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Financial literacy vital to achieve high income statusThe Star Online - The psychology of spending by Carol Yip

By Carol Yip
Saturday 26th June 2010

THE first report on the New Economic Model (NEM) for Malaysia presents a clear message for radical change in our approach to economic development. The stated goal is to enable Malaysia to reach high income status by 2020.

The National Economic Advisory Council, which came up with the report, recommends that businesses must heighten their appreciation of people as valuable assets that they must collaborate actively with to make Malaysia a sustainable and vibrant nation.

However, the recent announcement of likely subsidy reductions on essential items has raised the spectre of many Malaysians experiencing an increase in inflationary pressure. While there is much commentary in the media focusing on how to help the poor, the aged and middle-income wage earners, we need to collectively and individually solve the problem so that we can speed up the process and reach these goals as a society. The year 2020 may seem a long way off, but nine years is not a long time to achieve these lofty NEM goals.

The Government cannot expect Malaysians to continue showing excellent work performance to contribute to economic growth when we experience personal financial stress in our day-to-day lives. Unless we have salary increases that align with living costs and the Government heightens its efforts to work with the business community, things may stall.

Without the financial security and benefits as envisioned in the NEM goals of “inclusiveness” and “sustainability” to improve the rakyat’s quality of life, the majority of our society will continue to experience a bleak financial future, culminating with an unsustainable retirement.

Stuck in the middle income trap

While the Government is trying to put things in order to help us get out of the middle income trap to reach a high level income society, there is still a missing link. We need to start looking into a national strategy to help Malaysians improve their personal financial literacy and develop the necessary skills to keep their personal financial matters in the proper perspective.

There are several transitions that Malaysians must navigate through as they grow from children, through wage-earner, on to retirement. Each stage requires an understanding of personal financial matters that are sorely lacking in most of us.

Financial literacy is important to everyone. Financial stress is not biased based on race, age, gender, marital status or different income groups. Just because a person might be below the middle-income group doesn’t mean he or she may need financial education more than others. Just as likely, the children of wealthy parents need to be educated to maintain family wealth. Similar to reading and writing literacy, financial literacy is necessary to all. When a nation has a high level of financial literacy, it is easy to promote healthy financial ethics and values across different generations, from young to the old.

What other countries are doing

In 2008, the Organisation for Economic Co-operation and Development (OECD) launched the International Gateway for Financial Education to serve as the first global clearing house on financial education. It seeks to raise awareness to ensure wide dissemination of research, best practices and guidelines and build a worldwide network of government stakeholders on financial education. Several countries, most of whom are members of the OECD, have developed and implemented national strategies on financial literacy:

Australia: In 2005, the government established the Financial Literacy Foundation (FLF) to implement a national literacy strategy. The FLF worked to integrate financial literacy into the educational system, to develop resources and support for teachers and to provide financial literacy materials for the workplace. In July of 2008, all of FLF’s functions were transferred to the Australian Securities and Investments Commission, in order to consolidate the Australian government’s financial literacy response under the Commission and to strengthen its role in safeguarding Australia’s economic reputation and well-being.

New Zealand: A crown agency, the Retirement Commission, led the development of New Zealand’s National Strategy for Financial Literacy, in 2008. The New Zealand Retirement Commission also created “Sorted”, an independent government-funded organisation dedicated to helping New Zealanders manage their personal finances, throughout their lives. In 2009 the Ministry of Education also took over all responsibilities for financial education in schools.

Singapore: The national financial education programme MoneySENSE was launched in October 2003 to bring together industry and public sector initiatives in financial education, to create a long-term sustainable programme to enhance the basic financial literacy of Singaporeans. Through its national MoneySENSE programme, the Singapore government continues to support initiatives that enhance the basic financial literacy of consumers.

The Netherlands: Under the working title CentiQ (Sensible with Money), around 40 partners from the financial sector, the government, information and consumer organisations and science centre signed an agreement in 2006 to work together on financial education. Together, the partners carry out a strategic agenda that includes programmes and projects aimed at improving the financial knowledge and skills of consumers and stimulating an active attitude, so that consumers can make conscious financial choices and become financially competent.

Getting our house in order

Malaysia shouldn’t be left behind. We need a concerted effort to create a national financial education blueprint. Let’s start transforming the nation with a new attitude and mindset by emphasising building a “made-in-Malaysia” financial education programme in schools, tertiary institutions, workplaces, community centres and NGOs.

There are some stakeholders who are already educating different parts of our society according to their core business objectives. A central regulatory body is required to consolidate existing financial education programmes and be the centre of influence to create a national strategy to improve the nation’s financial literacy level based on sound ethics and core values, and in line with the NEM goals.

Carol Yip is a personal financial coach and also founder and CEO of Abacus for Money

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