Friday, December 15, 2006

financial ignorance and education

Some of us have been talking about the "middle class squeeze" in the plogosphere recently, and I personally find myself agreeing with Ben and the KTM that perhaps the issue is just poor spending habits (or unrealistic expectations on the quality of living) of the middle class. Identifying the problem is one thing, but addressing it is another. KTM's post had a link to a post by Aaron on financial education, and this reminded me of my own situation several months ago and a conversation I had with a colleague.

My colleague was complaining to me that schools in Singapore teach kids what they do not need for the rest of their life (such as calculus, chemical bonding and the photo-electric effect), but what they do need for the rest of their life, they do not teach. He was talking about financial planning and management. Quietly embarrassed that I know nothing about financial management myself (but without admitting it to my colleague), I went to the library later that week to borrow Rich Dad, Poor Dad by Robert Kiyosaki, the supposed best seller on financial management [the book also has come under much criticism. Such as the personal anecdotes used in the book could have been fictitious]. Finding the book interesting but not informative enough, I borrowed Dollars and Sense by Margaret Allen (2001 Times Editions), which focused more on Singapore financial planning, which I found very informative but perhaps not the most updated with regards to the latest changes in taxes and CPF.

The first question: Is financial planning important? Well yeah, it is. I believe that it is careful financial planning which allows you to realize the importance to moderate your spending habits. It is financial planning which allows you to realize how feasible, how long it will take, and how much you need to save to pursue that dream of 5Cs or an early retirement. It also reduces the probability that you run into debt. On a larger scale, if the middle and lower income groups exercised careful financial planning and management, perhaps some they wouldn't be in their current predicament now.

The second question: If it was so important, why are so many people (including myself) so financially ignorant? Um...because nobody teach? If I were to speculate a guess, it is because "financial education" does not form our traditional sense of education. And also perhaps, some of us carry the mentality "as long as I study hard, get a job, work hard, everything will turn out okay". I don't know, really. I do think however, that Aaron's suggestion that the government deliberately wants us to be financially ignorant because debt is better for the economy, is unlikely. If so, the whole moneySENSE initiative would be difficult to explain.

The third question: so how do we improve the situation? Like Aaron, I believe the most direct solution lies in education. I have no idea how successful the moneySENSE initiative is (perhaps it is too early to tell?), and I am aware that the initiative includes educating the young, although I do have no idea what that is like on the ground (perhaps my readers who are teachers can enlighten me?). My concern is that, if financial education is taught to the young on the fringe (such as in civics and moral education), students won't take it seriously. Did any of you take civics and moral ed in school seriously? I know I didn't. Students are probably too young to realize the practical importance of financial planning, so I think if we are to be really serious in financial education, we ought to dedicate a mandatory school lesson to it, not unlike home economics, music or design & technology (technical).

The fourth question: what would financial education look like? Please note that I am no expert on pedagogy. I'm here only presenting a raw idea on what in my opinion would be the important aspects of financial planning we need to educate the young with and how we may achieve that most effectively.

When should financial education be taught? When I was in primary school, we had some program by POSB to promote saving money. Although that would probably qualify as financial education and is probably a good thing, it is not just learning to save, but learning how to spend. I think learning that requires some maturity and intelligence, so I would think that it would be more effectively taught in JC, or upper secondary. Not everybody goes to JC; in fact, some might say that it is precisely those who don't go to JC that needs financial education the most. So necessity dictates that it be implemented at secondary school. Maybe necessity might also dictate that it be implemented in lower secondary, since upper secondary syllabus might be totally dedicated to preparing for O and N levels. I'm not sure, but personally I would prefer it being taught as late as possible (and hence closer to the time they actually start working and earning an income).

What would the financial education syllabus look like? I think we've got to make it exam based so that students actually bother studying about it. That said, if it is something we want to drill into young students, we must be very careful that we don't co-laterally drill something detrimental into young impressionable minds, such as perhaps, an unhealthy desire for the accumulation of material wealth (i.e., we don't want to end up teaching our students to be greedy). In fact, a good financial education must not just address technical issues such as interest rates, CPF policies, insurance, credit cards, income VS expenditure etc., but also a certain amount of values education, such as perhaps emphasizing that there are some things that money cannot indeed buy (family, friends, passions and dreams) and that also that a blind pursuit of materialism will probably bring more pain than pleasure. Keep in mind, this is just a very raw idea; how exactly do we package this into something which is workable, is something which I cannot supply right now.

The fifth question: what are some possible problems with financial education? I am not sure what ALL the possible problems could be, but I can think of at least two. Firstly, the possibility with encouraging students to be greedy and materialistic, which in the long run might actually worsen the problems of bad financial management. Secondly, parents might not like the idea. Perhaps they would rather their children spend their time in school practising more math problems or something.

Of course, until MOE actually implements something like that, this is just all kopi-tiam talk. The really pertinent issue is this: if you are parent, do you think you need to educate your child in the skills of financial planning to ensure the greater probability of success for your child's future? If so, what and how will you teach your child? And do you know how to impart the necessary financial skills to your child without encouraging greed and materialism?


Aaron said...

Of course the government doesn't want citizens to go into debt in the political sense. From the economic standpoint, it is good to have debt because otherwise, the circular flow of money is going to slow down considerably. Of course, making a public statement that debt is good is going to be political suicide, while implementing moneySENSE is politically beneficial. Like you, I do not know the syllabus of moneySENSE, but I guess we have to look at the next decade or two to see if it is really that sucessful.

As for what should financial education look like, my sense is that the first lesson should be that wealth is a function of expenditure, not income. A spendthrift with a high income is unlikely to end up being wealthy, while a thrift with a moderate income can quite likely be rather well to do.

The second lesson is to understand the double edged nature of interest. Interest can make you poor, or even bankrupt. However, it can also make you rich too. The key is to understand how it works, and then to harness it to our own advantage.

The last lesson is to know the various forms of investments available and their associated characteristics. Liquidity, risk and returns are the basic knowledge requirements of any investment. I do not profess to be an expert, which is why I prefer to leave the details to my financial planner but I make sure I know enough to grill him with the right questions to make sure that things are going fine.

While Rich Dad, Poor Dad is an interesting starting point, I would suggest you pick up an elementary text on finance in general to learn about the different kinds of investments available. I recommend finance books over personal finance books because they usually cover a wider range of topics. You can always exercise your own discretion on what you think is best for you. Clementi Book Store (near the MRT) has a wide range of academic texts and I believe you can find a couple of good introductory finance text written by finance professors.

kwayteowman said...


There are two kinds of debt. There is corporate debt (which provides leverage) and personal debt (which often drives people to bankruptcy). It is probably prudent for us to cut down on the level of personal debt.

Fearfully Opinionated,

This piece is good and it set the KTM thinking about how to teach financial planning. One idea came to the KTM. There is this game called "Cashflow 101" by Robert Kiyosaki.

Primary schools should perhaps buy this game and let their kids play it after the exam period (when they dunno what to do with the kids). A school came under fire recently for encouraging students to bring DVDs to watch during the said period. :-)

Aaron said...


I was referring to debt as per my original article, which was dealing with personal finance. My definition of debt is thus in that context. I agree that corporate debt increases leverage while personal debt drives people to ruins, but either way, the financial institution providing the loan benefits by earning interest, which can be used to loan out even more money to generate more interest, just that perhaps the scale is much smaller for personal debt compared to corporate debt.

I never played Cashflow 101 because I understood the basic principles of personal finance management before I know of that game. From what I've heard, it's not too bad.

If only someone can invent a high tech investment game, with the ability to invest a hypothetical sum of money in different kinds of monetary instruments, and complete with market booms, crashes and all. That would be interesting. Unfortunately, I'm not into programming. :(

simpleperson said...

Of course, nobody wanted to be in debt. But has anybody looked carefully WHO are in debt. Even if one try to live within their means, there are always state mechanisms that force you to somehow borrow money. Look at the housing loans. The amount of debt keeps people off politics, it make people worry about their day to day struggles with getting more money. The government wants the majority of the people to be financially ignorant and lacking in financial education. Debt problems have been around for a very long time, scholars would have seen them but they have not taken steps to ensure the majority of the people has sound financial foundaton.

On another note, after reading your "rants", I noticed that you do not allow anonymous comments on your blog after the "rant" posts. I, being not a deep thinker as some bloggers here, do not understand this action that you have taken. Is this a preventive step for those anonymous "mean comments" not to repeat again in your blog? I cannot understand this as you may not receive diverse views from people of different backgrounds ...

Aaron said...


Allowing only registered users to comment prevents spamming and trolling. If anyone is really interested in a honest discussion, what's so difficult about registering? I host my own blog outside of blogspot but I don't see it as a hassle to register an account to contribute to a meaningful discussion (I hope I do contribute).

simpleperson said...

Dear Aaron,

Thanks for your kind reply.

Yes, "spamming and trolling" are definitely good reasons to block anonymous comments. What am I concerned is his timing of the sudden blockage after receiving one "comment"? I do not understand this action.

Are there any useful message that he would like to convene to the blogosphere about people leaving anonymous "constructive and negative" comments?

Just being curious, but he need not response actually. I can understand.

piper said...

I fully agree that financial literacy should be taught in schools. You should see how irresponisbly students (at least in my school)handle money. I once did a short exercise with my class whereby they listed their expenditures and savings and most of them spend way above their allowances, taking money from their parents (who often fail to pay their school fees because of a lack of money).

But then again, many teachers are not financially literate themselves so how to teach their students? Heck, I don't know much myself!

Fearfully Opinionated said...

Dear all,

probably no one is still on this thread, but I thought I'd make a reply for the sake of closure. Sorry for not replying. I've been busy the past couple of days, and when I was online, my mind wasn't really on the issue of financial planning.


I am no economist nor am I a civil servant who knows the goings-on behind moneySENSE. Therefore I am in no position to gauge whether or not moneySENSE is indeed nothing but one big wayang show. My personal impression is that it is unlikely, but you are of course, free to draw your own conclusions.


I actually heard from my friend that Cashflow (the version for adults) is actually quite a horrible game. I think Aaron's idea of custom-making a computer game is not bad. I know some schools are throwing a large budget into developing IT-based learning.


Sorry to disappoint, but my decision to disallow anonymous comments has little to do with that previous comment you mentioned.


According to the minister of education, moneySENSE is already implemented in schools. Is your exercise to list expenditures and savings part of that initiative? I am curious to know what schools are CURRENTLY doing for financial education.