has resulted in many Singaporeans not even grasping basic financial concepts such as interest rates, investments, savings and rates of return.

Our local newspaper has been highlighting the effects of the lack of financial literacy for quite some time now, and the evidence stems from the fact that such a large group of people have been conned into scams such as Oilpods and Sunshine Empire. It may sound amazing that people out there can promise returns of 10% to 20% per month, but it strikes me as even more amazing that there are people who can actually believe such tall tales! Another phenomenon which has been making its rounds recently are the myriad “investment” seminars out there which can purportedly teach you how to generate unlimited and consistent passive income and to make huge percentage profits using just a small capital base. Simple common sense and logic should tell one that if such schemes were really true, then the operators would have resorted to using it themselves to get filthy rich, instead of “altruistically” wanting to share it with the general public for a “low fee”. Sadly, common sense is becoming less and less common these days.

But what is the cause of this seemingly pervasive lack of financial literacy and common sense? For one, schools are ill equipped to discuss and teach this topic as they claim that each individual is different and so will need to be taught differently on how to handle money in their own way. While this is true, I argue that there are many general principles out there which are applicable to every man on the street, regardless of his social status or wealth level. Simple concepts include the effects of interest rates, paying yourself first and compounding of one’s money; and these can be effectively introduced in schools at primary level to inculcate the right values and practices in children. As they progress on to secondary and tertiary education, more emphasis can be placed on broadening their understanding of financial concepts such as investments, equities, bonds and fixed deposits, to name a few. In other words, the Government should take a pro-active stance to introduce this curriculum into the mainstream so as to dispel the cloud of ignorance currently hanging over every child. It is not enough to just have initiatives such as MoneySense or IM$avvy, as these are targeted mainly at adults who may already have ingrained ideas which are difficult to alter.

Another area which needs to be worked on (and is admittedly tougher) is that of the family unit. Families are somehow reticent when it comes to discussing financial matters in detail, and most parents do not wish for their children to know their true financial situation. This could stem from a conservative belief that if a child knew how much their parents were worth, they would, at best, become lazy and corpulent (knowing that their future would be paid for); or at worst, start plotting to siphon off the family’s fortunes to be used for his own selfish reasons. Hence, talking about family finances and the proper handling of money is somewhat of a taboo subject in Singapore, and remains so even as the Government and society tries to open people up to being more financially savvy. It is therefore not surprising that those families which discuss money matters with their children at a young age and educate them on the importance of the value of money usually result in offspring which are not just savvy about money, but who are also aware of the importance of saving and investing instead of going on a bling-filled binge.

By chance, I have come across blogs written by late teenagers and young adults ranging in age from about 18 to 24. Most of them smack of materialism and peer pressure and talk a lot about material possessions and being “hip and trendy”. It is a sad facet of our society if these young adults grow up to be spoilt brats who cannot manage money, and who may end up with huge debts as their ideas on money are flawed. I am not exaggerating when I opine that this may turn out to be a major social problem two to three decades down the road, as such a cavalier attitude towards money may result in dysfunctional families and broken homes as many struggle to save for retirement.

What can be done for financial literacy? All is not bleak, as there are many instances where help is rendered for those who wish to know more. As previously mentioned, there are schemes such as IM$avvy and MoneySense by MAS which provide a wealth of information on financial matters. SIAS also regularly organizes free seminars to educate the general public on money matters and investments, and these are truly helpful and informative. New families should also be aware of financial matters and educate the next generation accordingly, and there are numerous websites which offer practical suggestions on how to slowly introduce the topic of personal finance for young kids.

Perhaps the battle for financial literacy may still be won, but it would take considerable effort on the part of educators, the Government and the individual. Still, this is a key life skill and therefore, it is best that it not be compromised or else the consequences would be devastating.


E said...

Thanks musicwhiz for sharing. I'm 24. I feel many people either have not thought of it or worse still, refuse to do something about it. And the problem just balloons. For the savers, some are contented to leave their money in banks as they don't have the time or are just not interested in doing something more worthwhile.

It's certainly an entrenched problem that will not go away easily.


Anonymous said...

Hi Musicwhiz,
Thanks, fantastic sharing.

Money lesson 101 for our son

We let our son learned how to handle money since Pr. one. We remembered we purposely gave him pocket money more than enough for his recess to buy food.

And guessed what was the outcome?
One day he would buy 2 extra rulers.
Another day he would buy 3 extra pieces of eraser.

But we were not angry with him.
Our purpose was to let him see how he "used" his spare money.

We impressed upon him money is a limited thing. We explained to him an extra ruler or rubber was of no use to him.
We told him it was alright to spend the money.But we asked him did he want to spend his money on something he did not have now? Something new he could use or an ice-cream he could enjoy?
We were trying to teach him the value of money and how to use it appropriately.
We remembered he stopped the habit of buying extras.

The next money lesson we taught him when he was still in Pri. School was saving his money. My wife opened a joint POSB Saving Book Account with him.
To encourage him to save we told him we would match every penny he managed to save and bank into his "account".
Of course from time to time we let him see how much he has saved; How much his money has grown.
This encouragement method of saving continue till Secondary one or two.

There were just too many "Money lessons 101 that we shared with our son to describe.

To summarize my sharing, we should teach our children from very young about how to use money. But let me warn you when children reach the age of ten or so they learn more from watching how you use money rather then hear from you how to use money.

Even now if I want to buy a "Big Mouth Woman", I have to consider how to explain to him why I can't just buy a "Toyota Vios"
Believe me, he will ask why?
He is just going to complete his national service.
He is 22 years old.
Cheers & Shalom.

Musicwhiz said...

Hi Eugene,

It's good that you are aware of this and are actively working towards enriching yourself with knowledge. I feel your age bracket (20-29) tends to show the most signs of over-spending and materialism, though my age group (30-39) comes close as well. Perhaps it's the status of Singapore as a wealthy nation which makes everyone constantly compare, which is a sad consequence.

I believe the problem may only go away if we have to go through a protracted and painful downturn...not unlike what USA has gone through from 2008 till now.


Musicwhiz said...

Hello Temperament,

Thanks for sharing too. Yep I am aware of educating children from a very young age on handling money and finances, and I've read some magazines on this as well. I can safely say that when I was young, I was not taught proper money saving and management skills and I've had to pick them up when I was much older (early 20s!). So it's very fortunate for your son that you and your wife were there to guide him at infancy.

And yes I do agree children tend to emulate their parents' spending habits, though I've seen cases where parents are frugal but the child is a spendthrift. Peer pressure plays a very strong part in this as well, and the person's own value system too. If he places material possessions such as a gadget or car above being frugal and simple, then it's pretty hard to convince him otherwise. This boils down to whether such values can truly be inculcated or are already part of one's psyche at birth - the classic Nature versus Nurture debate! I for one believe we can educate our youth to become more responsible with money, but it needs a concerted effort from government, family and friends to achieve this.

Sadly, peer influence these days is probably going to do more harm than good, with more young adults rolling over their credit card balances, spending more than they earn and purchasing items they don't need. So I guess it's still family influence which is the most important and pervasive.

Kudos to you! And please do continue sharing, thanks!


Anonymous said...

HI Musicwhiz,

Yap, peer pressure is very difficult for a teenager to overcome. My son really took some time to overcome it. I bet even some adults still struggling with peer pressure.

Peer Pressure
I remembered my son was in secondary one or two and he came home after school almost daily telling us about some of his class-mates boasting and showing of their latest gadgets that had all the latest features.

One day he requested to change his phone also.
We had to explain to him what his class-mates were actually doing.
It was the same as adults trying to keep up with their neighbours.

Besides chasing the latest features of a handphone will never end. There is always new or better features the next moment.

I said, "Look, I like to drive a Mercedes or BMW too. And change car as often as one or two years".

The most important things do you really need or use all the new features? Or it's just for boasting to your class-mates only?

So he listened and did not change his phone.

But when my or wife's hand-phone service contract expired, on re-contract, M1 will reward us with a "free phone" or we can choose upgrade to latest phone with all the "extra features" after paying with some moola.

And guess what my son did?
He would always ask to see what did we choose. A "free phone" or we spend some money to get the latest phone with all unnecessary features which we don't need.

Of course, we always choose the "free phones".
After watching us with several "free phones", my son really, finally overcomes "peer pressure".
Not only this, he overcomes "daily
advertisement pressure also".
Which even some adults will not be able to resist.

By the way he is 22 years old now, and he has not change his hand-phone for more than five years; Even when there is a "free phone" available on re-contract, he does not want to change.

I have been also talking to him about stock investment whenever there is an opportunity.

In fact, instead of giving him money on his 21st birthday, I transferred 2 lots of SPH and my wife transferred 2 lots of SGX to him.

And he was very "lucky" because I help him to purchase 2 lots of SPH@$2.50 using his savings.
I think @$2.50,is SPH ten years historical low.

Now he learns he has "passive dividend income" averaging $100 per month.
Shiok, isn't it.
Ha! Ha!

dreamer1213 said...

thanks Musicwhiz for this article and to temperament for your sharing. my toddler is 3 and i am beginning to think about how to teach her about money management and all this sharing is good building blocks for me :)

Musicwhiz said...

Hello Temperament,

Wow interesting and educational story you have told about peer pressure, and thanks for the sharing! It would seem that peer pressure is truly pervasive, ranging from the joining of gangs (to belong) to owning material items (gadgets, cars etc). I dare say some adults grow up feeling peer pressure all the time, and most succumb to the stress of conforming to what their peers have, even though it may be superficial and "fake". Somehow for an industralized nation like Singapore, materialism and consumerism become more and more entrenched within the population. Many teens and young adults these days are spoilt silly by their parents (I've read news reports) who use their wealth to shower their kids with material items. Such kids grow up with a distorted view of the world and think that money grows on trees....

Interestingly, my mobile phone is also about 6 years old and even though I am up for re-contract, I don't see the point of getting a smart phone with features which I would hardly use.

As for "gifting" shares to your son, I think it's probably the best gift a parent can give to their children, for it assures them of a constant stream of passive income!

All I can say is wow, you guys have done a fantastic job of educating your son in being frugal and careful with money. Keep up the great work!


Musicwhiz said...

Hello dreamer1213,

Haha yes I am also thinking of how to start educating my young child on handling money. Let's all learn and share together! Thanks!


Anonymous said...

HI Muzicwhiz & dreamer1213,

I am glad my sharing is helpful.
You see at the age of 40 then we have our son.
So we have advantages of life experience to teach him.

"Good judgement comes from experience. Experience comes from bad judgement".
Shalom to you all.

Musicwhiz said...

Hi Temperament,

Yes, it's very helpful indeed. Thanks once again and appreciate your visiting my blog!


JW said...


"Interestingly, my mobile phone is also about 6 years old and even though I am up for re-contract, I don't see the point of getting a smart phone with features which I would hardly use."

Did you sign up for Singtel recontract plan (if you are with Singtel). You can use the same plan and phone with a $8 monthly rebate. And you can upgrade your phone anytime you wish with Singtel without penalty. There's a penalty if you jump to other telcos, which is to pay back the amount of rebates that has been give.

Musicwhiz said...

Hi JW,

Yes I am with SingTel but I did not know about this rebate thing. Let me go and ask them about it at the Hello! store, cos I think my plan is up for re-contract!

Thanks so much for the money-saving tip!

Take Care,